SETTING UP A BRANCH OFFICE IN HUNGARY
Hungary is a beautiful Country located in Central Europe. Budapest being it’s capital city, it offers good opportunities to foreign companies to set up their business in Hungary. The major advantage of doing business in Hungary in addition to its prime location, is that its Government has set up investment friendly economic policy, good balance of labour costs, highly skilled labour force particularly in the engineering, IT and other professional services.
One can set up a Limited Liability Company/ branch office/ representative office in this geography and each has a unique criteria to be established on basis of resident directorship, capital amount, timeline in processing incorporation application etc.
The main focus is on setting up of a branch office in Hungary with some first hand information on practical issues one could face. Let us start with key points as to why setting up branch is the best idea-
1. Resident Director– There is no requirement to appoint a director who is a resident of Hungary. Having a resident director is a mandate in some countries like Singapore, Poland, etc. but this is not required in Hungary to set up a branch office. In fact, there is no mandate to even have a minimum director for the branch.
2. No Capital required– Unlike few countries, there is no requirement for contribution of minimum share capital. Branch can be set up and operations can start with zero share capital. This relaxation is a major distinction between setting up of a branch and a Limited Liability Company within the same geography.
3. Minimum shareholders– As mentioned in point no.2 above, since there is no minimum share capital requirement, hence there is no requirement of shareholder subscription.
4. Foreign ownership– Foreign company (head office) will have 100 percent ownership in the branch office. The certified copies of list of directors, Memorandum of Articles, bylaws and certificate of incorporation of the head office will have to be submitted along with the application of branch incorporation.
5. Branch Manager– There is a mandate for appointing a branch manager. Branch manager has to be a person and not any legal entity such as a company or LLC or joint venture. However, this person need not necessarily be a resident of Hungary but it’s quite convenient if that person is a resident of European Union.
6. Timeline– Setting up of branch office takes around 3-4 weeks. The process of approving incorporation application is considerably fast in Hungary and generally government authorities approve application within a week’s time. Setting up a branch is the fastest way to start a business in Hungary in comparison to LLC and joint venture.
7. Cost in setting up office– The cost involved is around Euro 3000 or 10,000 HUF (Hungarian Currency). This may vary from firm to firm as every firm has their own prices for services provided. Please note that these are current rates and are subject to fluctuation.
8. Office space – The branch office can rent out its separate office space or even occupy virtual office space. The office space rental are more economical when compared to other European countries.
9. Import and export of goods– Branch office is permitted to import and export goods. This is an added advantage over setting up a representative office in Hungary.
10. Corporate Tax rate– The Corporate tax rate is 10 percent. This rate is same across LLC, Joint ventures too.
11. Statutory Audits– There is no mandatory requirement of quarterly/ annual statutory audit of branch accounts. This generally saves quite a lot of time and cost. However, a lot of corporates in India which have established entities in Hungary do opt for audits to keep their records accountable and transparent.
12. Post incorporation compliances– There are absolutely no compliances applicable to a branch office except for filing an annual tax return. This is a great deal when compared to all the mandatory annual head accounts filings as applicable in few other countries.
Now, that we have discussed about the advantages of setting up of a branch office in Hungary, we also need to analyse possible difficulties that one may face during the incorporation process. Below are few key points-
1. Official Language– Official Language of Hungary is Hungarian and very few percentage of the population of this country is well versed with English. This could be a difficult point in case one has to hire employees who are of Hungary origin or merely having business partners in Hungary. Lot of foreign countries which are non-residents of EU may face issues in setting up of their business which is dominant with this vernacular language.
2. Translation- All the official documents which needs to be submitted to the Authorities need to be translated to Hungarian language. This is a very common factor observed in countries that do not accept English as their official language. This indeed results in addition to cost and time absorption.
3. Notarisation and Apostille process– All the mandatory documents of the head office (mentioned in point no 4 above) must be submitted after notary and apostille in the countries of the place of incorporation of the head office. As this is a mandate, this becomes a time consuming process to get documents apostilled in Hungary Embassy. This becomes a pressing issue if one has very less timeline to set up a branch office and all the time is consumed in sending across the original copies to Hungary.
Having analysed all the positives and drawbacks of setting up a branch office in Hungary, I would like to conclude that doing business in this country is really economical and employee friendly. There is no requirement for the companies to hire a certain number of Hungary residents as employees of the Company/ branch for it to sustain. This makes it very convenient for companies to recruit any employee/ talent that suits them the best. The business friendly Government policies makes it even more attractive for foreign companies to explore business opportunities in Hungary.
The views mentioned in this article belong to the author alone and do not represent the opinions of the institutions affiliated with the author. The facts mentioned in this article hold best at the time of publishing the article. However, any error is regretted and the readers are requested to be vigilant before using this article in parts or entirety.