Hungary – tax paradise in the heart of Europe

Hungary, with its official name the Republic of Hungary, is a member of the European Union, located in Central Europe. The neighboring countries are Austria, Slovenia, Croatia, Serbia, Romania, Ukraine and Slovakia. Hungary offers many business opportunities and it is also a good starting point for expansion into Eastern Europe with its growing markets. The main advantage of doing business in Hungary are low taxes and low administrative burdens. Although it is not a tax haven in the traditional meaning of the word, small and medium-sized companies have a half-income tax rate in comparison with the Czech Republic. The business environment is clear and favorable.

Capital city: Budapest

Official language: Hungarian

Currency: Hungarian Forint – HUF

Description and advantages of  Hungarian jurisdiction

• Extensive network of double tax treaties (more than 60 countries)
• Member of OECD, WTO, NATO
• Dividends are exempt from withholding tax
• Reduced rate of 9 % DPPO for a tax base up to 500 mil HUF (approximately 42 mil. CZK)
• Easy assigned tax number

The Hungarian legal order enshrines similar types of companies like Czech law.

The most common law formo of Hungarian company is called KFT (Kft. – Korlátolt felelőségű társaság, similar to Czech limited liability-s.r.o.)

• At least 1 managing director, at least 1 partner
• Nor members or the authorities of the company do not need to have permanent residence in Hungary
• Obligation of having marked seat of the company in Hungary and person responsible for taking over the mail – „mail agent“
• Minimal basic capital 3 000 000 HUF, at least 50 % must be paid off
• Possibility to do invoices and purchase without VAT to/from all member states of Europe

KFT provides a great opportunity to do business within the EU or elsewhere in the world and it can be used for holding purposes, real estate ownership, but also for ordinary business activities.

The company is registered for VAT and it is assigned a tax registration number as soon as it is established (VATIN – közösségi adószám).

KFT must have a bank account maintained in Hungary, where the personal presence of the agent is required and the account is reported to the tax office and also posted to the online register.

Another type of capital business company is Részvénytársaság (Zrt. – similar to Czech joint-stock company a.s.)

• Optional number of partners
• Minimal basic capital 5 000 000 HUF (in case of paging in the stock 20 000 000 HUF)
• the number of shares any amount divisible by HUF 10,000

Third type is Betéti társaság (Bt. – similar to Czech limited partnership business entity- k.s.)

• operating conditions similar to those of the Czech limited partnership

One of the main advantages of Hungarian jurisdiction is the two rates of income tax for legal entities: 19% and 9%. The reduced rate can be used for tax purposes up to HUF 500 million (approx. CZK 42 million). In the Czech Republic this is 19% for the same tax base.

The VAT rate in Hungary is the highest in the EU – 27%. A reduced rate of 5% applies to certain types of food.

Personal income tax is equal to all and 15%.

In Hungary the dividend payments are exempt from withholding tax, regardless of the destination where they are paid. It does not matter if it goes to English or Seychelles Ltd. Withholding tax is also billed to or from Seychelles.

Another interesting advantage is the exemption from income tax on capital profits.

The incomes from license fees are taxed at 5%.

The time required for starting a new company is in the order of weeks (the time from the decision to set up on the day when the Cégbíróság company issues a confirmation of the application for registration). By obtaining this confirmation, the new company becomes a fully-fledged legal entity. The actual listing of the Commercial Register can be obtained in approximately one month.

Are you interested in setting up a Hungarian company? Take advantage of the non-binding consultation.