Business activities of foreign companies

in Hungary – applicable business and representation forms
 

Foreign, EU and non-EU companies - depending on the purpose of their activity - can choose from several business forms if they would like to carry out their taxable activities in Hungary.

This newsletter provides our readers with a short summary of different applicable business types.

Branch Offices of Foreign Companies in Hungary

A branch office is an unincorporated organization of a foreign undertaking which has an own right for entrepreneurial activities as a registered branch in Hungary. It has a domestic and may have an EU VAT number as well, and operates in accordance with the requirements of Hungarian Accounting Act.

A branch can be operated in Hungary similarly to an Ltd., but there is a significant difference in the establishment of the two types, otherwise the termination of a branch is significantly easier.

Branch Offices of Foreign Companies in Hungary are entitled to carry out business activities in which the branch interacts with the authorities and third parties in connection with its own activity. A branch shall have legal capacity, it may obtain rights and undertake commitments under its corporate name on the foreign parent company’s behalf, such as conclude contracts.

A foreign enterprise operates similarly to domestic companies during the establishment and operation of the branch.

Relevant difference to a local entity is that a branch is not required to have a minimum level of subscribed capital, although the owner company is obliged to continuously provide the necessary assets and funds for the operation of the branch. On the other hand, there are some differences in the scope of audit and disclosure requirements.

Further difference - which is a tax advantage as well - for branches is that they are not obliged to pay innovation contribution.

Although the employees of a branch are in an employment relationship with the foreign company, where employer’s rights are exercised by the foreign company through the branch, the employees are subject to the same rules as employees of a Hungarian entity.

Commercial Representative Offices

A commercial representative office is an unincorporated organizational unit of a foreign company – non entitled to carry out business activities on its own behalf -, established upon entry into the company registration records, which - on behalf of the foreign company - performs the following activities: preparation and mandating contracts, performing information, advertisement and promotional activities, liaising with customers.

A commercial representative office cannot carry out business activities in its own name, so that differently from branches these entities are not subject of the Hungarian Accounting Act.

Similarly to a branch, the employees of a commercial representative office are in legal relationship with the foreign company; employer’s rights shall be exercised by the foreign company.

Performing economic activities without establishing legal entity in Hungary (under a Hungarian tax number)

The Hungarian laws allow foreign companies to carry out economic activities under a Hungarian tax number without establishing a legal entity provided that certain strict requirements are met. The mandatory, as well as voluntarily available tax representation forms are mentioned below.  

Fiscal representation

Non-EU companies which do not possess a permanent seat or establishment in the territory of the EU, as regards their taxable transactions in Hungary are required to appoint a fiscal representative to handle their tax related matters in Hungary; such fiscal representation agreement should be reported to the Tax Authority.

The fiscal representative fulfills the Hungarian tax obligations on behalf of the foreign company and also exercises its rights. During the period of the fiscal representation, the foreign business can only be represented before the tax authority by the fiscal representative. It is important to emphasize that the fiscal representative may represent the foreign business only before the Hungarian tax authority, its mandate may not cover any other matters.

In the provision of fiscal representation, the represented business and the fiscal representative are both severally liable, so only such Hungarian companies may render fiscal representation services that meet special legal requirements.

Tax Law representation

Whereas fiscal representation is compulsory for the companies seated outside EU wishing to carry out business activities in Hungary, this rule is not mandatory for the companies seated inside EU. However, it may happen that these (EU-) companies also need professional support in their tax issues. In case of a tax law representation assistance may be provided, for example, in the following tax fields: International VAT registration of Hungarian businesses, representation before the tax authority during tax audits, Hungarian VAT registration of foreign businesses and other tax compliance services.

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VGD Hungary provides effective professional support with tailored tax advice, full-scope compliance services and continuous monitoring of legal background so that to ensure that its clients comply with all relevant tax and accounting requirements. Should you have any questions regarding this newsletter, the tax experts of VGD Hungary will be pleased to assist you.

This newsletter provides general information and does not constitute tax or legal advice.