The regulation of the Branch Offices and Commercial Representative Offices Act CXXII of 1997 must be respected during the commercial activities carried by the branches of foreign companies. The main difference between a branch and a legal entity is that for all the actions of the branch the foreign company is responsible and only certain activities can be performed by branches without the approval of the parent company. Actions like buying assets or shares from another company or branch must first receive the approval of the foreign company’s representative.
Parent companies must provide the necessary assets to the branches in order to perform any activities. When branches are requested to provide lists with assets, the properties of the foreign company are also included. Every year, the financial accounts of branches established in Hungary must be submitted along with the balance sheets of the parent companies.
A major advantage of opening a branch in Hungary is that it is not necessary to subscribe a minimum share capital. If the company is located outside EEA member states or no special treaties are signed, a permit must be received before registering a branch.Our team of specialists in Hungarian company formation can present more details on other requirements applicable to branch offices.
If the parent company enters the liquidation process and its assets must be seized, the assets of the branch are also subject to enforcement. The procedure is the same if the branch is subject to enforcement: the parent company’s assets may be seized in order to cover the branch’s debts. If you choose to invest in Hungary by expanding your company here, our team of local incorporation agents is at your disposal.
The procedure of registering a branch in Hungary
Before starting to operate in Hungary, the company must register with theCourt of Registration. Unlike local companies, foreign companies must present many more documents at registration. A dossier must be prepared and it must contain the documents presented below; more information on these papers can be provided by our team of consultants in company registration in Hungary:
•the standard application and the certificate of registration of the foreign company;
•the certificate of the share capital, as well as the memorandum and the articles of association of the parent company;
•the decision of opening a branch and a list with the directors and the secretary, as well as the registered address of the parent company;
•the name of the branch and its registered address and the name of the representative appointed with power of attorney;
•the specimen of signature for the person responsible with the branch’s decisions.
The Court of Registration will issue a certificate of registration, necessary to register the branch for taxes and VAT. Also, if the branch has any employees, the social services must be announced regarding the incorporation of the branch. The process of opening a branch in Hungary doesn’t take longer than five working days if all the documents are in good order and are deposited on time.
For more on how to open a branch in Hungary, please watch the video below:
What are the tax regulations for Hungarian branches?
Given the fact that a local or foreign company will set up the branch office with the purpose of developing a commercial activity, this will create certain tax obligations for this company type. Foreign businessmen who want to open a Hungarian companyshould be aware that the branch office is liable to local taxes in accordance with the accounting regulations available in Hungary.
For this purpose, one should become familiarized with the regulations prescribed by the Hungarian Accounting Act, which presents the tax obligations imposed to branch offices set up here by foreign companies. A detailed presentation on this law can be provided by our team of consultants in company formation in Hungaryas well, who can also provide you with accounting services.
From a taxation view point, the branch office will be treated as a permanent establishment in Hungary, which means that the entity will only be liable to local taxes for the income obtained in a financial year from the business operations developed in this country.
The branch office set up here must also register with the National Tax and Customs Administration, an institution which will issue a tax identification number. Being registered for taxation purposes means that the company has to maintain certain accounting documents as per the applicable legislation.
Here, those who open a company in Hungary (as a corporate body or as a branch office) are obligated to maintain double-entry books and during the financial year, they have the obligation to complete and publish various accounting documents, such as the annual accounts or the simplified annual accounts.
A branch office in Hungary is also liable to the payment of the corporate income tax, which is calculated based only on the overall income obtained from the activities carried out here. At the moment, the corporate income tax applicable here is charged at the rate of 9%. We invite investors to request in-depth information on the current taxes applied to branch offices from our specialists in company registration in Hungary, who can help you throughout the entire tax registration procedure, as well as through the process of opening the branch office.
What is the data on foreign companies in Hungary?
Typically, foreign investors prefer to set up here a limited liability company or a joint stock company. However, common ways to open a company in Hungary as a foreign investor are represented by the branch office and the subsidiary, these being types of entities that are regulated by the national commercial law for the purpose of expanding a local or a foreign business on the local market.
Foreign businessmen have to know that Hungary is one of the most important recipients of foreign direct investments in the European Union (EU); foreign businesses or foreign-owned companies operating here can be found in most of the economic sectors that represent the Hungarian economy, the following data being available:
• in 2016, the foreign controlled companies in Hungary accounted for 51,4% of the value added in the local economy (measured as businesses operating in the non-financial sectors);
• this meant that foreign owned companies in Hungary had the highest value in the local economy of a EU country, Hungary being the 1st economy in this sense;
• the EU average for the same index stood in 2016 at only 25%;
• in 2019, the foreign direct investment stock accounted for $97,841 million in Hungary, an increase compared to 2018, when the value was of $95,787 million;
• the value of greenfield investments, in which a foreign company starts an investment project from ground up, also increased in 2019 to $7,515 million, from $4,894 million in 2018, according to the latest data of the United Nations Conference on Trade and Development (UNCTAD).
The country’s main investors are from EU countries, with Germany as the main investor (accounting for 13% of all the investments), the Netherlands (10,3%) and Luxembourg (10,1%). Foreign investors interested in Hungarian company formation prefer to invest in the manufacturing sector (accounting for 38% of all the investments).
If you need more details in regards to establishing or managing branches in Hungary, please feel free to contactourcompany formation specialists. Our team of specialists can help you in all the steps related to the process of company incorporation in Hungary; you can also rely on our specialists for tax registration or for obtaining various permits and licenses necessary for certain business activities.