Formation of Limited Liability Company in Hungary

Company Name 
A Company name must necessarily end in “Kft.” or Korlátolt Felelősségű Társaság and must be approved by the Court of Registry. 

Shareholders 
Shareholders may be of any nationality and may reside anywhere. Only one shareholder is required. This can be the same person as the director. There is no limit to the number of shareholders. The shareholder can be a natural person or a body corporate. 

Share Capital 
The capital of the company is comprised of the capital contributions of the individual members, which can be funded in cash and in kind. The amount of initial capital may not be less than HUF 3.000.000. At least 50% of the subscription amount must be deposited in a bank account and a certificate of deposit is issued in order to be used in the incorporation process. Each shareholder has an identified percentage share of the total capital and a single share may be owned by more than one person. For Kft.s, a share cannot be less than HUF 100,000. 

Directors And Secretary 
A director can be either a physical person or a corporate body. The name of physical person who represents a corporate director will be disclosed to public records. There are no restrictions regarding nationality, meaning that foreign investors can become company directors. Directors are elected by the Members’ Meeting (General Assembly) for a limited or unlimited term. Officers may be re-elected or recalled at any time by the General Assembly. Legal entities cannot be appointed as directors. 

There is no law requirements to appoint a local secretary. 

Registered Office 
Every Company must have a registered office and address in Hungary which should be notified at the Court of Registry. 

Meetings 
The supreme body of a company is the members’ meeting. Members’ meetings shall be convened at least once every year. The members’ meeting has quorum if at least half of the initial capital or the majority of the eligible votes are represented. The articles of association may stipulate a higher rate of participation. 

Incorporation Time 
Normally between 2 to 15 working days, after the filing of the articles of association. 

Basic Tax Notes
Resident companies are taxed on worldwide income; non-resident companies pay tax on Hungarian-source income only. Taxpayers are treated as resident for tax purposes if they are created under Hungarian law or (from January 1st 2005) if they are managed or controlled in Hungary. Tax is charged at a flat rate of 16%, and the special rate of 4% applied to the profits of Hungarian offshore companies was abolished on December 31st 2005. As of January 1st 2006, for up to HUF 5m taxable income, a lower tax rate of 10% up to the first approx. US$ 1.8 million taxable income was introduced. 

Corporation tax is imposed on a company’s accounting profits, adjusted by certain items. Normal business expenses generally are deductible in computing taxable income. 

Capital gains are taxed as part of the accounting profit at 10%/19; however there is no tax due if the participation exemption applies. Capital gains realized by a shareholder resident in a non-treaty country on the sale of its shares in a Hungarian real estate company are taxable at a rate of 19%. Depending on the provisions of the specific applicable treaty, taxation may apply to a resident of a treaty country as well. 

No withholding tax is levied on dividends paid to a nonresident legal entity. Dividends paid to a nonresident individual may be subject to withholding tax at 15%, unless the rate is reduced under an applicable tax treaty. 

There is no withholding tax on interest paid to a legal entity. Interest paid to an individual is subject to withholding tax at 15%, unless the rate is reduced under an applicable tax treaty. 

There is no withholding tax on royalties paid to a legal entity. Royalties paid to an individual are subject to personal income tax at 15%, unless the rate is reduced under an applicable tax treaty. 

The standard VAT rate is 27%, with reduced rates of 18% and 5%. VAT is levied on the domestic supply of goods and services and on imports. 

Financial Statements And Audit 
Hungary companies are obliged to prepare a report based on the bookkeeping records maintained in accordance with the law, representing the company s operations, assets and financial position. 

A statutory auditor is required to be appointed: 
– if the registered capital of a Kft. exceeds 50 million HUF, or if there is only one registered owner; 
– if the total net revenue of the company exceeds 50 million HUF in two years average; 
– as per law requirements (insurance companies, banks and etc.). 

In order to be appointed as an auditor, the individual person or audit company must be registered in the list of registered accountants. The auditor must be named in the Articles of Association and can be appointed for a period not exceeding five years.