Setting up a Branch in Hungary in 2024-25: Process & Benefits Explained

Hungary, a dynamic nation in Central Europe, offers attractive prospects for international companies aiming to grow their operations. Establishing a branch office in Hungary provides a strategic advantage for tapping into its strong market and the wider European Union (EU). This detailed guide will examine the procedures, features, advantages, and prerequisites for setting up a branch in Hungary, equipping you with the crucial information necessary for making this important business decision.

Read More: Do you want to set up a company in Hungary?

Characteristics of a Branch Office in Hungary

A branch office in Hungary is an extension of a foreign company, designed to conduct business activities in the region without forming a separate legal entity. Below are the defining characteristics of a branch office in Hungary:

1. No Separate Legal Personality: Unlike a subsidiary, a branch office is not a distinct legal entity but operates as an integral part of the parent company. This means that the parent company assumes full liability for the branch’s obligations and debts.
2. Local Representation: The branch serves as the parent company’s representation in Hungary, enabling it to engage in business operations like trading, signing contracts, or offering services.
3. Taxation: The branch is taxed locally on income generated within Hungary, and it must comply with Hungarian accounting standards.
4. Simplified Management: The branch office does not require a local board of directors, but it does need at least one appointed representative to oversee its operations.
5. Activities: While a branch office can perform a wide range of activities, it must adhere to the laws governing foreign companies in Hungary, including restrictions on specific sectors if applicable.

How to Establish a Branch in Hungary?

Establishing a branch office in Hungary involves several steps to ensure compliance with the country’s legal and regulatory framework. Below is a step-by-step process:

1. Board Approval and Documentation:

• Secure the parent company’s board resolution authorizing the establishment of a branch in Hungary.
• Gather essential corporate documents, such as the parent company’s Certificate of Incorporation, Articles of Association, and proof of share capital.

2. Appoint a Branch Representative:

• Assign a local representative with the authority to act on behalf of the branch. This person will handle administrative tasks and represent the branch in legal matters.

3. Prepare Documentation for Registration:

• Details of the branch office, including its name, registered address, and scope of operations.
• A certified list of directors and shareholders of the parent company.
• Specimen signature of the branch representative.

4. Register with the Court of Registration:

• Submit all documentation to Hungary’s Court of Registration. This step formally establishes the branch and provides it with a registration number.

5. Tax and VAT Registration:

• Register the branch with Hungary’s National Tax and Customs Administration to obtain a tax identification number.
• Register for Value Added Tax (VAT) to ensure compliance with Hungary’s VAT regulations.

6. Social Security Registration:

• If the branch employs staff locally, register with the Hungarian social security system to comply with employment laws.

7. Open a Business Bank Account:

• Set up a Hungarian bank account to manage the branch’s finances and operational transactions.

The entire registration process typically takes up to five working days if all documents are prepared correctly and submitted on time.

Benefits of Opening a Branch Office in Hungary

Establishing a branch office in Hungary offers multiple advantages for foreign companies:

1. Access to the European Market: Hungary’s membership in the European Union allows businesses to tap into the vast EU market, benefiting from free trade and movement of goods, services, and capital.
2. Strategic Location: Positioned at the crossroads of Europe, Hungary offers excellent connectivity to Western and Eastern European markets, making it a strategic location for expansion.
3. Competitive Tax Regime: Hungary boasts one of the lowest corporate tax rates in the EU at 9%, making it a tax-friendly environment for foreign businesses.
4. Skilled Workforce: The country is home to a highly educated and skilled workforce, particularly in fields like IT, engineering, and finance, enabling companies to access top talent.
5. Business-Friendly Environment: Hungary’s government actively supports foreign investment through incentives, grants, and favorable business regulations.
6. Simplified Operations: Setting up a branch is often faster and less complex than establishing a subsidiary, allowing businesses to commence operations quickly.

Requirements for Registering a Branch Office in Hungary

Foreign companies must meet specific requirements to register a branch office in Hungary:

1. Parent Company Documentation: Certified copies of the parent company’s incorporation documents and financial statements. Proof of the parent company’s good standing in its home country.
2. Local Address: A registered address for the branch office in Hungary, which serves as its official place of business.
3. Appointed Representative: A Hungarian resident or non-resident representative with the legal authority to act on behalf of the branch.
4. Compliance with Hungarian Laws: Adherence to Hungarian accounting and tax regulations, including maintenance of proper records and submission of annual financial statements.
5. Employment Registrations: If hiring staff, comply with Hungary’s labor laws, including registering employees with the social security system.

Conclusion

Opening a branch office in Hungary is a strategic move for businesses seeking to expand into Europe. With its favorable business environment, low corporate tax rate, and skilled workforce, Hungary offers a compelling destination for international companies. By understanding the characteristics, benefits, and requirements, businesses can seamlessly establish their presence in Hungary and unlock new growth opportunities.

If you want to open your branch office in Hungary, contact OnDemand International‘s Hungarian expert today.