Published on and written by Cyril Jarnias
Dreaming of starting your entrepreneurial journey in Hungary? This comprehensive guide will walk you step by step through setting up your business as an expat in this Central European country. Discover the key steps, possible legal structures, administrative procedures to follow, and tax specifics to consider for a successful international entrepreneurship project in Hungary.
Legal Structures for Starting a Business in Hungary
Before diving into starting your business in Hungary, it’s essential to understand the different legal forms available. Choosing the structure best suited to your project will significantly impact your legal and tax obligations.
The limited liability company (Kft) is the most common legal form for small and medium-sized enterprises in Hungary. It has the advantage of limiting the liability of members to their contributions and offers great flexibility in management. The minimum required share capital is 3 million Hungarian forints (approximately 8,000 euros), making it accessible to many entrepreneurs.
The private company limited by shares (Zrt) is a more suitable option for larger companies or projects requiring significant investments. It allows for easier fundraising by issuing shares but involves stricter legal and administrative obligations. The minimum share capital is set at 5 million Hungarian forints (approximately 13,500 euros).
The sole proprietorship is a simple solution for entrepreneurs looking to start on their own. It requires no minimum capital and offers great freedom in management, but exposes the entrepreneur to unlimited liability on personal assets.
The branch office can be an interesting option for foreign companies wanting to establish a presence in Hungary without creating a separate legal entity. It allows for certain tax advantages while remaining attached to the parent company.
Good to know:
The limited liability company (Kft) is generally recommended for expat entrepreneurs due to its flexibility and ease of management.
Administrative Steps to Start a Business in Hungary
Once you have chosen the legal structure best suited to your project, it’s time to tackle the administrative steps to start your business in Hungary. Although the process may seem complex, it is relatively quick and efficient if you follow these steps:
1. Reserve the company name: Start by checking the availability of the name you want for your company with the Hungarian Companies Registry. Once the name is approved, you will need to reserve it for a period of 60 days.
2. Draft the articles of association: Your company’s articles of association must be drafted in Hungarian and contain all required legal information, such as the business purpose, share capital, management terms, etc. It is highly recommended to hire a local lawyer for this crucial step.
3. Open a bank account: You will need to open a bank account in the name of your future company to deposit the share capital. Choose a reputable bank familiar with the needs of expat entrepreneurs.
4. Register with the Companies Registry: The official registration of your company is done with the competent court of registration. You will need to provide all necessary documents, including the articles of association, proof of share capital deposit, and identity documents of the members.
5. Obtain a tax identification number: Once the company is registered, you will need to obtain a tax identification number from the Hungarian tax authority. This number will be essential for all your administrative and tax procedures.
6. Register with social security: If you plan to hire employees, you will need to register with the Hungarian social security organization.
Good to know:
The average time to start a business in Hungary is about 5 to 7 business days, making it one of the fastest countries in Europe for business creation.
Tax Considerations for Expat Entrepreneurs in Hungary
Taxation is a crucial aspect to consider when starting your business in Hungary as an expat. The Hungarian tax system has certain peculiarities that are important to understand to optimize your situation.
Corporate income tax in Hungary is set at a flat rate of 9%, making it one of the lowest in Europe. This attractive tax regime is a major asset for foreign entrepreneurs looking to establish themselves in the country.
VAT in Hungary is a standard rate of 27%, one of the highest in the European Union. However, reduced rates of 18% and 5% apply to certain goods and services. It is crucial to understand the VAT rules applicable to your business.
Social security contributions are relatively high in Hungary, with employer contributions of around 17% of gross salary. As an entrepreneur, you will also need to pay personal social security contributions.
Personal taxation for expat entrepreneurs depends on their tax residency status. If you become a Hungarian tax resident (present for more than 183 days per year), you will be taxed on your worldwide income. Otherwise, only your Hungarian-source income will be taxed.
Tax treaties between Hungary and your home country can significantly impact your tax situation. It is recommended to consult an international tax expert to optimize your overall tax strategy.
Good to know:
Hungary offers attractive tax incentives for certain business sectors, particularly in research and development and innovation. Look into possible tax exemptions or reductions related to your field of activity.
Access to Financing for Expat Entrepreneurs in Hungary
Financing is often a major challenge for expat entrepreneurs. Fortunately, Hungary offers various options to fund your business project.
Hungarian banks offer business loans, but conditions may be stricter for foreign entrepreneurs. It is important to prepare your application thoroughly and present a solid business plan.
European funds are an interesting source of financing for businesses established in Hungary. The country benefits from numerous grant and preferential loan programs under the European Union’s cohesion policy.
Private investors and business angels are increasingly active in Hungary, especially in the tech startup sector. Networks like the Hungarian Business Angel Network can help you connect with potential investors.
Business incubators and accelerators are numerous in Hungary, particularly in Budapest. They offer not only valuable support but can also help you find funding.
Crowdfunding is growing rapidly in Hungary and can be an interesting option for certain types of projects, especially in creative or innovative fields.
Good to know:
The Hungarian Investment Promotion Agency (HIPA) offers free services to foreign investors, including information on funding opportunities and government incentives.
Cultural Differences in Hungarian Business Practices
Understanding and adapting to cultural differences is essential for success as an expat entrepreneur in Hungary. Here are some key points to keep in mind:
Hierarchy is important in Hungarian companies. Decisions are often made at the top, and respect for authority is valued. As a manager, you will be expected to make clear decisions and give precise instructions.
Communication tends to be more direct than in some Western countries. Hungarians appreciate frankness and clarity in professional exchanges. However, it is important to remain polite and not be too aggressive.
Personal relationships play an important role in business in Hungary. Taking the time to build trusting relationships with your partners, clients, and suppliers is crucial for long-term success.
Punctuality is valued in the Hungarian business world. Arrive on time for meetings and meet agreed deadlines.
Negotiation can take time in Hungary. Decisions are not always made quickly, and patience and perseverance may be necessary.
Good to know:
Learning a few words of Hungarian, even if just basic greetings, will be greatly appreciated by your local contacts and can open many doors.
Support Resources for Expat Entrepreneurs in Hungary
As an expat entrepreneur in Hungary, you are not alone. Many resources are available to support you in your project:
The Franco-Hungarian Chamber of Commerce and Industry offers valuable support to French entrepreneurs establishing themselves in Hungary. It provides information services, networking opportunities, and legal and tax assistance.
The French Embassy in Hungary has an economic department that can provide useful information on the Hungarian market and connect you with local partners.
International consulting firms present in Hungary (such as PwC, Deloitte, KPMG) offer comprehensive support services for foreign entrepreneurs, covering legal, tax, and strategic aspects.
Expat associations, such as InterNations Budapest, can be an excellent source of information and contacts for newcomers.
Business incubators and coworking spaces in Budapest and other major Hungarian cities offer not only workspaces but also networking and training opportunities.
Good to know:
The Hungarian Investment Promotion Agency (HIPA) offers a “one-stop-shop” service for foreign investors, providing free and personalized support throughout the process of establishing a presence in Hungary.
Starting a business in Hungary as an expat is an exciting adventure that offers many opportunities. With its strategic location at the heart of Europe, attractive tax regime, and dynamic economy, Hungary is attracting more and more foreign entrepreneurs. By following the steps outlined in this guide, adapting to local cultural specifics, and taking advantage of available support resources, you will maximize your chances of success in your entrepreneurial project in this fascinating country.
Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
