Business in Hungary
The Hungarian economy may gain new momentum this year from initial growth in Europe and expanding investment activity
Hungary’s central location makes it a favourite destination for foreign investors who intend to expand their operations in Central and Eastern Europe. The country’s favorable geographical location places it at the crossroads of main commercial routes.
EU accession in 2004 brought both commercial and regulatory advantages. Becoming an EU Member State brought a free trade system, the free movement of goods, services and labour, as well as capital.
The country is already a strategic location for many international distribution centers, and offers many advantages for companies that wish to develop their logistics centers here in the future.
The Hungarian office market is focused predominantly in the capital city, although some modern office space has also been built in the biggest regional cities.
Labor and Employment
Foreign companies select Hungary primarily to benefit from its competitively priced, highly skilled Hungarian labor force. Due to the high standards of its education system, the country has a highly skilled and talented workforce,and with professional foreign language skills.The interest of foreign investors is still strong in the areas of shared services, IT, logistics, biotechnology, automotive and electronics.
Employment showed a slight increase in 2012: Expansion of public employment was the principal reason for this increase.
The improvement in infrastructure and targeted regional support mechanisms is leading more and more foreign-owned companies to choose locations further from Budapest for their activities.
Incentives and strong government support
The Hungarian Government is committed to ease doing business, to increase the competitiveness of both SMEs and large enterprises in Hungary. The focus is on high value added activities, like shared service centers, research and development, high value added production.
Foregin Direct investors receive a high level of government and community support through the Hungarian Investment and Trade Agency (HITA), which was established by the Government to promote the international business activities of Hungarian small and medium-sized enterprises and to encourage foreign businesses to invest in Hungary. The activities of the Agency are controlled by the Prime Minister via the State Secretary for Foreign Affairs and External Economic Relations at the Prime Minister's Office.
HITA’s activities involve extensive domestic and international cooperation with various ministries, professional associations, and professional chambers. Job creation is a distinguished priority for its investment promotion activities. The Agency participates in the preparation of background studies and analyses necessary for the development of middle and long term foreign trade strategies. It also develops the company, supplier, industrial park, and other data base modules for business development and investment promotion purposes, and maintains the various databases.
The Ministry for National Economy regards it as a mission to make the system of taxes uncomplicated and to cut tax rates. On November 16, 2010, the Hungarian Parliament passed the 2011 Tax Bill that lowers the corporate tax rate to 10% from 19% for companies with annual revenues of up to 500 million forints from January 1, 2011. Any further profits will continue to be taxed at the general rate of 19%. Also, it cuts the corporate tax to 10% for all companies regardless of revenue starting January. 1, 2013. As a result of the cut in tax rates, Hungary will provide the most optimal tax environment in the Central-European region, regaining its reputation with it and increasing its potential to attract more capital and to create many more jobs.
It is safe to conclude that it is one of the driving forces behind the Hungarian economy’s competitiveness. The rate of direct taxes is the lowest in the region and also in European comparison (e.g. the corporate capital gains tax is only 10%). By contrast, Hungarian value added tax has the highest rate at 27%. However, the reverse charge mechanism, which is applicable in a number of areas including domestic transactions, lifts the burden of funding this high rate of tax temporarily in a lot of industries.
Foundation of Business Associations.
Business associations may be founded by non-resident and resident natural persons, legal persons and business associations without legal personality for the purpose of jointly engaging in business operations, and such persons may join these business associations as a member, or acquire participation (shares) therein.
With the exception of private limited liability companies and public limited companies, at least two members are required for the foundation of a business association.
Business associations may be established to engage in joint business operations for objectives other than for making profit (non-profit business association).
Process of Founding Business Associations
A business association may be established subject to the conclusion of a memorandum of association, which is to be signed by all members (founders). The memorandum of association is to be drawn up in an authentic instrument prepared by a notary public, or in a private document countersigned by a solicitor.
Several other instruments must be signed and countersigned by a solicitor (e.g. declaration of acceptance of the managing director, declaration of the managing director on the absence of conflict of interest and absence of grounds for disqualification).
The mandatory instruments specified by law must be submitted in 30 days to the court of registration, which decides on the registration within 15 days of the submission.
There is also a simplified procedure for founding a business association, which requires the template specified in the Annex attached to the law to be used as memorandum of association. In such cases registration of the business association is generally performed in one day and the registration duty is also lower.
Subsidies from EU Funds
New funding will be available for Hungaryin 2014-2020.
A wide range of tender calls are available from EU Funds for which investments of less than EUR 10 million can also qualify. The conditions for applying, the timing, and the total amount of the subsidy available vary from tender to tender. These tenders reflect the importance given to supporting research and development activities, the creation of new workplaces, environmental investments, and technological investments (with preference given to small and medium-sized enterprises). The programming period of 2007-2013 is about to close, the EU Funds available can be disbursed till the end of 2015. Hungary’s aim is to utilize this opportunity as much as possible. Therefore some tender calls financed from the Funds of the 2007-2013 period will still be published in 2014.
2014 is a year of change in terms of incentives for the whole European Union and Hungary as well.