Situated in the heart of Middle Europe, Hungary is a viable place to establish a business. With a developed economy and excellent climatic conditions, it provides entrepreneurs with a lucrative opportunity to let their innovations spread their wings.
Hungary’s economy surpassed its start-up stage ten years back. Hungary now has an ironclad code of setting up a business for foreign nationals and entrepreneurs. Hungary has focused its business module on its social security systems catering to employers and employees with innumerable benefits, tax redemption, and severance pay. Even setting up a sole proprietorship in Hungary has become easy and hassle-free here.
Let’s read about how to register a sole proprietorship in Hungary alongside sole proprietorship costs in Hungary and other details.
Who Can Be a Sole Proprietor in Hungary?
A sole proprietorship means a single person is responsible for the organization’s welfare and growth and is the only one to profit from it. A sole proprietor has no legal identity apart from its company. Even if debts arise, the individual has complete accountability for their assets.
Individuals who provide different services like consultancy, managing accounts, and other services can opt for this business form. However, agricultural producers, lawyers, veterinarians, private patent attorneys, notaries, and others are not entitled to become sole proprietors in Hungary.
The Companies Act in Hungary helps regulate the main types of business in the territory. Anyone can be a sole trader in Hungary, irrespective of nationality, by fulfilling the above liability criteria. However, a foreign resident requires a residency permit to register as a sole trader in Hungary.
Benefits of Sole Proprietorship in Hungary
Here are the advantages of sole proprietorship in Hungary:
- Easy creation: Without any extra expenses, an individual can easily create a sole proprietorship in Hungary. They do not face any formalities or requirements, unlike corporations or LLCs.
- No separate tax filing: The individual must not file separate business income tax. Business income or business loss would be reported in the sole proprietor’s tax returns or at any tax paid at an individual level.
- Fewer formalities: Sole proprietorships only face a few formalities like annual reports or ownership meetings. Unlike corporations or LLCs, sole proprietorships in Hungary are devoid of intricate formalities.
Documents Required for Registering Your Business in Hungary
Here are some necessary documents for setting up a sole proprietorship in Hungary.
- Proof of paying the application fee
- Valid identity document
- Official address card
- Any documents regarding no criminal record of the individual
- Qualification documents to prove that the individual is qualified to be a sole proprietor in Hungary
- Personal identification documents alongside the residence documents
- Employment certificate (if any). However, it is unnecessary if the individual does not perform sole trader activities as a primary occupation.
Other Criteria for Registering a Sole Proprietorship in Hungary
Other than the criteria mentioned above to register a sole proprietorship in Hungary, there are a few more criteria one must look for to register as a sole proprietor in Hungary. They are:
- Instrument of the constitution or any standard form
- Declaration from the Tax Authority to get a proprietorship tax number
- Certificate of payment of administration fees or fees of disclosure
- Full details of the entrepreneur
- Companies that have earned up to 12 million HUF annually are VAT free. Others have to register for VAT.
How to Register a Sole Proprietorship in Hungary?
Here is a step-by-step method to register a sole proprietorship in Hungary:
Step 1: Planning
- Before an individual plans to start a sole proprietorship in Hungary, it is pivotal that they make a robust financial and taxation plan.
- Decide on the business activity before proceeding.
Step 2: Deciding income tax methods in the sole proprietorship
- Next, decide on a proper taxation method depending on your income and business activity. One has to choose from the below taxation categories. They are:
- Personal Income Tax (15%)
- KATA
- Average tax
- Also, apply for an activation code for the business.
Step 3: Starting the private enterprise
- Once the individual decides which tax to include, they must start their preliminary registration in NAVs customer services.
- A preliminary registration is needed in the Electronic Government Gate, requiring a government ID and a passport. This entire procedure is free of charge.
Step 4: Invoicing
- This step comes once the sole proprietorship registration is done on the NAVs database.
- The individual has to issue a paper invoice and report it manually into the NAV’s invoicing system.
Step 5: Open a bank account
- To have a valid business in Hungary, an individual has to open a bank account for sole proprietorship in Hungary itself.
- The Hungarian government has made it mandatory for sole proprietorships to open and maintain at least one bank account in the country. However, it is recommended that one must separate their private funds and transactions from commercial transactions.
Step 6: Finalizing the registration of the private enterprise
- Once the above steps are done, the individual has to register their business in the Local Chamber of Commerce of Hungary.
- This can be done both online and offline.
Conclusion
Setting up a sole proprietorship in Hungary is relatively simple. The method is easy and affordable by incorporating a few simple steps. As Hungary is now providing new opportunities for trade in collaboration with the European Union, foreign entrepreneurs are also very much interested in establishing a new business in Hungary.
In this case, Multiplier would be a great help for new individuals starting a business in Hungary. Multiplier helps manage payroll services and freelancers at ease. We also help you hire international talents by providing a one-click payment option that helps freelancers to manage their payments.