I. Companies

In Hungary today, the majority of business activities are conducted through membership relationships in companies. Therefore, I find it necessary to provide a more detailed overview and presentation of the regulations pertaining to companies in a separate summary (Doing Business in a Company in Hungary), which can also be found on this website as a complement to the brief and general summary below

The General Partnership (Kkt.)

It is a legal entity formed by at least two members, with no legally defined minimum registered capital required for establishment. Members contribute to the economic activities of the association and are jointly and severally liable for the obligations of the company. New members entering the company are equally responsible for the existing obligations of the company as the current members.

The Limited Partnership (Betéti társaság – Bt.)

It is a personal association, following the rules of the Kkt. It requires a minimum of two members, including an internal and external member, with no legal minimum capital requirement. Members contribute assets for economic activities, and the internal member is liable for uncovered obligations.

The Limited Liability Company (Korlátolt Felelősségű Társaság – Kft.)

It is the most popular form of company and is characterized by being an association of capital rather than individuals. It can be established by one or more persons with a minimum registered capital requirement of 3,000,000 HUF. Business shares, representing ownership, are marketable and may be owned by multiple individuals. Members share profits in proportion to their business share, with flexibility allowed in profit distribution. The liability of members is limited, except for those holding a significant voting majority.

The Limited Company (Részvénytársaság – Rt.)

It provides extensive independence from its members and is commonly adopted by the largest companies in Hungary with complex corporate structures. There are two types: private limited company (Zártkörűen működő részvénytársaság – Zrt.) and public limited company (Nyilvánosan működő részvénytársaság – Nyrt.). For Zrt., the minimum share capital required for incorporation is HUF 5,000,000 (with sector-specific exceptions), and for Nyrt., it is HUF 20,000,000. At least 30% of the share capital must be in financial form at registration, and non-financial contributions are evaluated by an auditor. The company operates with a fixed number of shares with a fixed nominal value. Shares may be ordinary, preference, employee, interest-bearing, or redeemable, each conferring specific rights and obligations determined by the members’ meeting. Shareholders are entitled to profits in proportion to their share in the assets, except with preference shares. The supreme body is the members’ meeting. Management can be by a board of directors or a single-member directorate (chief executive officer).

Hungarian Branch of a foreign Company and Commercial Representation

These legal forms provide foreign comaonies the opportunity to engage in business activities directly in Hungary.

II. Single proprietorship and single-member company

These forms, like companies, have the primary purpose of carrying out economic activities, but are much smaller in size and simpler in structure than companies. The member has unlimited liability and the economic activity is difficult to separate from the person. An important limitation compared to companies is that single proprietors and single-member companies cannot build up a profit reserve (retained earnings) and must therefore be taxed on their profits.

A single proprietor, as a natural person, carries out economic activities on the territory of Hungary on a commercial basis – regularly, with a view to making profits and acquiring wealth, and at his own economic risk. The single proprietor’s activity must be declared electronically or in person to the body keeping the register.

A single-member company is a legal entity without legal personality, established by a natural person entered in the register of single proprietors, and created by registration in the company register. A single-member company is legal entity and may acquire rights and incur obligations under its business name, in particular the right to acquire property, enter into contracts, bring legal proceedings and to be sued. The formation of a single-member company requires an articles of incorporation in the form of a notarial deed or a private deed countersigned by a lawyer, which must be signed by the member. A model contract can be used for this purpose.

If it is later in the interest of the economic activity, a change of form is also possible. A single proprietor can become a single-member company and a single-member company can become a general partnership.

III. Economic activity as a private individual

This includes an individual with tax number, a self-employed farmer, or a person who rents real estate as a private individual, and civil law partnerships can be also mentioned here. In these cases, the economic activity is not very dominant and is typically, although not exclusively, ancillary.

Individuals with a tax number: in Hungary, as a general rule, individuals do not have a tax number. A tax number can be requested from the tax authority if the person is engaged in an independent economic activity which is permitted by law as a private individual. This means that one can issue invoices and receipts for the generated income, but the payer deducts and declares the tax. This form is typically used in the case of consultancy services on a commission basis, or in the case of self-employed lawyers or veterinary surgeons.

Self-employed farmer: the production of crops, plantations, livestock, forestry or, in some cases, the processing of products on a farm, whether owned or rented, with a special certificate. Exempt up to a certain value of annual income, but also subject to flat-rate taxation. A certificate can be obtained from the National Food Chain Safety Office.

It is also possible to rent real estate as a private individual, without the need to apply for a tax number. In this case no invoice can be issued. The activity does not have to be declared separately, but the income must be taxed and the income and expenses must be declared in the annual tax return. If the tenant is a company, tax return must be filed by the company.

The civil law partnership is a rarely-used form for conducting economic activities. It is important to point out that, despite its name, it is not identical to similiar formations in other European countries. The Hungarian civil law partnership does not have legal personality and is not even a legal entity. In other words, only the members can assume rights and obligations, so it is not an ideal form for economic activity. As it cannot acquire property or assets, the profits are realised by the individuals and they have to pay taxes on them.

IV. Cooperatives, associations and foundations

These forms are characterised by the fact that their primary purpose is not to carry out economic activities, but they may do so subject to certain restrictions in order to achieve a specific objective.

A cooperative is a legal entity established with capital from the assets of its members, operating on the principles of open membership and variable capital, and carrying out activities to meet the economic and social needs of its members. Like companies, the members have an obligation to contribute assets but are not liable for the cooperative’s obligations. The activities of a cooperative may be directed towards sales, purchases, production and services. The establishment of a cooperative must be notified to the court of registration within 30 days of the date of the notarisation of the articles of association or their countersignature by a lawyer or a chamber counsel.

An association is a legal person with registered membership established for the common, permanent and continuous pursuit of the purpose of its members, as defined in its statutes, and which cannot be established for the purpose of economic activity. However, the association shall have assets and be entitled to carry out economic activities directly related to the achievement of the association’s purpose. However, this form is not suitable for carrying out commercial economic activities.

While an association is more of an association of persons, a foundation is a pooling of assets. A foundation is a legal person established for the purpose of pursuing a permanent objective defined by its founder. The founder determines the assets allocated to the foundation and the organisation of the foundation. Again, it may not be established for the purpose of carrying on an economic activity, but it may carry on an economic activity directly related to the achievement of the purpose of the foundation.

V) Labour law framework

Employment contracts must be in writing and working hours are usually 8 hours a day (40 hours/week). In Hungary, a probationary period is up to 3 months. Annual leave is 20 days (gradually increasing with the age of the employee). For companies, it is also important to note that the executive officer may perform his/her duties under an employment contract or a contract of agency. Members may also be employees of the company even if they are personally involved in its operation.

VI) Taxation

All of the forms of company listed are subject to corporate tax (Társasági adó – TAO), unless a more favourable tax regime applies. The tax rate is currently 9% on the result of the company’s business activities. As a main rule companies also pay social contribution tax (szociális hozzájárulási adó – szocho) on the salary of its employees.

The Small Business Tax (Kisvállalati adó – KIVA) is a simplified tax system that applies only to companies with no more than 50 employees and annual revenues of less than HUF 3 billion. The tax rate is currently 10%. This system excludes TAO (currently 9%) and social contribution tax liabilities (currently 13%).

In Hungary, value-added tax (VAT) is currently payable at a rate of 27% on the supply of services or goods, but for certain products it is 18% or 5%. VAT exemption is also available up to HUF 12 million per year.

Budapest, 2024.02.01.

Doing Business in a Hungarian Company

As the majority of individuals engaging in business activities conduct their business through membership relationships in companies, I would like to present the rules of the companies as follows:

1) The forms of company

The first question when starting a company is which form of company is the most appropriate. The key factors here are the amount of capital available for incorporation, the structure of the company and the risks involved. The forms of companies are laid down by law in the Civil Code, and in Hungary a company may only take one of the four forms below. However, within the specific form of company, it is possible to deviate from the content set in the Civil Code, except if it is excluded by law therein.

General partnership (Közkereseti társaság – Kkt.)

  • Personnel association
  • foundation: min 2 members
  • no legally defined minimum capital
  • the members make a contribution of assets for the partnership’s economic activity and are jointly and severally liable for the partnership’s obligations not covered by its assets, they may be sued together with the partnership, provided that in the event of a judgment against the partnership, execution may be levied on the members’ private assets only if the partnership is unable to pay
  • if a new member joins the partnership after it has begun to operate, he is liable for the partnership’s obligations prior to the date on which he became a member in the same way as the other members
  • each member has an equal vote at the meeting of members
  • if the number of members is reduced to 1 and no new member joins within 6 months, the partnership shall be dissolved without succession
  • the member’s heir may join the partnership, but the partnership may also account with the heir within 3 months, with the proviso that in any event the member’s heir shall be liable for the company’s debts within a limitation period of 5 years
  • membership may be terminated by mutual agreement, or unilaterally with 3 months’ notice
  • members share profits in proportion to their share in the assets
  • as a general rule, the meeting of members decides by a simple majority of votes, but on certain matters the law requires a ¾ or unanimous majority
  • The chief executive officer is the managing director, who may be elected from among the members, or, failing election, appointed, and failing acceptance of the appointment, each member is also the managing director with sole signatory power
  • may be converted into a limited partnership by a mere amendment of the articles of association, without the need for a conversion procedure
  • advantage: simple, quick and cheap to set up, small business with small capital, usually employing a few people, nowadays dying out, most similar to a simple civil law partnership
  • disadvantage: unlimited liability of the member and joint and several liability with the company

Limited partnership (Betéti társaság – Bt.)

  • Personal association, subject to the rules of the Kkt.
  • establishment of at least 2 members (internal and external)
  • there is no legal minimum capital requirement
  • the members contribute assets for the partnership’s economic activities and the internal member is liable for the partnership’s obligations not covered by its assets, with the proviso that if he later changes his status from internal member to external, he is liable for the company’s obligations incurred during his period of internal membership for a further 5 years without limit
  • the external member is liable for the company’s obligations in proportion to his share of the assets
  • if no external or internal member remains in the company for 6 months, it must convert into a general partnership
  • as a general rule, members have 1 vote at the members’ meeting, irrespective of their share in the assets, but this can of course be derogated from
  • they share profits according to their share in the assets, which may be diverted
  • as a general rule, the internal member is the executive officer (managing director), but this can be derogated from by allowing an external member to be the managing director of the partnership
  • advantage: no legal minimum capital requirement on incorporation, limited liability of external member
  • Disadvantage: unlimited and joint liability of the internal member

Limited liability company (korlátolt felelősségű társaság – Kft.)

The most popular form of company.

  • contrary to Kkt. and Bt. this form is an association of capital, and not persons
  • can be established by one or more persons,
  • the minimum registered capital required for incorporation is 3.000.000 HUF, capital can be increased or decreased taking this into account this minimum
  • the capital contribution of the members may take a form of financial and non-financial contribution
  • the articles of association may decide that the full amount of the financial contribution need not be paid until incorporation, in which case the member may pay all or part of the financial contribution out of profits distributable in accordance with the dividend rules. No dividend shall be paid to a member until the amount of the unpaid profit credited to the member’s capital contribution, together with the capital contribution made by the member, reaches the total capital contribution made by the member. However, the member shall also be liable for the amount of the unpaid contribution.
  • if, at the time of incorporation, the value of the non-financial contribution is equal to or exceeds half of the registered capital, the non-financial contribution must be made available in full to the company until the application for registration is submitted. By way of derogation, the articles of association may specify a later date, but not more than three years after registration.
  • The obligation of members to the company includes providing their capital contributions and other services of pecuniary value as laid down in the articles of association,
  • a capital contribution also means ownership of a business share, a member can have more than one business share, a share can have more than one owner
  • the business share is marketable, it can be withdrawn, is enforceable, can be auctioned. A written form of contract for transfer is compulsory. These characteristics cannot be excluded in the articles of association.
  • business shares may be freely sold and bought between members, sale may be restricted to third parties with the consent of the company, and may be restricted by statutory pre-emption rights. In such a case, the other members, the company itself or a third person designated by the company have the right of pre-emption.
  • A member who acquires a business share may exercise rights and assume obligations by entering it in the register of members,
  • a share may be inherited, but this may be excluded, in which case the fair market value of the share must be exchanged to the heir,
  • the share may be acquired by the company itself, up to a maximum of 50% of the registered capital, which “company’s own share” does not allow vote and does not pay dividends,
  • the liability of the member is limited; the member is not liable for the company’s obligations, except for members above 75% (in some cases above 50%) of the votes in the members’ meeting who have an underlying liability
  • members share profits in proportion to their business share, but this can be derogated from by not excluding any member entirely from profits
  • as a general rule, profits may be made after each financial year at the time of the adoption of the annual financial account, advance dividends may be made during the year, subject to the conditions, and the managing director is entitled to do so without a decision by the members’ meeting
  • a members’ meeting must be held once a year – for the purpose of adopting the accounts, it may be held in writing, also by electronic communication tools, with an invitation to be sent to the members, indicating the agenda and the date, at least half of the members must be present to constitute a quorum
  • as a general rule, it shall decide by a simple majority of votes, or in specific cases by a ¾ or unanimous majority,
  • voting rights of the members are in proportion to their business share, with the possibility of a deviation,
  • management: 1 or more managing directors, may be independent or have joint signatory power
  • advantages: quick and easy to set up
  • disadvantage: more capital needed to start up than in the case of a Kkt. or a Bt., but less suitable for growth than an Rt.

Limited company (Részvénytársaság – Rt.)

It gives the widest independence from the members. The largest companies in Hungary with a more complex corporate structure operate in this form.

  • the two types of limited company are: private limited company (Zártkörűen működő részvénytársaság – Zrt.) and public limited company (Nyilvánosan működő részvénytársaság – Nyrt.)
  • share capital required for incorporation is HUF 5,000,000 in the case of a Zrt. (but a special higher minimum capital requirement applies to certain sectors), HUF 20,000,000 in the case of an Nyrt. the share capital may be increased or decreased within these limits under the conditions laid down by law
  • only a private limited company may be established, which may, under certain conditions, become a public limited company by listing on the stock exchange, and may later be converted back into a private limited company if such a decision is taken
  • at least 30% of the share capital must be in the form of a financial contribution at the time of registration, the value of the non-financial contribution must be evaluated by an auditor
  • it operates with a share capital consisting of a fixed number of shares on a fixed nominal value, the obligation of the member of the company, i.e. the shareholder, is to pay the value of the share
  • the share is a security, it can be either printed or dematerialised, except for Nyrt, where only the latter is possible, the issuance must be requested separately from registration at the accredited issuing bodies within 30 days of the registration of the company,
  • shares may be ordinary or preference shares, employee shares, interest-bearing shares or redeemable shares, and other types of shares conferring rights and obligations determined by the member’s meeting,
  • the share is marketable – it may be offered for sale in private or in public, its transfer may be restricted by the company, but with rights in favour of various third parties (e.g. pre-emption, purchase, etc.), which must be recorded on the share, otherwise it is not valid,
  • a company may acquire up to 25% of its shares, which shares do not carry any shareholder rights,
  • shareholder rights may be exercised by registration in the share register in addition to the transfer,
  • shareholders are entitled to profits in proportion to their share in the assets, except that this may be diverted by means of preference shares
  • the supreme body is the members’ meeting, on which shareholders are entitled to attend. It may be held in writing, may be held by conference meeting, and may be attended by shareholders entered in the share register and registered for the meeting
  • may be managed either by a board of directors consisting of at least three persons or by a single-member directorate (chief executive officer)
  • advantage: the shareholder is not financially liable to the company and does not have to assume its obligations
  • disadvantages: high minimum share capital, relatively complex structure, large corporate form

2) Special forms for existing foreign companies to doing business in Hungary

Hungarian branch office of foreign companies

A foreign company is entitled to carry out business activities in Hungary through its registered branch office. It is a legal entity, may acquire rights in the name of the foreign company under its business name, and may assume obligations on behalf of and at the expense of the foreign company. It may acquire assets, enter into contracts, initiate legal proceedings, and be subject to legal action. The branch may have operating premises (branch offices) in multiple cities (municipalities). The branch office is established by entry in the company register and may commence business activities following registration. A foreign company establishing and operating a branch shall be treated in the same way as domestic companies, but in accordance with Hungary’s international obligations, the law may establish different regulations for the branch is some cases. The branch ceases to exist with removal from the company register. A request for removal of the branch must be submitted to the court of registration within sixty days of the decision of the foreign enterprise on this matter.

Hungarian Commercial Representation of a foreign company

A foreign company may establish a permanent, direct commercial representation in Hungary, which is an organizational unit without legal personality, which comes into existence with registration in the company register and can commence its operation after registration. Commercial representation, on behalf of the foreign comaony, may mediate contracts on behalf of the foreign enterprise, participate in the preparation of contract negotiations, and engage in informational, advertising, and propaganda activities. Commercial representation may conclude contracts related to the operation of the representation on behalf of and for the benefit of the foreign company. Commercial representation cannot conduct business activities or legal activities in its own name.

3) Common rules on companies

In Hungary, companies are legal entities established for the purpose of carrying on a joint economic activity in the course of business, in which the members share the profits and bear the losses jointly.

The most important common rules applicable to companies are the following.

Financial and non-financial contribution: a member of a legal person is obliged to make a financial or non-financial contribution (in-kind contribution) to the legal person at the time of its incorporation which contribution cannot be reclaimed. The permissible proportion between the financial and non-financial contribution are set out in specific rules for certain forms of company. The participation of the members of a company in the decision-making of the supreme body also depends on the share of their contribution, although the members may derogate from this provision in the articles of association. The profits of the company shall accrue to the members in proportion to their contribution, and the losses shall be borne by them in the same proportion. The contribution must be paid into the company’s bank account or into the company’s treasury at the time of incorporation.

Membership: a natural person can be a member with unlimited liability in only one company at the same time. A minor may not be a member of a company with unlimited liability. A general partnership, a limited partnership and a single-member company may not be an unlimited liability member of a company. No person subject to a disqualification may be a member of a company, except for a public limited company. Members of a company who pose a serious threat to the attainment of the company’s objectives may be excluded. A shareholder of a public limited company and a member who holds at least three-quarters of the votes at the supreme body cannot be excluded from the company.

Decision-making: the decision-making body of the company’s members is the supreme body, where decisions are taken on the company’s basic business and personnel matters. The accounts are also approved there. However, in case of a single-member company, the powers of the supreme body are exercised by the founder or the sole member. All members of the company shall be entitled to participate in the activities of the supreme organ, either in person or by a representative. A member’s voting rights shall be proportional to the share of his or her financial contribution. Recently, the general meetings may be held online, subject to certain restrictions. Hungarian law places explicit emphasis on the protection of minority members. Members who together hold at least five per cent of the voting rights may request that a meeting of the supreme body be convened or a decision-making without a meeting. If this is not complied with, the court may convene the meeting. In certain cases, the minority may ask the court to order an audit.

Executive officer: the company may be managed by an executive officer, who may be employed or contracted (agency) by the company, in accordance with its agreement with the company. The chief executive officer acting independently may not be instructed by a member of the company and his competence may not be withdrawn by the supreme body. The following conditions and circumstances exclude the possibility of being an executive officer (with special rules on the details): being a minor, persons with reduced or no capacity to act, persons who have been sentenced to imprisonment for a criminal offence, persons who are prohibited from exercising the profession or performing the duties of an executive officer. If the executive officer is a legal person, a natural person shall be appointed to perform the duties of the executive officer on its behalf. Conflicts of interest are also an obstacle to appointment: the chief executive officer may not acquire any business shares in a company, other than a share in a public limited liability company, and may not be an executive officer of a company which carries on the same economic activity as the company in which he/she is an executive officer.

General manager: the company’s supreme body may appoint a general manager to assist the company’s executive officers in their work. The general manager shall perform his/her duties on the basis of an employment relationship. The general manager is an employee who directs the day-to-day running of the company under the instructions of the executive officer. The grounds of disqualification and conflict of interest apply similarly as to the executive officers.

Supervisory board: mandatory if the company has more than 200 full-time employees on average per year. It reports to the supreme body on the accounts. If, in the opinion of the supervisory board, the activities of the management are contrary to the law or the articles of association, or are contrary to the decisions of the company’s supreme body or otherwise prejudicial to the interests of the company, the supervisory board is entitled to convene a meeting of the company’s supreme body. The supervisory board shall be composed of three members, who shall perform their duties on a contracted basis (agency).

Permanent auditor: the purpose of the audit is to establish that the accounts prepared by the company for the financial year comply with the legal requirements, i.e. they give a true and fair view of the company’s assets and liabilities, financial position and results of operations. An audit is mandatory for all double-entry bookkeepers, unless the net result and the number of employees do not exceed the statutory threshold. Otherwise, the auditor is optional. The permanent auditor may be an individual auditor or an audit firm registered in the register of auditors. If an audit firm performs the audit duties, it must appoint a natural person to perform the audit in person. However, a member of the company, its executive officer, a member of the supervisory board or a relative of such persons may not be a permanent auditor. No employee of the company may be a permanent auditor during the period of his employment and for three years after the termination of his employment.

Publication of accounts: a company must publish a report on its operations, assets, financial position and income (account) in Hungarian after the close of the accounts for the financial year. The accounts may be prepared in accordance with the Hungarian Accounting Act or International Financial Reporting Standards (IFRS). The form of the accounts depends on the size of the annual net result, the balance sheet total, the number of employees. All double-entry bookkeeping companies are obliged to publish their accounts in a central electronic system. Failure to do so may have consequences under tax law (fines for failure to comply followed by cancellation of the tax number) and company law (declaration of dissolution, initiation of compulsory liquidation proceedings, disqualification of a member or manager with unlimited liability).

4) Setting up a business

In contrast to most EU state practices, in Hungary it is not necessary to use a notary to set up a company. Instead, legal representation by a lawyer is mandatory. The lawyer exercises the role of notary in the company procedure and thus assumes responsibility for the authenticity of the deeds and for the conformity of the will of the parties with the provisions of the deed. However, he is not liable for any misrepresentations made by the client or for the consequences thereof.

The company may be incorporated on paper or electronically. If the instrument of incorporation (articles of association) is available in paper form, it must be signed in person before a lawyer. However, it is now possible to have the transaction authenticated by the lawyer without the need to be present in person, using an electronic communication tool (such as Skype, Teams or Zoom), by means of remote identification and signature. And electronically, documents can be authenticated by electronic signature.

There are few limits to starting a business. These include special provisions on money laundering, the prevention of terrorism or the tax authorities’ rules on non-compliant taxpayers. Our office can provide details on request.

The company procedure takes place before the court of registry and can be initiated by either the normal or the simplified procedure. The former has a deadline of 15 days, but has the advantage that the articles of association can be filled in freely, making it more flexible and the only form suitable for a company to be set up according to individual needs. The simplified procedure can only be done electronically, by filling in an electronic form, the content of which cannot be changed. The court of registration has 24 hours to process the application, but care must be taken since no deficiencies can be rectified in this procedure.

The formation of a general partnership (Kkt.) limited partnership (Bt.), and a limited liability company (Kft.) is exempt from registration fee. The formation of a limited company (Rt.) is subject to the payment of a registration fee and a publication fee, the amount depending on the procedure chosen. However, all company changes are subject to registration and publication fees.

5) Special rules for foreign company management

Under Hungarian law, if the executive officer of a company registered in Hungary does not have a registered address in Hungary or, in the case of a legal person, is not registered in Hungary, the company must choose a service agent with a Hungarian address or a Hungarian registration. This may be a law firm.