Hungary as an EU Business Base – Company Formation Is Only the First Step

Insights / Doing Business in Hungary / Company Formation

" Fall is again, fall is here,
Beautiful as ever for me."

These opening lines are from one of the best-known poems by Sándor Petőfi, one of Hungary's most famous 19th-century poets, translated into English by Éva Grünwald.

Generations of Hungarian children have grown up learning these lines by heart, and some words simply stay with us. My school days are long behind me, but when September arrives, this poem still comes to my mind almost automatically.

Autumn, however, means more than a change of season. After the summer holidays, offices fill up again, plans that were put aside during the summer return to the table, new projects start, and business life becomes noticeably busier.

We can clearly see this in our work this year. In the past few days, we have received new enquiries almost every day from foreign businesses interested in setting up a company, investing or building part of their European operations in Hungary.

They come from different countries, work in very different industries and have very different business plans. Still, one question comes up again and again:

Can Hungary be a European business base for a foreign company?

The short answer is: in many cases, yes. But setting up the company is usually only the beginning.

A Hungarian Subsidiary Owned by a Foreign Company

A Hungarian limited liability company (Kft.) can be fully owned by a foreign company. There is no general requirement to have a Hungarian shareholder simply because the owner is based abroad.

In many cases, the foreign owner does not need to travel to Hungary only for the incorporation. With the right preparation, a significant part of the process can be handled remotely.

At first, the situation may therefore look simple: establish the Hungarian company, start the business and move forward.

For international businesses, however, this is often where the more important questions begin.

Company Formation Is Often the Easy Part

When an existing foreign business wants to establish a Hungarian company, the incorporation should not be considered separately from the planned business.

Who will manage the Hungarian company? Where will the business actually operate? Will it have employees in Hungary? How will the Hungarian company work with its foreign parent? What kind of business and financial activities are planned?

Banking also needs attention. Opening a bank account for a foreign-owned company is not simply an administrative step. Banks have their own KYC and compliance requirements and may look closely at the ownership structure and the planned business activity.

There is no single solution that works for every international business.

A Swiss trading company, a Middle Eastern technology business and an Asian investor may all want to establish a Hungarian Kft. On paper, the structures may look similar. In practice, however, they can raise very different legal and business questions.

Company Registration and the Business Model Are Two Different Questions

There is another important point that can easily be missed at the beginning:

The fact that a company can be registered in Hungary does not automatically mean that its planned business activity can be carried out without further requirements.

This becomes particularly important if the company operates in a regulated market, trades special products or provides services that may be subject to specific Hungarian or EU rules.

In these cases, the business model should be reviewed before the company starts operating.

Does the activity require a licence or notification? Are there special rules for the product or service? Does it matter whether the company sells only to businesses or also to consumers? Does it matter whether its customers are in Hungary or in other EU countries?

These are no longer simply company formation questions.

For this reason, the most important question at the beginning of an international project may not be:

"How quickly can we establish a Hungarian Kft.?"

A better question is: "What exactly do we want to do through this company?"

Hungary as a European Starting Point

For a foreign business, Hungary is more than a national market of around ten million people. A Hungarian company is established and operates in a Member State of the European Union.

For some international business models, this can make Hungary an interesting European starting point.

But this is also why a Hungarian company should be considered as part of the wider business structure, rather than simply as a company registration project.

The goal should not be to have "a Hungarian Kft." as quickly as possible.

The goal should be to establish a Hungarian company that is actually suitable for the business it was created to carry out.

Company formation is only the first step.

To return to where we started, I would like to close with Sándor Petőfi's poem that has accompanied generations of Hungarians into autumn.

Fall is again, fall is here

(Translated by Éva Grünwald)

Fall is again, fall is here,

Beautiful as ever for me,

God only knows why I love it,

But I love it, I do!

I go to sit on the hilltop,

Look around from up here,

Listening to the soft noise

Of leaves falling down.

Shedding soft light on the earth,

Smiles down the gentle sun,

Like a loving mother looks

At her sleeping child.

And indeed in autumn the earth

Only falls asleep, does not die;

Looking in its eyes, you can see

It's just sleepy, not sick.

It took off its beautiful dress,

Silently undressed;

It will put it on when morning breaks

The day, the rebirth.

Sleep then, beautiful nature,

Just sleep till morning comes,

And have dreams in which

You find your greatest pleasure.

With my fingertips gently

I play my lyre,

Singing my soft song

As a lullaby for you.

My beloved, sit down next to me,

Sit here in silence,

Till my song, like whispering wind

Above a lake, passes away.

When you kiss me, put your lips

On mine very slowly,

Lest we wake up from its sleep

Slumbering nature. 

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