Setting Up a Subsidiary in Hungary: Step-by-Step Process & Benefits

Hungary, located in the heart of Europe, shares borders with Croatia, Serbia, Slovenia, Austria, Slovakia, Romania, and Ukraine. A business that wants to expand into Hungary gets access to a great market. That, along with Hungary’s booming economy and low corporate tax rate, provides great opportunities to businesses that want to invest there. 

However, setting up a business in Hungary requires company owners to abide by the local corporate rules and regulations. One of the ways to expand a business in the country is to set up a subsidiary in Hungary. Even though the process of setting up a subsidiary in Hungary can take up to a few months, it is a great way to expand into the local market of the country. In this article, we will discuss the different types of subsidiaries in Hungary, the benefits of doing so, and how to register a subsidiary company in Hungary. 

What Are the Types of Subsidiaries in Hungary? 

A subsidiary business refers to a company that is partially or completely owned by a foreign business. If a business wants to set up a subsidiary in Hungary, the first thing to learn is the types of subsidiaries in Hungary. There are several different structures for setting up a subsidiary business in Hungary. Like: 

• LLC or Limited Liability Company 
• Joint Stock Company
• Limited Partnership 
• General Partnership 
• Private Company Limited by Shares 
• Public Company Limited by Shares 

LLCs or Limited Liability Companies, abbreviated as KFT in Hungarian, are the most common types of businesses to set up a subsidiary with because of better benefits for both the parent company and the subsidiary company. In Hungary, a subsidiary company is given equal standing as domestic companies and is treated as a separate legal entity, and is subjected to local laws. The incorporation of a subsidiary of foreign company in Hungary is not very complicated. But depending on the type of business the parent company is, they can be subjected to different rules and regulations. 

How to Set Up a Subsidiary in Hungary? 

The process of setting up a subsidiary in Hungary will differ depending on the type of entity the company is. It also depends on which country the parent company is from. There are many different regulations to govern different types of businesses in the country. A business can get in touch with local lawyers or with an Employer of Record Company to set up a subsidiary in Hungary. However, the process of a subsidiary company formation in Hungary is simple. Here is a step-by-step checklist for incorporation of a foreign subsidiary in Hungary. 

• Deciding on a company structure: The first thing a business needs to do to set up a subsidiary in Hungary is to decide on what type of subsidiary structure it wants. It could be an LLC, a Limited or General Partnership, a Joint Stock Company, etc. Most businesses set up an LLC because it’s the most beneficial for both the parent and the subsidiary companies. 
• Obtaining a business address: A subsidiary company needs its own local address in Hungary as it’s a different legal entity than its parent company. Businesses need to set up an address in Hungary and prepare the necessary documents for registration of the same. 
• Local legal representation: Any subsidiary company in Hungary needs local legal representation. A business can choose to hire a local lawyer or a law firm to help with its legal processes. 
• Registering for commercial license: The Hungarian Ministry of Economy requires subsidiary businesses to register for a commercial license with them. A business needs proper documentation for registration as well. 
• Depositing share capital: Opening a bank account with a local bank and depositing the appropriate share capital amount into it is a crucial step in subsidiary company formation in Hungary. 
• Registering the Company: A business must notarize all necessary documents for registration at a local notary’s office. Then it can be registered with the Company Registry. 
• Tax registration: A company also needs to register for a Tax Identification Number and a VAT number with the country’s tax authorities. 
• Registering in the municipality: Setting up a subsidiary company in Hungary also requires a business to register its business legally to the municipality at the Court of Registration. 
• Registering company address: Another important step in setting up a subsidiary in Hungary is to register a local address for the company. This has to be done through the Chamber of Commerce and Industry in Hungary. 
• Registering for a social security number: Finally, a company must register with the National Office for Health Insurance for a social security number. 

After completing these processes, the company will receive a certificate of registration, a Tax Identification Number, and a registration number, officiating the beginning of their subsidiary business in Hungary. 

Benefits of Setting Up a Hungary Subsidiary 

As a country with a lot of tax incentives and growth opportunities for new business entities, there are several benefits of a subsidiary company in Hungary. 

• If a company sets up an LLC subsidiary in Hungary, the parent company will be free from litigation and many other risks because of the limited liability. 
• A subsidiary company in Hungary will fall under the same tax rules as a resident company. 
• There are great industrial opportunities in Hungary. 
• The labor costs and administration costs are also low in Hungary. 
• Hungary boasts the lowest tax rates in Europe, which is beneficial for businesses that want to expand there. 
• State-of-the-art infrastructure in the country, along with an educated workforce, means Hungary offers businesses the best kind of resources available. 

Documents to Prepare When Open a Subsidiary in Hungary

There are a lot of necessary documents a company will need while setting up a subsidiary in Hungary. For the registration process, the parent company will need to provide A Certificate of Good Standing of the company, a Memorandum, and also articles of association. These documents have to be prepared and issued in the country of origin of the parent company. And since these documents might be in a foreign language, they also have to be translated into English and Hungarian for official purposes in Hungary. 

Hungarian law also requires the submission of signature specimens from the company’s representatives. The company will also need to sign a power of attorney. An official decision to open a subsidiary must also be submitted by the parent company to the Registration Court. All of these aforementioned documents need to be notarized by a registered notary in Hungary. 

What Business Forms Can Hungary Subsidiaries Take? 

There are many types of subsidiary business forms to choose from in Hungary. The most common one is the LLC or Limited Liability Company (KFT in Hungarian). In an LLC, the liability of the company is equivalent to the amount each shareholder has invested in it. It is also possible to incorporate an LLC with a single shareholder in Hungary. This is more suited for small and medium businesses. 

However, a big company will be more suited to a Public Joint Stock Company. Different types of subsidiaries will be suitable for different entities depending on the type of business, the scale of the business, and the country of origin of the parent company. 

Hungary Subsidiary Laws 

The subsidiary system in Hungary is controlled by a set of laws and regulations. But they are varied in nature and depend on the type of industry, the type of business, and the country the parent company is based in. LLCs are the most common type of subsidiary business entity in Hungary. An LLC can have only one member/shareholder, but they cannot be chosen through a public offering. 

The minimum investment capital amount is 3 million HUF ($8,139.36) for Private LLCs. Whereas for Public LLCs, the amount is 20 million HUF ($5,42,623.80). 

If the law requests and a company has more than 200 full-time employees, it must appoint a board of supervisors. The LLCs are also required to have at least one managing director. 

Post-Incorporation Compliance 

There are some mandates that a company must follow after setting up a subsidiary in Hungary. 

• The company representatives and shareholders need to have a Hungary-based address to receive official documents via post. If they are unable to do so, they must hire a service agent in the company to do it for them. 
• A bank account for the company must be opened within eight days of the subsidiary being successfully set up. The process must be completed by the company’s managing director.

Taxes on Subsidiaries in Hungary 

Taxes are an important part of opening a subsidiary in Hungary. The corporate tax rate in Hungary is 9% which is imposed on the company’s taxable income (Accounting profits). There are also deductible surtaxes on different business operations and industries. It is also important to remember that Hungary has the lowest corporate tax rate in Europe, making it an ideal place to set up a subsidiary. 

Companies also have to pay Value Added Tax or VAT if they want to set up a subsidiary in Hungary. The basic VAT rate is 27% in Hungary, and it is based on the buying and selling of goods. But at the end of the tax assessment period, the value of the deductible tax can be deducted from the amount of VAT paid. 

Tax Incentives for Businesses Setting Up Subsidiaries in Hungary 

Hungary has Double Tax Treaties or Double Tax Agreements with many countries outside the European Union. This means that businesses from these countries can avoid paying the international double tax if they set up a subsidiary in Hungary. 

The corporate taxation of foreign subsidiaries in Hungary is also the same as domestic companies. 

Other Important Considerations 

The registration fee of a subsidiary company in Hungary is 100,000 HUF ($271.62), which any company will need before setting up a business. But additional costs, such as hiring a law firm, hiring a notary, etc., have to be paid. 

The incorporation of a foreign subsidiary in Hungary includes lengthy legal processes and high costs. 

How Multiplier’s Employer of Records Can Help You Hire and Expand in Hungary? 

Setting up a subsidiary in Hungary is an intricate and lengthy process. But it also lets a business enjoy the same benefits as a domestic business in the country. But a third-party EOR service provider like Multiplier can ease the load of setting up a subsidiary in Hungary. Multiplier can take care of the payroll management and the hiring process and even ensure that the necessary documents and legal processes comply with domestic law. Multiplier can even help you set up a business in Hungary without needing to go through the process of setting up a subsidiary.