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Establish a Subsidiary in Hungary

Updated on Wednesday 28th July 2021

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Reasons for establishing a subsidiary in Hungary

 

Subsidiaries are forms of legal entities opened by foreign companies in order to perform commercial activities not necessarily in the same field as the foreign company. The main characteristics of a subsidiary in Hungary and the process of opening this type of office are presented in our scheme below.



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A series of treaties signed by Hungary that have as result the exemption or lower withholding taxes have a great importance as to why foreign companies choose this location to open subsidiariesOur team of consultants in company registration in Hungary can present the main treaties available in this sense. 

 

 

Legislation for foreign investors in Hungary

 

For example, Hungary has adopted the EU Parent-Subsidiary Directive which allows the exemption from the withholding tax on dividends paid to a company based in a EU country. If the company is not situated in the EU, it can still have privileges granted by the many double tax treaties signed by Hungary across the years (more than 60). These treaties provide an exemption on corporate taxes or their refund in Hungary and lower or exempt withholding taxes on dividends, interests and royalties paid to a treaty country.
 
Besides the above mentioned, rules regulating the incorporation and the activity of a subsidiary can derive from other national laws, such as: the Act XLV of 2004, the Act CCXXXII, the Act X of 2006 and the Act V of 2013. Our team of consultants in company formation in Hungary can advise on the rules that you have to follow, based on the legal entity that your Hungarian subsidiary will have. 
 

What is the data on foreign companies in Hungary?

 
Hungary is the recipient of numerous companies with foreign capital; although the largest share of companies is represented by Hungarian based entities, as it is the case anywhere else in the world, foreign companies have a major importance with regards to the added value they create in the local economy, in terms of investment levels, capital, employment and others. Below, our consultants in company formation in Hungary have prepared a short description of the Hungarian companies and foreign companies:
 
  • in 2019, there were 118,835 active companies operating in Hungary, according to the data of the Hungarian Central Statistical Office, which represents the largest value registered in the period of 2014-2019;
  • the largest number of foreign companies, by country of origin, is represented by German companies, which, in 2020, accounted for 4,124 businesses;
  • the next top investors were Ukraine (3,975 companies), Austria (3,754 companies), Slovakia (2,839 companies) and Romania (2,471 companies);
  • in 2018, the sectors with the largest share of foreign investments was the financial and insurance sector (accounting for 52,3% of all investments) and the manufacturing industry (21,1%);
  • other attractive industries were the wholesale and retail (5,8%) and real estate (4,6%). 
 

Characteristics of subsidiaries in Hungary in 2021

 

A Hungarian subsidiary can be registered only as a corporate body, so it has to take the form of a company that has its own, distinctive legal personality. In most of the cases, investors will choose a joint stock company or the limited liability company, but, in practice, the latter is the most common way to start a subsidiary in Hungary
 
A public limited liability company has a capital requirement of HUF 20 million, and in 2021, the company's capital has been maintained as such; the capital has to be paid and this can be done in cash or kind. The company’s members are responsible for the company’s debts only to the level of their capital participation. The shares are freely transferable even to the public, especially through the Stock Exchange Market.
 
A private limited liability established in Hungary is founded based on a share capital of at least HUF 5 million and just like in the case of the previously described company, the liability of its members it’s limited by the contribution to the capital. The main difference is that the shares of this type of company cannot be transferred to the public.
 
However, those who want to register a subsidiary in Hungary in 2021 as a limited liability company benefit from the rules applicable to this company type, which means that the investors will have limited liability against company debts. The same rules apply when opening a subsidiary as a public limited company in 2021, with the main difference that this company type is recommended for large businesses. Our team of consultants in company registration in Hungary can provide information of advantages of selecting either one of these Hungarian companies in 2021.  
 

What are the documents for subsidiary registration in Hungary?

 
During the process of company formation in Hungary, all businessmen have to prepare a set of documents regardless of the company type they choose to register. This is also the case of those who will register a subsidiary. For its registration, investors will have to prepare the articles of association and the memorandum of the parent company and the Certificate of Good Standing of the parent company, all documents being issued in the country where parent company is registered.
 
Given that the documents will be written in a foreign language, the investors should also take the necessary steps in order to provide an official translation of such documents into the Hungarian language. Another necessary document when opening a company in Hungary as a subsidiary is the decision of the parent company, through which it establishes that it will set up a subsidiary in a foreign country. 
 
Investors will also have to sign a power of attorney and provide samples of specimen signatures of the company’s representatives. A large part of the documents, such as the parent company’s certificate and incorporation documents, as well as the power of attorney, have to be processed at a public notary in Hungary, who is the sole entity in charge with notarizing or providing official translations of such documents. 
 

The registration of a subsidiary in Hungary in 2021

 

The process of registration of a subsidiary in Hungary begins with hiring a lawyer to prepare the company’s foundation deeds and articles of association. The decision of opening a subsidiary provided by the parent company must also be seen by the attorney. At least half of the minimum share capital must be deposited in a bank account and a certificate of deposit must be released.
 
The registration of a Hungarian subsidiary continues with the electronic submission of the company’s documents (certificate of deposit, the articles of association, the foundation deeds and the decision of opening of the subsidiary) at the Registration Court. You can find out more details on this subject from our team of specialists in company registration in Hungary.
 

What are the accounting obligations for a Hungarian subsidiary?

 
When you open a company in Hungary, given that the company is registered for commercial purposes, it will have numerous tax obligations. This will be reflected in the accounting documents maintained by the company in a financial year, which will show the company’s true financial situation, which will then reflect the level of taxation applicable to the company.
 
All companies that sell goods and services are generally liable to the payment of the value added tax (VAT) and this means that the company has to obtain a VAT number. Once the company is a VAT payer, certain obligations will appear, such as submitting VAT returns as monthly, quarterly or yearly returns – this depends on the company’s return. 
 
The company should hire an accountant who will be in charge with maintaining the company’s books or accounts and other accounting documents in accordance with the specifications of the law. An audit can also be required for such companies; our consultants in company registration in Hungary can also provide accounting services
 
 
The last step of opening a subsidiary in Hungary is registering for the social security. The process of registration is one of the simplest in Europe, especially because of the recently implemented electronic system. In maximum 5 days from the day when the documents are submitted, the Hungarian company may pursue with the economic activities. Please contact our Hungarian company formation specialists for more information regarding Hungarian subsidiaries.

 

 

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