Korlátolt Felelősségű Társaság (Limited Liability Company)
Hungary, located in the heart of Central Europe, is a member of the European Union and offers direct access to one of the world’s largest single markets. Within a 1,000-kilometre radius, businesses in Hungary can reach approximately 250 million consumers, making it a strategic point for operations, trade, and logistics within the region. Its central position is complemented by well-developed transport infrastructure, including road, rail, and air connections, as well as several industrial zones and technology parks that support manufacturing and services.
From a fiscal perspective, Hungary is notable for maintaining the lowest corporate income tax rate in the European Union, currently set at 9%. This competitive rate applies to both resident and non-resident companies operating in Hungary, and has contributed to making the country an attractive location for corporate structuring and investment. Hungary’s tax system also includes other levies, which vary based on the size and nature of the business, but the overall corporate tax burden remains moderate by regional standards.
Foreign direct investment (FDI) has played a significant role in Hungary’s economic growth. The country has successfully attracted capital into key industries such as automotive manufacturing, pharmaceuticals, life sciences, renewable energy, information technology, and logistics. Many multinational corporations have established regional headquarters or production facilities in Hungary, benefiting from its skilled workforce, modern infrastructure, and proximity to other European markets.
The Hungarian workforce is another critical asset. It is widely regarded as cost-efficient while maintaining high levels of expertise, particularly in technical fields such as engineering, medical sciences, and economics. Labour costs in Hungary are generally lower than the EU average, providing businesses with an opportunity to reduce operational expenditures without compromising the quality of talent available.
Incorporating a company in Hungary is typically done through the establishment of a Korlátolt Felelősségű Társaság (Kft), or limited liability company. This structure is commonly used for both domestic and foreign investors. A Kft can be formed by one or more individuals or legal entities, and members’ liability is limited to their capital contributions. Unlike joint-stock companies, Kfts may not issue shares to the public; instead, ownership is represented by quotas that define each member’s participation in profits and voting rights.
The minimum required capital for forming a Kft is HUF 3 million (approximately €10,000), which may be contributed in cash or in kind. Full payment of the capital is not mandatory at the time of registration, but it must be fulfilled within the first year. The company is managed by one or more managing directors. The appointment of a supervisory board is generally only required if the company exceeds certain thresholds, such as having more than 200 employees.
In terms of taxation, Hungarian companies are subject to a 9% corporate income tax. Additionally, there is a minimum corporate tax base calculated as 2% of annual revenue, applicable from the second tax year onward. Beyond corporate tax, businesses are also subject to local business tax, which is levied by municipalities on net sales revenue. In Budapest, where many companies are domiciled, this rate is currently 2%. Deductions are allowed for certain cost items, including materials, subcontracted work, and R&D expenses.
A separate retail tax applies to companies engaged in retail activities, including digital commerce. The tax rate is progressive and ranges from 0.1% to 2.5% based on the volume of revenue, with an additional surtax of 80% of the applicable rate in force for 2024. For larger retailers, this can result in an effective tax burden of approximately 5% on retail income. Notably, both the retail and local business taxes apply regardless of whether the company reports a taxable profit for corporate tax purposes.
Taxation of dividend distributions in Hungary varies based on the type of shareholder. Dividends paid to individuals, whether residents or non-residents, are generally subject to a 15% withholding tax. However, if the shareholder is a company—either Hungarian or foreign—there is no withholding tax on dividends, subject to the application of relevant double taxation treaties and anti-avoidance provisions.
The jurisdiction’s legal and regulatory environment is based on civil law principles and aligned with EU directives. Hungary has enacted various measures to enhance transparency, corporate governance, and investor protection, making it a jurisdiction that combines regulatory compliance with fiscal efficiency. These factors, together with its strategic location and skilled labour pool, position Hungary as a significant player in the region for businesses looking to expand or consolidate their European presence.
Legal *
Country code – HU
Legal Basis – Civil law
Legal framework – Act V of 2013 on the New Civil Code of Hungary
Company form – Limited Liability Company (Korlátolt Felelősségű Társaság, KFT)
Liability - The liability of the members of the company is limited to the amount of their capital contributions.
Capital – The minimum statutory registered capital of a Kft. is HUF 3,000,000. It's not necessary to pay up full the initial capital at the time of the registration. The capital may consist of in cash and in-kind contribution. A membership interest in a Kft. is indivisible (except with the consent of the Kft. itself in special cases listed in the Companies Act), must be denominated in HUF, divisible by 10,000 and may not be less than HUF 100,000.
Voting and dividend rights can be set out in the deed of association, subject to the proviso that at least one vote must be allocated per stake of HUF 100,000.
Members – At least one member, who may be an individual or a legal entity of any nationality. Details of members are accessible to the public.
Executive officers – At least a managing director must be appointed, who must be a natural person and can be either resident or non-resident. The duties of an executive officer may only be carried out in person, no representation is permissible. Details of the managing director are publicly accessible.
Manager – At least one manager must be appointed, who must be a natural person and may be of any nationality.
Members’ Meeting - The supreme body of a company is the members' meeting. Members' meetings shall be convened at least once every year. The timing of the yearly meeting is not regulated by law and can be held by telecommunication means and correspondence if the articles of association so provide.
Registered Address – A KFT is required to have its registered office in Hungary. The registered office is the location where the company’s statutory records are maintained, available for inspection, and is the address where documents can be served, if necessary.
Electronic Signature – Permitted.
Re-domiciliation – A foreign entity can be re-domiciled as a KFT.
Compliance – Companies are obliged to keep the report for the fiscal year, as well as the supporting inventory, assessment, ledger extract, journal ledger or other records in legible form for at least 8 years.
The statement of accounts that supports the accounts, directly and indirectly, must be kept for at least 8 years. Accounting records must be stored securely at the company’s headquarters/premises, or at another place reported to the tax authority.
Companies must publish their annual reports, and file an annual return and tax return to the relevant authorities.
Appointment of an auditor is compulsory for all companies whose annual net sales exceed HUF 100 million according to the average of the two business years preceding the business year and whose average number of employees in a year is more than 50.
- Members not disclosed *
- Members not disclosed *
- Corporate members permitted * *
- Corporate manager permitted * *
- Local manager required * *
- Registered office or agent required * *
- Annual meeting required * *
- Redomiciliation permitted * *
- Electronic signature * *
- Annual return * *
- Audited accounts * *
- Audited accounts exemption * *
- Exchange controls * *
- Civil law (Roman) Legal basis *
- 1 Minimum members *
- HUF 3,000,000 Minimum registered capital *
- HUF 3,000,000 Minimum paid up capital *
- HUF Capital currency *
- 100% Foreign-ownership allowed *
- 2017 AEOI *
Taxes *
Tax residency – A company is resident in Hungary if it is incorporated in Hungary or its place of effective management is in Hungary.
Basis – Hungarian companies are taxed on their worldwide income.
Corporate income tax rate – Corporate income tax rate is 9%.
Municipal tax rate - There is a local business tax whose rate varies depending on the municipality - the local business tax in Budapest is 2%. The local business tax is levied on net sales revenue (as opposed to profits) (with deductions available for COGS, subcontractors’ work, material costs, mediated services, and research and development (R&D) costs).
Local business tax is payable on net revenue, that is, gross revenue minus COGS. To that amount few deductions are allowed such as those explained above. Local business tax is payable in addition to corporate tax. Small businesses (HUF 25 million, or HUF 120 million for a retailer) can opt for a flat HUF 50,000 local business tax.
There is also a retail tax that also applies to electronic sales. The retail tax is from 0% (tax base of less than HUF 500 million), 0.1% (tax base between HUF 500 million and HUF 30 million), 0.4% (between HUF 30 billion and HUF 100 billion) and 2.5% on the rest. There is a retail surtax of 80%. (i.e. retail tax x 0.80 added to tax base) which can lead for largest companies to a total retail tax of around 5%.
Local business taxes, retail taxes are levied according to net revenue, regardless of whether the company generates a taxable profit for corporate tax purposes. Further note that there is a minimum corporate tax base calculated as 2% of the total revenues. The same typically applies in the second tax period of the company (first tax period exempt).
Capital gains – Capital gains are taxed as ordinary income. An exemption may apply for those gains from the sale of shares of a subsidiary, provided that shareholder owns at least 10% of shares for at least 1 year, and subsidiary is not considered a controlled foreign company (CFC).
Dividends – Dividends received by a resident entity, whether from a local or foreign source are usually tax-exempt unless foreign-source dividends are derived from a CFC and are paid out of profits that are subject to a tax lower than 9%.
Interests - Interest income is subject to tax at the standard rate.
Royalties – 50% of royalty income may be exempt from taxation, subject to certain requirements.
Foreign-source income – Foreign-source income is taxable according to tax treaties provisions. If no tax treaty is available, a tax credit for foreign tax paid may be available.
Withholding taxes – Dividends, interests, and royalties paid to a non-resident company are exempt from withholding tax. A 15% withholding tax may apply for dividends, interests, and royalties paid to non-resident individuals.
Losses – Losses arising from taxable income may be carried forward for 5 years and may be offset against up to 50% of the profit before tax. Carryback of losses is not allowed.
Inventory - Inventory valuations are generally stated at the historical cost or their fair market value, whichever is lower. First in first out method (FIFO) or average values may be used for book and tax purposes. Last in first out (LIFO) is not allowed for tax purposes.
Anti-avoidance rules – Transfer pricing rules require related-party transactions to be done at arm’s length. Transactions may be required to be documented and advance pricing agreements are available.
Thin capitalization rules apply, interest on non-bank debt exceeding three times the taxpayer’s equity is not deductible for tax purposes.
Hungary has controlled foreign company regulations, CFC is a foreign company in which a resident holds a participation exceeding 50% (direct or indirect) and a foreign P.E., if the tax paid is less than the tax payable in Hungary, and 50% or more of its revenue is passive income. Certain profits derived from passive income from a CFC may be taxable in Hungary, although foreign tax paid on these profits may be creditable.
Labor taxes – Employers and employees are required to make contributions to social security fund at 22% and 18.5% on employees’ monthly wage, respectively. Employers also have to pay a vocational training contribution of 1.5% on employee gross salary.
Tax credits and incentives – A tax credit for foreign tax paid is usually available up to the Hungarian tax payable on the creditable income and up to 90% of the tax paid abroad.
Tax credits are available, under the development tax incentive, for certain investments, depending on the amount, the industry and the region where the investment is carried out. There are also
Tax deferrals for growing companies are also available.
Projects aimed at improving energy efficiency may benefit from tax credits up to 30% of eligible costs.
Film and theatre subsidies, developments, business startups and small and medium-sized entities may apply for tax incentives.
Compliance – On average, a company in Hungary may require 11 payments and 277 hours per year to prepare, file and pay corporate income tax, value added tax, and labor taxes, including payroll taxes and social contributions.
Personal income tax – Tax residents in Hungary are Hungarian nationals, EEA nationals with a registration card issued in Hungary and spending at least 183 days per year in the country, foreigner permanently settled in Hungary, or not permanently settled but his or her centre of vital interests in the country or spends at least 183 days per year in the country.
Tax residents are subject to income tax on their worldwide income, while non-residents are only taxed on their income arising from Hungarian sources.
Income tax rate is currently 15%. Capital gains, dividends, interests and rental income are generally taxed at standard rate.
Other taxes – There is a local business tax whose rate varies depending on the municipality - the local business tax in Budapest is 2%. The local business tax is levied on net sales revenue (as opposed to profits) (with deductions available for COGS, subcontractors’ work, material costs, mediated services, and research and development (R&D) costs).Municipalities levy property tax on buildings and plots. There is an inheritance tax of 18%, but inheritances to direct descendants and spouse are fully-exempted. Certain transactions involving the sale of immovable and movable properties are subject to transfer tax. There is no wealth tax.
V.A.T. standard rate is 27%, with reduced rates of 18% and 7%.
- Tax transparent entity * *
- Offshore Income Tax Exemption * *
- Offshore capital gains tax exemption * *
- Offshore dividends tax exemption * *
- CFC Rules * *
- Thin Capitalisation Rules * *
- Patent Box * *
- Tax Incentives & Credits * *
- Property Tax * *
- Wealth tax * *
- Estate inheritance tax * *
- Transfer tax * *
- Capital duties * *
- 9% Offshore Income Tax Rate *
- 9% Corporate Tax Rate *
- 9% Capital Gains Tax Rate *
- 0% Dividends Received *
- 0% Dividends Withholding Tax Rate *
- 0% Interests Withholding Tax Rate *
- 0% Royalties Withholding Tax Rate *
- 0 Losses carryback (years) *
- 5 Losses carryforward (years) *
- FIFO Inventory methods permitted *
- 277 Tax time (hours) *
- 11 Tax payments per year *
- 18.50% Social Security Employee *
- 22.00% Social Security Employer *
- 15% Personal Income Tax Rate *
- 27% VAT Rate *
- 79 Tax Treaties *
Country details *
Hungary is a landlocked Central European country, member of the European Union. It is located on the Pannonian plain and has borders with Slovakia to the north, with Ukraine and Romania to the east, Serbia and Croatia to the south, Slovenia to the southwest and Austria to the west. Its over 93,028 sq. m. is inhabited by almost 10 million people.
Its capital and the most populated city is Budapest, as well as its main industrial, trade and transport center. Considered to be one of the most beautiful cities in Europe, Budapest has several World Heritage Sites, including, on the banks of the Danube, the Buda Castle district, Andrássy Avenue, the Heroes’ Square, and its Metro, the second oldest in the world.
Its official language is the Hungarian and its legal tender currency is the Hungarian Florint (HUF), and for now, there is no deadline for the euro adoption.
Hungary is defined as a parliamentary liberal democracy, in which authority resides in the people and the practice of government is carried out within the framework of a rule of law.
The supreme organ of power is the parliament, or in Hungarian Országgyűlés. According to the constitution, elections to parliament are held every four years to elect the 386 deputies according to a mixed system; 176 seats are elected in individual constituencies and 210 are voted on by lists drawn up by the parties.
The President of the Republic is elected every five years by the parliament. Its role is rather representative.
Hungary has an export-oriented economy. Its main exports are electrical machinery and equipment, vehicles, pharmaceuticals, plastics, medical apparatus, and rubber articles.
The country also has other important industries such as automotive, building materials, metallurgy and food, and beverages processing.
Regarding the primary sector, the country has very favorable agro-climatic conditions, 63% of its total area is arable, where its most important crops are wheat, corn, sunflower, potato, sugar beet, canola and a wide variety of fruits.