What To Keep In Mind When Starting A Business In Hungary In 2024

Hungary is known for its rich cultural heritage and strategic location in Central Europe. These attributes make it an appealing destination for entrepreneurs. There are many reasons why people might want to start a business in Hungary, including its favourable market conditions and skilled workforce.

However, setting up a business in Hungary requires careful consideration of several factors. Entrepreneurs must assess the economic state, understand the legal and regulatory requirements, and be aware of the applicable business taxation. Additionally, they need to familiarise themselves with the local labour laws to ensure compliance.

By taking these elements into account, business owners can effectively navigate the Hungarian market and establish a successful enterprise.

 

Economic Overview

 

Hungary’s economy presents a mixed picture. Following a strong rebound after the pandemic, the country faced a recession in 2023 due to high inflation and interest rates. However, the European Commission reports a gradual recovery is now underway.

In 2023, the economy contracted by 0.9%, but the European Commission is expecting a rebound with growth reaching an estimated 2.4% in 2024 and 3.5% in 2025. Agriculture has been a bright spot, showing strong growth thanks to recovery from recent droughts. Inflation soared to record highs in 2022, reaching 24.5%, the highest in Europe. Although inflation has slightly decreased, rising wages and household spending could slow further decline.

To combat inflation, Hungary’s central bank has implemented high interest rates, set at 13% as of 2022. While this policy can dampen economic activity, it is necessary to control price increases. Overall, Hungary is emerging from a period of economic difficulty. Although challenges remain, forecasts suggest a return to growth in the coming years.

 

Legal And Regulatory Framework

 

Hungary offers a streamlined business registration process compared to some European counterparts.

The registration process is handled electronically through the Court of Registration. While it’s not mandatory, local legal assistance can help navigate the process.

Company formation typically involves selecting a business structure, commonly a Limited Liability Company (LLC), drafting company documents, and registering with tax authorities. There’s a minimum share capital requirement, approximately €9,600, which doesn’t need to be deposited upfront.

Foreign ownership is permitted, with only one shareholder and director necessary. Additionally, businesses must have a registered Hungarian address and open a local bank account. VAT registration is usually required, but thresholds apply.

Hungary aims to be business-friendly, offering a relatively simple registration process. Seeking professional guidance can ensure a smooth experience and compliance with all legal and regulatory requirements.

 

 

Taxation And Financial Management

 

Hungary offers a competitive tax environment for businesses, boasting a flat corporate tax rate of 9%, among the lowest in Europe according to the PwC. The main tax levied on company profits is the Corporate Income Tax (CIT), making Hungary attractive for businesses seeking tax efficiency. Municipalities may also impose a Local Business Tax (LBT) at a maximum rate of 2%, although not all localities levy this tax.

Hungary’s standard VAT rate is 27%, relatively high compared to the EU average. However, reduced rates apply to certain goods and services, and businesses may reclaim VAT on qualifying inputs. It’s essential to note Hungary’s minimum tax base provision, where if a company’s calculated CIT falls below 2% of its revenue, they may have to pay the minimum tax amount.

Overall, Hungary’s tax regime is favourable for businesses, primarily due to the low corporate tax rate. However, businesses should consider the high VAT rate in financial planning. Consulting a tax professional is recommended to understand the specifics and potential benefits for your business model.

 

Hiring And Managing Employees

 

Hungarian labour laws strike a balance between employee rights and employer flexibility. Written contracts are mandatory, detailing job duties, salary, benefits, and working hours. A standard workweek is 40 hours, with regulations for overtime pay. Contracts may also include a probationary period of up to three months for assessing suitability.

Either party can initiate termination with a notice period, which varies based on length of service. Employers must contribute to a comprehensive system covering healthcare, pensions, and unemployment benefits. Hungary mandates benefits such as paid vacation, sick leave, and parental leave. The national minimum wage is periodically adjusted.

Overall, Hungary’s labour laws offer a predictable framework for employment. However, navigating the specifics and ensuring compliance can be complex. New businesses should consider seeking legal or HR expertise to navigate these regulations effectively.

Hungary shows promise for entrepreneurs, with its rich cultural heritage and advantageous business conditions. However, setting up shop requires thorough understanding and adherence to economic, legal, and regulatory aspects. While the country navigates its economic recovery post-pandemic, its labour laws aim for a balanced approach between employee rights and business flexibility. With careful consideration and perhaps professional guidance, entrepreneurs can tap into Hungary’s potential and establish successful ventures amidst its evolving economic environment.