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DOING BUSINESS IN HUNGARY / HUNGARY BUSINESS GUIDE

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DOING BUSINESS IN HUNGARY / HUNGARY BUSINESS GUIDE

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Postby Hungary Info » Tue May 22, 2007 6:17 am

DOING BUSINESS IN HUNGARY

STARTING A BUSINESS

STANDARDIZED COMPANY
Legal Form: Korlatolt Felelossegu Tarsasag (KFT) - Limited Liability Company
Minimum Capital Requirement: HUF 3,000,000
City: Budapest

Registration Requirements:

Procedure 1. Hire lawyer who represents the company, creates company deeds, and prepares other legal documents.


Time to complete: 3 days

Cost to complete: HUF 260,000, varies according to the complexity

Comment: In the registration process the company must be represented by an attorney at law. The lawyer's fee is subject to free agreement; therefore it is very variable according to services and the size of companies. Attorneys charge at least HUF 100,000 as fee for the registration of a simple Kft, with official cost mentioned hereunder being born by the client.

Procedure 2. Notarise specimen signatures and documents.

Time to complete: 2 days

Cost to complete: HUF 37500

Comment: Costs of notarisation depend on the number of documents requiring notarisation. Specimen signatures of persons entitled to sign on behalf of the company are notarial documents which cost approximately HUF 2000-3000 each. Specimen signatures can be obtained within 2 days.

Procedure 3. Pay at least 50% of subscription amount (at least HUF 1,000,000) into the bank account designated at the time of subscription.

Time to complete: 1 day

Cost to complete: no charge

Comment: The other 50% shall be paid within one year from the incorporation.

Procedure 4. Apply for registration at the Registration Court.

Time to complete: 30 days

Cost to complete: HUF 125,000 (fixed procedural stamp duty HUF 100,000 + HUF 25,000 publication fee)

Comment: The lawyer does the procedure. Upon receipt of the application and the above attachments the Court records the company's name and address and issues the registration number of the company and at the same time obtains and enters into the register the company's tax number and statistical number. Within two days after the Court receives the application, all data regarding the company shall be entered into the register, with the remark that the company is under registration.

From the date of the submission of the application the company may start to operate as a pre-incorporated company. If the Court approves the application, it will order the company to be registered (statutory deadline for the Court to approve or reject is 30 days calculated from the receipt of the application, which can be extended once by 8 days). If the Court does not make any decision until the above-mentioned period, the registration will occur ex lege (automatically). Publication in the Company Gazette ("Cégközlöny") is made after the registration is ordered by the Court.

The registration at the State Taxation Office (VAT and income tax) and at the statistical office is done through an online system by the Court, simultaneously with the submission of the application for registration. The one-stop shop registration can be completed online, but it is rare in practice. A new code on business associations, and another on company registration will enter into force July 1, 2006.

Some of the features are:

- preprinted form is provided for registration as appendix of Registration Act

- shortened time limits:
(i) within 2 working days from filing the documents all documents shall be transferred into electronical form;
(ii) within 3 working days from filing the documents the form of all documents shall be examined;
(iii) within 8 days from filing the documents all documents and data contained therein shall be examined, and order for supplementary filing shall be taken if necessary;
(iv) maximum deadline for supplementary filing is 45 days;
(v) within 15 days from filing the documents the court is obliged to decide on the registration or on the rejection unless otherwise provided (time of supplementary filing shall not be counted)

- simplified registration procedure introduced for limited liability companies

- more indulgent inquiry of the submitted document

Procedure 5. Register for social security.

Time to complete: 1 day

Cost to complete: no charge

Procedure 6. File an announcement with the central and local tax authorities, statistical office and Social Security authorities.

Time to complete: 1 day

Cost to complete: no charge

Comment: Separate announcements should also be filed with the tax (central and local), statistical and social security authorities within 15 days as of the submission of the application. Mail the announcement forms to the authorities. Forms can be downloaded from the Internet or picked up from the Court of Registration.

FORMS OF BUSINESS ORGANISATION

1. Company limited by shares (Rt)
2. Limited liability company (Kft)

Because of less-stringent registration and operating procedures and lower minimum capital requirements, most new private firms incorporating in Hungary choose the limited liability company form (Kft) form, which can be set up by a single owner. Other forms include the limited partnership and general partnership, both of which require unlimited legal liability.

Budapest, the capital, is the country’s financial centre.

TAXATION

Corporate tax

Main rate: 16%

Resident companies are taxed on worldwide income; non-resident companies are taxed only on Hungarian-source income. Taxpayers are treated as resident for tax purposes if they are created under Hungarian law or if they are managed or controlled in Hungary. Tax is charged at a flat rate of 16%, with a surtax of 4%, which was introduced in 2006, giving rise to an effective rate of 20%.

Individual tax
Progressive rates to 38%

Resident individuals pay tax on worldwide income; non-resident individuals pay tax only on Hungarian-source income. A Hungarian national (and a foreign national with a Hungarian settlement permit) is regarded as resident for tax purposes. Other persons may be regarded as resident if their permanent home, centre of vital interests or habitual abode is in Hungary. The personal income tax system consists of two brackets of 18% and 36%; the higher rate applies at an annual income level of HUF 1.7m. Individuals are also subject to the 4% solidarity surtax from January 1st 2007.

Capital gains
Generally taxed as income

Gains from the sale of business assets are treated as ordinary business income. Under a participation exemption introduced from January 1st 2007, capital gains realised on the sale of Hungarian and foreign participations are exempt from corporate income tax and the solidarity surtax, provided certain conditions are satisfied.

Capital gains of individuals from the sale of immovable property are taxed at 25%. Tax exemptions exist for gains used to finance the purchase of a new home and for gains derived after the property has been held for 15 years. Gains from the sale of securities are taxed at 20% where the securities are listed on certain stock exchanges.

Indirect tax
Standard rate: 20% ; Lower rates: 5%

Value-added tax (VAT) applies to most transactions at a rate of 20%. The 5% rate applies to textbooks and certain medical materials and supplies. Financial services, health and education services and leases of dwellings are exempt.

Registration for VAT is compulsory for businesses.

Tax administration and compliance
Tax year: Corporations: accounting year ; Individuals: calendar year

Although the tax year is the calendar year, companies may elect to use a tax year that corresponds to their accounting year. Companies make monthly or quarterly advance payments of tax. Annual corporate tax returns must be filed by May 31st following the tax year (or within 150 days of the end of the company’s tax year if this is different from the calendar year). Quarterly prepayments (monthly for large taxpayers) are due based on the liability for the previous year. The final tax liability is payable with the tax return.

Employment income of individuals employed by a Hungarian company is taxed by withholding. If the individual’s compensation is paid by a foreign (non-Hungarian) entity and the compensation is not paid through a Hungarian entity, tax withholding is operated in the form of quarterly advance tax payments due from the individual.

Additional tax information

Withholding taxes:
Dividends, Interest and Royalties 0%.

Tax treaties: Hungary has concluded more than 60 double tax treaties.

Dividends: Dividends are taxable, with a participation exemption.

Revenue protection: There is transfer-pricing, thin-capitalisation and CFC legislation.

Groups: There is no group taxation, except VAT group taxation.

Incentives: Certain investment incentives.

Other taxes: Gift tax, Import duties, Inheritance tax, Local business profit taxes, Tax on transfer of property, Tax on buildings, Tax on undeveloped plots, Tourism tax, Innovation contribution, Environmental tax, Cultural tax, Registration tax on motor vehicles.
Hungary Info
 
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