Expanding your business into Hungary by setting up a subsidiary can be a strategic move for tapping into Central and Eastern Europe. Hungary offers a favourable corporate tax rate, the lowest in the EU at 9%, a skilled and cost-effective workforce, and a well-developed infrastructure, especially in sectors like manufacturing, logistics, automotive, and IT.
Setting up a subsidiary company in Hungary allows foreign businesses to operate as a separate legal entity, offering greater operational flexibility and limited liability protection.
Key Takeaways
- Hungary has a flat corporate tax rate of 9%, making it the lowest in the European Union.
- The country permits 100% foreign ownership, allowing investors full control over their businesses.
- Hungary boasts an educated, multilingual, and cost-effective workforce, making it attractive for international companies.
- Its central location in Europe positions Hungary as a strategic logistics hub with excellent connectivity.
- The legal system in Hungary is EU-compliant and offers an investor-friendly environment that supports business growth.
In this guide, we’ll walk you through everything you need to know about how to establish a subsidiary company in Hungary. Whether you’re a small business or a multinational corporation, you’ll find actionable insights here about how to form a subsidiary in Hungary.
What are the Types of Subsidiaries in Hungary
When setting up a subsidiary company in Hungary, foreign businesses have several subsidiary structures to choose from, depending on their operational and strategic goals. The most common legal forms for subsidiaries are as follows:
1. Wholly-Owned Subsidiary
The foreign parent company entirely owns a wholly-owned subsidiary. In Hungary, this is most often established as a Korlátolt Felelősségű Társaság (Kft), which is a limited liability company.
- Ownership: 100% owned by the parent company
- Control: Full control over decision-making and operations
- Liability: Limited to the amount of capital invested
- Preferred For: Businesses seeking full independence and legal separation from the parent company
2. Joint Venture Subsidiary
A joint venture involves a partnership between a foreign parent company and one or more Hungarian partners (companies or individuals). A joint venture agreement defines ownership and profit-sharing.
- Ownership: Shared between the parent and local partners
- Control: Joint management as per contractual agreement
- Liability: Limited to the respective ownership stakes
- Preferred For: Companies wanting local market insight or access to established networks
3. Private or Public Limited Company (Zrt. or Nyrt.)
While less common, subsidiaries can also be set up as:
- Zártkörűen Működő Részvénytársaság (Zrt) – Private Company Limited by Shares
- Nyilvánosan Működő Részvénytársaság (Nyrt) – Public Company Limited by Shares
These are typically used by larger companies that require a more complex capital structure or are planning to go public.
Step-by-Step Guide to Setting Up a Subsidiary in Hungary
Understanding how to create a subsidiary in Ghana requires careful attention to regulatory and compliance steps. Below is a streamlined guide to help businesses with the process:
Step 1: Select the Legal Form
The first step in establishing your subsidiary in Hungary is choosing the appropriate legal structure. Most foreign businesses opt for a Korlátolt Felelősségű Társaság (Kft), which is the equivalent of a Limited Liability Company (LLC).
Step 2: Appoint Directors and Identify Shareholders
To set up a Kft, you must appoint at least one managing director. There is no legal obligation for the director to reside in Hungary, making it easier for foreign businesses to manage operations remotely or appoint non-resident executives. Shareholders may be individuals or corporate entities, offering flexibility in ownership structure.
Step 3: Reserve a Company Name
Choosing a unique and compliant company name is mandatory. The name must adhere to Hungarian naming conventions and cannot be identical or misleadingly similar to existing businesses. You can check name availability through the Company Information Service provided by the Hungarian Ministry of Justice before reserving it for your subsidiary.
Step 4: Draft and Notarize the Articles of Association
The Articles of Association serve as the company’s founding document. It should clearly define the subsidiary’s business activities, capital structure, and the responsibilities of directors and shareholders. A Hungarian lawyer must sign and notarize this document, ensuring it complies with local legal requirements before submission.
Step 5: Open a Corporate Bank Account
A corporate bank account in Hungary is essential to deposit the required minimum share capital. For a Kft, this amount is HUF 3 million. You will need to present preliminary incorporation documents to the bank, and once the capital is deposited, the bank will issue a certificate confirming the transaction.
Step 6: Register with the Court of Registration.
Next, submit your application for company registration to the Court of Registration. Required documents typically include the notarized Articles of Association, identification documents (such as passports or ID cards) for all directors and shareholders, proof of a registered office in Hungary, and the bank certificate confirming the capital deposit. The process is mostly electronic and is usually completed within 1–2 business days.
Step 7: Apply for Tax and EU VAT Numbers
Your subsidiary must register with the National Tax and Customs Administration (NAV) to receive a Hungarian tax identification number. If your business plans to engage in cross-border trade within the EU, you’ll also need to apply for an EU VAT number at this stage.
Step 8: Notify Local Municipality
Once the tax number is secured, you must notify the local municipality where your business is based. This registration is necessary for paying local business taxes, which vary by location. Municipal tax obligations typically depend on the nature and volume of your business operations.
Step 9: Ensure Accounting and Compliance
After incorporation, ongoing compliance is crucial. You must appoint a local accountant who understands Hungarian accounting standards and tax regulations. Your business will need to maintain accurate books and submit monthly and annual reports, including financial statements and tax filings, to remain compliant with Hungarian law.
Key Benefits of Establishing a Subsidiary in Hungary
Want to learn how to set up a parent company with subsidiaries in Hungary? Hungary offers numerous strategic and financial advantages for foreign businesses setting up a subsidiary company in Hungary:
- Gateway to European Markets: Hungary’s location in Central Europe makes it a hub for accessing EU and non-EU markets, especially in Eastern and Central Europe.
- Attractive Corporate Tax Rate: At 9%, Hungary boasts the lowest corporate income tax rate in the European Union, significantly reducing the tax burden for companies.
- Strong Government Incentives: The Hungarian government provides various incentives to foreign investors, including R&D tax credits, employment subsidies and investment grants in strategic sectors (e.g., manufacturing, tech).
- Skilled and Multilingual Workforce: Hungary has a highly educated labour force, especially in engineering, IT, finance, and manufacturing. Many professionals speak English and German.
- Stable Legal Framework: As an EU member state, Hungary follows EU legislation and offers solid protections for intellectual property, contracts, and foreign investment.
Essential Documents for Registering a Subsidiary in Hungary
To complete the incorporation process when setting up a subsidiary company in Hungary, the following documentation is required:
Mandatory Corporate Documents:
- Articles of Association (signed and notarised)
- Parent Company Incorporation Documents (e.g., Certificate of Incorporation, translated into Hungarian)
- Declaration of Acceptance by directors and supervisory board members (if applicable)
Identity Verification:
- Passports or National IDs of all directors and shareholders
- Specimen Signatures (authenticated by a lawyer or notary)
Financial and Office Documentation:
- Bank Certificate showing deposited share capital
- Registered Office Declaration (proof of Hungarian business address)
Additional Documents:
- Tax registration forms (for NAV)
- Request for EU VAT number (if needed)
- Power of Attorney (if a representative or lawyer is handling the process)
Legal Structures Available for Subsidiaries in Hungary
When setting up a subsidiary company in Hungary, foreign investors can choose from several legal forms. The most commonly adopted structures include:
1. Korlátolt Felelősségű Társaság (Kft) – Limited Liability Company
This is the most popular and practical form for subsidiaries in Hungary.
- Minimum Capital: HUF 3 million (~€7,700)
- Liability: Limited to the capital contributed
- Ownership: Can be wholly foreign-owned
- Management: Managed by one or more directors (no residency requirement)
Ideal for small to medium-sized businesses due to flexibility and minimal bureaucratic requirements.
2. Zártkörűen Működő Részvénytársaság (Zrt) – Private Company Limited by Shares
A Zrt allows for the issuance of shares but is not publicly traded.
- Minimum Capital: HUF 5 million
- Ownership: Can be owned by foreign entities
- Governance: Requires a board of directors and a supervisory board if capital exceeds a certain limit
Ideal for businesses needing structured equity ownership or investor participation.
3. Nyilvánosan Működő Részvénytársaság (Nyrt) – Public Company Limited by Shares
Used for large corporations intending to be listed on a stock exchange.
- Minimum Capital: HUF 20 million
- Complex Compliance: Subject to strict regulatory oversight
Rarely used by subsidiaries unless part of a multinational group planning a local listing.
Taxation Rules and Incentives for Subsidiaries in Hungary
Corporate Taxation in Hungary is not very complex and makes setting up a subsidiary company in Hungary fairly simple. Here is how Hungary offers a favourable and straightforward tax regime for subsidiaries:
Corporate Tax Structure
- Corporate Income Tax (CIT): Flat rate of 9%, the lowest in the European Union.
- Local Business Tax: Levied by municipalities, typically ranges from 0% to 2% of taxable revenue (not profit).
Tax Incentives and Benefits
- Development Tax Allowances: Large-scale investments may qualify for CIT relief of up to 80% for 10 years.
- R&D Tax Benefits: Dedications are available for R&D expenses, including wage costs and depreciation.
- Employment Subsidies: Incentives offered for hiring young employees, long-term unemployed, or regional workforce.
- Accelerated Depreciation: Certain assets qualify for faster write-offs, reducing taxable income in early years.
These tax rules are essential to understand whether you want to understand how to start a parent company in Hungary or a subsidiary.
Regulatory and Compliance Requirements
Operating a subsidiary in Hungary requires compliance with several ongoing legal, tax, and administrative obligations. This is extremely important as it can make or break your business expansion plans. Here are the requirements in detail:
1. Company Registration and Amendments
- All subsidiaries must be registered with the Hungarian Court of Registration.
- Changes (address, directors, etc.) must be updated within 30 days.
2. Accounting and Bookkeeping
- Must follow Hungarian Accounting Standards (HAS) or IFRS (if opted).
- Maintain double-entry bookkeeping in Hungarian.
- Annual financial statements must be filed with the Court of Registration.
3. Tax Filing and Reporting
- Monthly/Quarterly VAT Returns
- Annual Corporate Tax Returns
- Local Business Tax Filing
- Employers must submit monthly payroll reports and social security contributions.
4. Statutory Audit
Required if two of the following apply for two consecutive years:
- Revenue exceeds HUF 300 million
- Balance sheet total exceeds HUF 500 million
- More than 50 employees
Do You Need a Physical Address for a Subsidiary in Hungary?
Yes, a registered office is mandatory when setting up a subsidiary company in Hungary. All subsidiaries in Hungary must have a registered local address, which serves as the legal seat for official correspondence and registration purposes. Below are the registered office requirements and alternative options:
Registered Office Requirements:
- Must be located in Hungary
- Must be declared during business incorporation
- Official documents and tax letters will be sent here
Alternative Options:
- Virtual Office Services:
Many foreign companies use business service providers offering a registered address and mail forwarding services. - Law Firm or Accounting Firm Address:
Legal representatives or accountants often provide temporary addresses during setup or as long-term registered offices.
Note: A separate operational address (warehouse, shop, office) can differ from the registered office.
Operational Setup for a Subsidiary in Hungary
Setting up operations for your Hungarian subsidiary involves several practical considerations that go beyond just company registration. Once the legal entity is established, businesses must ensure they are operationally ready to begin commercial activities in compliance with local laws. Here is more about it in detail:
1. Staffing and Hiring
- Hungary offers a skilled and competitive workforce, particularly in IT, automotive, and engineering.
- Labour contracts must be written, and employees are covered by Hungary’s Labour Code.
- Employers must register employees with the Hungarian Tax Authority (NAV) and the social security system.
2. Office Setup
- Subsidiaries can lease or purchase office space depending on operational needs.
- Shared workspaces and business parks are available in cities like Budapest, Debrecen, and Szeged.
3. Payroll and HR Management
- Monthly payroll administration includes:
- Withholding personal income tax (15%)
- Employer’s social contributions (~13%)
- Employee’s social security contributions (~18.5%)
- Many businesses outsource payroll to local HR firms for compliance.
4. IT and Utilities
- Hungary has a modern telecom infrastructure with widespread broadband and fibre connectivity.
- Utility setup is straightforward and typically handled by property managers in commercial leases.
5. Business Insurance
- While not mandatory in all cases, it is recommended to have:
- General liability insurance
- Employer liability coverage
- Property insurance for assets and premises
How to Open a Business Bank Account for a Subsidiary in Hungary?
Opening a business bank account is a key step in the subsidiary setup process. Here are the Steps to open a corporate bank account in Hungary:
- Choose a Bank: Select from major Hungarian banks like OTP Bank, K&H Bank, UniCredit, or Erste Bank. Some international banks also operate locally.
- Book an Appointment: Most banks require a pre-scheduled meeting. In-person presence of at least one company representative is usually required.
- Submit Required Documents: Prepare the necessary documentation (see below).
- Deposit Share Capital: For a Kft, the minimum share capital of HUF 3 million must be deposited into the account.
- Receive Confirmation: The bank issues a certificate confirming the deposit, which is needed to complete company registration.
Is an Operating Agreement Necessary for a Subsidiary?
Yes, an operating agreement (also referred to as the Articles of Association in Hungary) is mandatory when forming a subsidiary like a Kft or Zrt. It governs the subsidiary’s internal structure and operations. Hungarian law mandates that all companies submit a notarised operating agreement during the company registration process. This is why it matters:
- Defines ownership structure: Lists shareholders, their contributions, and percentage ownership.
- Outlines management responsibilities: Specifies the powers of directors and decision-making processes.
- Sets operational rules: Includes voting procedures, dividend policies, and exit strategies.
Opening a Branch vs. a Subsidiary in Hungary: What’s the Difference?
Foreign companies can either open a branch office or a subsidiary in Hungary. Each has different legal and tax implications. Here are the key differences:
| Aspect | Branch Office (Fióktelep) | Subsidiary (e.g., Kft) |
| Legal Status | Not a separate legal entity; operates under the parent company’s identity | Separate legal entity with its own legal personality |
| Liability | Parent company bears full liability for all operations and debts | Liability limited to the amount of the subsidiary’s share capital |
| Administrative Structure | Simpler setup with fewer formalities; limited operational independence | More complex but allows full control and independent local decision-making |
| Taxation | Taxed in Hungary; must register with tax authority and file local returns | Taxed locally; eligible for tax incentives and can benefit from local subsidies |
| Contractual Capacity | Cannot act independently in contracts | Can enter into contracts, own assets, and sue or be sued in its own name |
| Operational Flexibility | Limited scope for autonomous business decisions | High level of autonomy to manage local business activities |
How Commenda Can Help You Expand in Hungary
Expanding into Hungary can be complex, but Commenda simplifies the journey. We provide full-spectrum support to help businesses with legal, administrative, and operational hurdles.
Our Services Include:
- Entity Structuring: Guidance on the best legal structure for your goals, Kft, Zrt, or branch.
- Company Formation: We handle document preparation, translation, and court registration.
- Bank Account Assistance: Coordination with Hungarian banks to simplify corporate account opening.
- Registered Office & Virtual Address: Reliable address services that meet local legal requirements.
- Ongoing Compliance Support: Includes tax filings, payroll setup, and local accounting.
- HR and Employment Services: Assistance with employment contracts, recruitment, and onboarding.
With Commenda, your entry into the Hungarian market is fast, compliant, and stress-free. Book a free demo to get started!
FAQs
Q. How much does it cost to set up a subsidiary in Hungary?
Expect costs starting around HUF 3 million, with a separate fee of HUF 100,000. This includes legal, translation, notary, and registration fees. Government fees are relatively low, but legal and banking support may add to the total.
Q. How long does it take to register a subsidiary in Hungary?
With proper documentation in place, the registration process for a subsidiary in Indonesia can generally be completed within a few weeks; however, depending on the business sector, approval requirements, and administrative workload, it may take up to a few months after submission.
Q. Can a foreigner fully own a subsidiary in Hungary?
Yes. 100% foreign ownership is allowed for all legal structures, including Kft and Zrt.
What are the common challenges when opening a subsidiary in Hungary?
- Language barrier (official documents must be in Hungarian)
- Bank account setup delays
- Complex tax and payroll compliance
- Understanding local labour laws
Q. What are the common challenges when opening a subsidiary in Hungary?
Some common challenges when opening a subsidiary in Hungary are the language barrier, legal and tax compliance, and opening a bank account, employment regulations and Cultural differences.
Q. Do subsidiaries in Hungary need a local director or representative?
No, there is no residency requirement. However, appointing a local representative or using a service provider can simplify communication with authorities.
Q. What are the annual compliance requirements for subsidiaries in Hungary?
- Annual financial statement filing
- Corporate income tax return
- Local business tax filing
- Monthly/quarterly VAT reports
- Payroll reporting (if employing staff)
Q. Can a subsidiary hire employees directly in Hungary?
Yes. Subsidiaries can directly employ local or foreign staff, subject to compliance with Hungarian labour laws. This makes the process of running a subsidiary in Hungary relatively hassle-free.
Q. What happens if a subsidiary fails to meet compliance rules in Hungary?
Non-compliance can result in:
- Fines and penalties from the NAV or municipalities
- Loss of good standing in the company register
- Legal dissolution in extreme cases
- Delays in VAT refunds or banking operations
