COMPANY formation – Hungarian Tax Environment

Advantages of Hungarian Company Formation:

• Favorable Tax Regime: Simplified tax structure designed for long-term stability.
• Corporate Tax: Unified 9% corporate tax rate with no minimum threshold.
• Dividend Tax: 15% dividend tax if a foreign individual is the owner; 0% if a foreign legal entity (e.g., Slovak s.r.o.) owns the company.
• Local Business Tax: 2% based on revenue minus the cost of goods purchased and services rendered.
• Electronic Communication: Streamlined official communication via electronic means.
• Rapid Formation: Hungarian company formation completed within 2-3 days, including EU VAT number

* (data valid for 2024).

Process of Hungarian Company Formation:

• Company Type: The most common type is the Kft. (Limited Liability Company), equivalent to the Slovak s.r.o., with a minimum capital requirement of 3,000,000 HUF (approx. 9,680 EUR).
• Activity Definition: The scope of business activities must be specified in detail, beyond general categories such as wholesale and retail trade.
• Simplified Process: Formation and tax registration are more straightforward and faster than in Slovakia. The articles of association must be signed in front of a lawyer, and necessary data (company name, registered office, capital, owners, managers, and activities) should be provided to the Hungarian lawyer or tax advisor.
• No Criminal Record Certificate: Not required for company formation.
• Registration: The Hungarian company court registers the company a few days after signing the articles of association. The process is handled electronically by the lawyer, including obtaining an EU VAT number within 2-3 days.
• Tax Consultation: Important tax issues should be discussed with a Hungarian tax advisor or accountant during the registration process.
• Automatic VAT Registration: The VAT number and community (EU) tax number can be obtained automatically, with the tax office registering these simultaneously with the company registration, allowing immediate VAT operations.
• Post-Registration Obligations: Following registration, the company must fulfill obligations with the tax office and local municipality, typically managed by a Hungarian accountant.

Limited Liability Company (Kft.):

When choosing between a Kft. (s.r.o.) and a joint-stock company, we recommend the Kft. due to its lower bureaucratic and operational costs. Establishing a Hungarian joint-stock company requires higher minimum capital, share issuance, and the operation of a board of directors and supervisory board, which are not required for a Kft.

The legal framework and operational aspects of a Hungarian Kft. closely mirror those of the Slovak s.r.o., with members’ liability limited to their contributions. However, invoicing regulations in Hungary are stricter. Only strictly numbered invoice booklets or compliant software can be used, as stipulated by Hungarian Ministry of Finance regulations. Accounting practices in Hungary are notably more stringent than in Slovakia, including requirements for cash receipts, cash handling, and invoicing.