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Reasons for investing in a Hungarian limited liability company
Being a country with low taxes and a stable economy, Hungary represents a very attractive country to set up a company, and the preferred by foreign investors is the Hungarian KFT (limited liability company). The incorporation period is rather short and it adds to other advantages offered by the Central European country.
Foreign businessmen who want to open a company in Hungary as a limited liability company can address to our team for the incorporation process. Our consultants in company formation in Hungary have the necessary expertise to represent investors in all the steps that must be completed in the process of opening a Hungarian limited liability company.
Please know that if you will register a limited liability company you can also benefit from various incentives (refundable and non-refundable as the case may be) even if you are a foreign businessman. They can take the form of subsidies, tax reductions, incentives and other benefits established in accordance with the EU rules.
Procedure of registration for a Hungarian LLC in 2024
Before applying for the Court of Registration, there are some preliminary activities to take. Two of the most common types of companies in Hungary are limited liability and the joint stock company. The following procedure is related to the Hungarian LTD company.
Exactly like in the case of a Singapore LLC, the articles of association represents the fundamental act in setting up a limited company in Hungary. The first step and document to put up a file for the registration is the denomination of the company. It must express the real activity object and the legal form of the company. The company’s articles of association must also contain information on the legal entity of the company, as well as on the object of activity carried out through the respective business.
The articles of association have to clearly provide the address of the headquarters of the company. The company can also have other locations where the same operations are developed, but they can only be branches or other operation units. The limited liability company in Hungary can be registered by a single investor.
The subscribed capital must be included in the articles of association, stating the monetary or non-monetary contributions and identification information about the members, name and residence and the signature specimen. Next step is to open a bank account for the financial contribution of the founders. This is mandatory information requested for the setup of the Hungarian LTD.
Documents required for the incorporation of an LLC in Hungary
Depending on the address of the company, this must be registered at a Court of Registration. For the limited liability company the application for the company register at the Court must contain a commercial license, documents of incorporation, of the company’s address and the unique name, the activity and the type of the company. The file must also include the receipt of the bank account.
Registration with the local tax authorities in Hungary in 2024
Through an online system, the Court registers the company with the State Tax Authority (for income taxes and VAT) and with the Statistical Office during the process of registration at the Hungarian Trade Registry. Both the limited liability companies and the joint stock ones in Hungary have to register for Social Security through an application form, after obtaining the Trade Registry certificate.
This company type is required to pay social security contributions and employment taxes once it employs workers. In 2024, the personal income tax is charged at a rate of 15%. The employer is required to pay social contributions in amount of 13% from the total value of the employment contract (the sum established per month).
To incorporate a Hungarian limited company from abroad, the managing board of the entity must assign an attorney to represent the company and complete the necessary steps of registration. The documents submitted for the registration of the company must contain authenticated translations in Hungarian.
If you want to register a limited liability company in 2024, you can always address to our team of specialists in company formation in Hungary, who can advise on the main benefits and the obligations you will have as a business owner.
Amongst other obligations, a limited liability company is required to comply with the accounting law applicable in this country. The accounting procedures have to be maintained throughout the entire financial year.
In Hungary, the accounting year starts on 1 January and it ends on 31 December. Our accountants in Hungary can prepare the necessary financial documents. Below, we invite you to watch a short presentation on how to set up a limited liability company in Hungary:
What are the advantages of a limited liability company in Hungary?
The limited liability company has numerous advantages, as this company type is designed to help investors who can set up a small or medium-sized company. For these two types of companies, investors will generally have a limited amount to invest and limited resources and the limited liability company is designed to protect such investors.
In this sense, it is necessary to know that the Hungarian limited liability company has as a main advantage the fact that the investors are protected against the company’s debts. The company type is considered from a legal point of view to be a separate entity, that has its own legal personality acquired through the articles of association and this is why there is a clear distinction between the company and the founders.
The investors will still have a certain level of liability for the company’s debts, but only in the limit of their capital participation and this is a major advantage provided by this company type. Another advantage is that it can be set up by a single investor.
This can have certain disadvantages, as some businessmen start their own business when they have very limited business experience and having a business partner with whom one can discuss over the company’s business plans can be a better option; however, there are numerous businessmen who have set up their own business and have very successful business activities.
The limited liability company in Hungary offers the possibility of starting the company as a single investor (with limited liability as well) or in a business partnership, where there are at least two investors. With regards to the investors, who, in a limited liability company are known as shareholders, it is necessary to know that the Hungarian law allows 100% foreign ownership.
Although in other countries there can appear limitations to this, as foreign investors will need to have a local business partner, this is not the case in Hungary, as the country is aligned with the European Union’s rules regarding this matter, and in all EU member states, the limited liability company can be founded with full foreign ownership; please address to our team of consultants, who can provide more details on how to open a company in Hungary as a limited liability company.
It is also important to know that if you want to open a limited liability company in 2024, you have the possibility to later change the legal entity of this company type into a public limited company.
If you want to register a legal entity, you will be asked to pay registration fees. In 2024, investors are required to pay a fee of HUF 50,000 to HUF 100,000.
What are the tax obligations of Hungarian limited liability companies?
The Hungarian limited liability company is registered with the purpose of developing commercial activities which, under the Hungarian law, are taxed. This company type is required to pay the corporate income tax, charged to other company types as well, such as the joint stock company, the value added tax (charged for both the sale of goods and services), withholding taxes and others.
With regards to the payment of the corporate income tax, companies must pay this tax regardless if they have had profit for the respective financial year or not. In 2024, companies dealing with this issue have to apply for the taxation of the minimum income tax base, which is established at 2% of the total revenue.
This legal entity is also required to pay employment related taxes; in the list below, our team of consultants in company formation in Hungary has prepared a short list of the main taxes charged to companies, but you can always address to our team for a more detailed presentation regarding this subject:
- the standard corporate income tax is charged at the rate of 9%, starting with 1st of January 2017;
- a limited liability company in Hungary that has to pay the VAT will be charged with the standard rate of 27%;
- however, local companies can also benefit from lower VAT rates, of 18% and 5%, as long as the services or goods that they are selling qualify for these lower tax thresholds;
- investors purchasing property in Hungary will need to pay a property transfer tax, charged at a rate of 4% from the value of the property, for properties with a value of maximum HUF 1 billion;
- for properties that have a value above HUF 1 billion, the property tax will be charged at a rate of 2% (for the value of up to HUF 1 billion the 4% tax rate will be calculated, and for the remaining value above HUF 1 billion, the 2% rate will be calculated, but one must know that the maximum tax charged for property transactions is capped at HUF 200 million).
Some of the advantages of opening a Hungarian limited liability company are that this company type provides limited liability against debts, but it also benefits from a low corporate tax rate, of only 9%, a tax rate that is considered very low compared to other tax systems of neighboring countries. Please contact our company formation specialists for more details and a personalized offer.