Doing Business in Hungary

Doing Business in Hungary

Doing Business in Hungary 2020 is a practical handbook for companies and individuals thinking about Hungary from a business point of view. The approach running through the guide makes it an essential resource for those considering establishing – and those already operating – a business entity in Hungary.

This three-part guide highlights the most important laws to be aware of during the establishment and operation of a business in Hungary, as well as numerous other issues which may arise during the “life” of a business, such as intellectual property and competition law issues.

You may wonder what makes this guide unique and different to other guides. Well, in addition to having a very business-focused approach, although written by lawyers, it is not full of legal jargon. This guide is, we hope, easy to understand, informative and filled with frequently asked questions which arise when setting up and running a business in Hungary.

We hope that our handbook provides you with many valuable tips and all the information you need on how to do business in Hungary.

 

What is the Content of the Handbook?

The table of contents provides a good overview about the topics covered. Please, click the TOC to see the original contents.

 

Overview of the main parts of Doing Business in Hungary

 

Establishing a Business Entity

This part depicts the aspects you should consider when deciding on the actual form and process of investing in Hungary (How to Invest?), and also presents the main forms of companies which can be established in Hungary (Companies). You can find in this part some practical information regarding the start of your business activity (Setting up an Office) and about the investments classified into different categories (Branch Office and Commercial Representative Office, Mergers and Acquisitions, Real Estate Law). In addition, this part shares some useful thoughts in the area of financial security in Hungary (Financial Stability) and also gives you an overview of special rules of investing in strictly regulated sectors like energy or telecommunication (Strictly Regulated Sectors).

How to Invest?

In this chapter, you will find important factors to consider when making a decision regarding the actual form of your investment. The Table on page 32 summarises some of the advantages and disadvantages of the relevant company types to facilitate your decision between those afforded by Hungarian law.

Companies

This chapter deals with the most popular Hungarian company forms. There is no legal requirement to have a Hungarian owner or co-owner in the company.

Setting up an Office

Registering an official seat and opening a bank account are unavoidable obligations for every new business entity. This chapter provides you basic information regarding these tasks.

Branch Office and Commercial Representative Office

This chapter briefly introduces two additional forms of undertaking reserved to foreign investors for establishing and pursuing business in Hungary without setting up a local entity formally independent from them as parent companies.

Mergers & Acquisitions

This chapter highlights the key points of a merger and acquisition (“M&A”) transaction from Hungary’s perspective. This includes general principles and description of usual process and obligations of the parties.

Real Estate

This chapter highlights the main points and some insights into the Hungarian real estate regulation from an investor’s perspective.

Financial Stability

This chapter is to provide a brief overview of certain foreign exchange and financial regulatory characteristics also with a view of Hungary not yet being a member of the Eurozone.

Strictly Regulated Sectors

Every form of company in Hungary needs to be registered. However, in certain cases the founding of a company is also subject to special sector-based foundation licences, which means that certain companies may only file their application for registration with the Court of Registration if they have already obtained such a foundation licence. In other cases, already founded and registered companies may only commence to pursue business activities subject to licensing after having obtained such special sector-based activity licence. These rules apply to industries with detailed sector-targeted rules and where special authorities are entitled to control, authorise and even regulate the given industry. Apart from applying for licences, companies active in these industries need to comply with the sector-based statutory rules or report certain fields of their activities to the competent Hungarian authority.

In this section, we aim to give a brief practical insight into some of the main strictly regulated sectors (i.e. the financial, energy, telecommunication and pharmaceutical sector), particularly in terms of the key compliance regulations, competent regulatory authorities and licences that companies need to obtain for their foundation or operation.

 

Operating a Business Entity

This part briefly outlines the most important administrative burdens (Taxation, Accounting and Auditing) of an existing Hungarian business entity. In addition, this part highlights the most important rules regarding the establishment, maintenance and termination of an employment relationship (Working in Hungary) and also gives an overview of some financial issues, such as crediting, state subsidies, insolvency (Financing matters).

Taxation

In this article we introduce the Hungarian tax authorities, specifically, the terms of their competence, followed by an overview of the main building blocks of the Hungarian state revenue: corporate tax, personal income tax and value added tax (VAT). We also explain the anti-avoidance rules that influence tax optimisation and provide insight into the double tax treaty schemes, with a view toward the growing importance of cross-border transactions.

Accounting

This section aims to introduce the basic structure of the Hungarian accounting system. It summarises the general rules and concepts of bookkeeping and financial reporting as well as filing and publication obligations.

Auditing

This section gives an overview of Hungarian auditing requirements and introduces the basic rules related to the engagement of auditors.

Working in Hungary

This chapter provides the employers with useful information on the main rules of working in Hungary. It explains in detail under what conditions foreign citizens can be employed in Hungary, what are the main working conditions the employers must ensure for their employees, how the employment relationships can be terminated and, finally, which rules must be followed in case of change in the employer.

Financing Matters

This chapter aims to summarise various financial issues, such as how to secure bank credit in Hungary, whether there are any obstacles to repatriating the profit realised in Hungary and what kind of incentives for investment the Government ensures. In addition, a brief introduction about the possible implications of insolvency (such as bankruptcy and liquidation procedures) can be found in this chapter.

 

Other Issues in Business Life

The third part of the handbook highlights some issues not necessarily arising during the life of a business entity. However, these topics are also worth noting, in particular the rules of Hungarian and European competition law (Competition Law), the new screening procedure with regard to foreign investments harming Hungary’s security interests (National Security Screening of Foreign Investment) as well as some thoughts about the protection of intellectual property (Intellectual Property and Data Protection).

Competition Law

The law of competition is considered the constitution of the economy. In Hungary, there were significant changes in the 90ies: the earlier thoroughly regulated market had to change to the competition market, which was based on entirely different rules.

Currently Hungarian competition law follows that of the European Union, the same areas have the attention of the competition watchdog: agreements restricting competition, abuse of dominant market behaviour, merger control and lastly unfair commercial practices. In this chapter we will give an overview of all of these.

National Security Screening of Foreign Investment

Fitting recent years’ trend of establishing foreign investment review mechanisms, the Hungarian legislation follows the example of, among others, the United States, China, Russia, Germany and a dozen other EU countries, in line with the adopted EU regulation that will apply as from 11 October 2020.

Intellectual Property

Intellectual property is a key asset of businesses, especially for those operating in the information technology, communication and health sectors. This chapter introduces the structure of intellectual property as a whole and we provide a practical overview on those issues, which may emerge during operating a business in Hungary.

Data Protection

As one of the EU Member States, Hungary must comply with the 679/2016/EU Regulation on the protection of natural persons with regard to the processing of personal data and on the free movement of such data. The Regulation is commonly referred to as the General Data Protection Regulation or GDPR. GDPR establishes general and thoroughly detailed data protection rules and creates transparency and an expected homogeneity of law enforcement throughout the European Union. The Regulation holds huge benefits for data subjects, however it does so at the cost of a tremendous effort required from businesses. With its strict requirements GDPR has become the toughest regulation ever made in privacy circles, data controller companies may face fines of up to EUR 20 million or 4% of the total worldwide annual turnover if they do not comply.