Entering the Hungarian Market

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The Hungarian Market

Foreign companies who wish to expand into Hungary will be met with the one of the strongest manufacturing sectors in Europe, a skilled and educated workforce, attractive tax incentives, and a variety of growth incentives and collaborative opportunities for investors with the state.

However, setting up shop in an unfamiliar place comes with its own challenges. Foreign businesses must comply with employment, tax, payroll, and corporate legislation whilst ensuring that their employees are working productively and efficiently.

Starting a Business in Hungary

Hungary’s geographical position benefits from international access to diverse marketplaces in the EU, Russia, and Asia. With a strong industrial and manufacturing sector specializing in electronics and automotive, and high-quality logistics, this creates an attractive environment for any business owner who seeks to expand their business.

To start a business in Hungary you must go through a company registration procedure, which is straightforward and designed to be executed easily. These steps can be done in person or online through the one-stop-shop Companies Register website.

The necessary steps to start a business in Hungary include:

  • Obtaining a local business address.
  • Obtaining a commercial license from the Hungarian Ministry of the Economy.
  • Opening a bank account in Hungary to deposit the appropriate share capital.
  • Obtain legal representation through a local representative or law firm.
  • Preparing the appropriate registration documents and having them translated to Hungarian or English.
  • Notarizing and legalizing the registration documents at a notary’s office.
  • Register your company at the Company Registry.
  • Register in the municipality with the Court of Registration.
  • Register for a VAT Number and a Tax Identification Number with the regional and national tax authorities.
  • Register with the National Health Insurance Fund (NEAK).
  • Register with the Central Office of Statistics (KSH).
  • Receive a company incorporation certificate, a tax identification number, and a social security number.

Expanding into Hungary

Foreign companies wishing to expand into Hungary will be swept into a thriving economy with a sizable talent pool, and attractive administrative and labor costs – which is provided to all companies that enter their market. The country’s position in the center of Europe offers easy trade access to the rest of the continent, with its strong connections by air, water, land, and rail.

Hungary boasts a formidable industry sector, which contributes over 30 per cent of the gross value added and employs over 1 million workers. However, the country also does well in other sectors such as commerce, information and communication, and agriculture.

These industries have a lot of opportunity for expansion both nationally – to other popular cities such as Budapest, Debrecen, Szeged, Miskolc, Pécs, and Gyor – and internationally.

Hungarian Business Facts

  • Capital City – Budapest
  • Population – 9,730,000
  • Cities – Debrecen, Szeged, Miskolc, Pécs, Győr, Nyíregyháza, Kecskemét
  • Official language(s) – Hungarian
  • Economy/GDP (2020) – $316.342 million, (53rd)
  • World Ranking (Ease of Doing Business) – 52nd
  • Leading sectors – Information technology, motor vehicles, pharmaceuticals, electronics, textiles, food processing, construction materials
  • Main exports – refined petroleum, corn, poultry meat, hot-rolled iron, vehicle parts, cars, spark-ignition engines, packaged medicines,
  • Main imports – crude petroleum, petroleum gas, refined petroleum, other iron products, raw aluminium, integrated circuits, office machine parts
  • Main trading partners – Germany, Romania, Italy, Austria, Poland, Netherlands, Czech Republic, France, Slovakia, China
  • Government – Unitary parliamentary constitutional republic
  • Currency – Forint (HUF)

Advantages and Challenges of the Hungarian Market

The Hungarian market has a variety of significant advantages:

  • Low labor costs: Labor costs are significantly cheaper in Hungary than its other European counterparts, allowing the country to integrate itself optimally into the European production chain, and is considered an efficient production hub.
  • Competitive tax system: Hungary boasts the lowest tax rate in Europe.
  • Educated workforce: Hungary’s workforce is highly educated and skilled, with an emphasis on engineering, medicine, and economics.
  • Language: The local workforce is multilingual, but the main language for business is English.
  • Ranking: Hungary ranks 1st in ‘Trading Across Borders’ for the Ease of Doing Business Survey.
  • Logistics: Hungary’s location in Europe offers a variety of logistics options such as motorways, railways, ships, and air.
  • EU Benefits: Hungary is a member of the European Union and enjoys the same trade benefits of other EU nations.

The biggest challenge facing the Hungarian market currently is the effects of COVID-19, like many other nations in the EU and around the world. Other challenges include unpredictable and sector-specific tax regulations, low talent pools, and high VAT rates, but reforms and incentives are taking place to combat these challenges.

Limited Company / Subsidiary or Branch in Hungary?

A subsidiary established in Hungary is considered a legal separate entity from the parent company, with independent administration and management, providing freedom explore the local market and create international credibility.

A branch, however, does not have any independence from the parent company, but it is taxed and reported similarly to resident entities, and is limited in its commercial activities.