The desire of foreign investors to establish a branch of their existing company in Hungary is unfailingly popular and it is increasing even more- reports Napi.hu. The key reason for this, is that there is no minimum amount of starting capital for a branch in Hungary, while a LLC. (hun: Kft.) can be formed with minimum starting capital of 3 million HUF, and Ltd. with minimum starting capital of 5 million HUF.
Based on experienciales, foreign companies start their business in Hungary with small, often they may hire only one employee for their local branch.
If the foreign company wants to expand its activities in Hungary and employ more employees, they usually first establish a commercial representative office or a branch office here.
In Hungary Branch comes with significant advantage compared to LLC.
The commercial representative of foreign company is not a taxable, but an organizational unit that cannot carry out economic activity independently. In comparison, the branch carries out actual economic activity in Hungary, from the point of view of accounting and tax law, there is no significant difference between branch and the LLC.
To establish an LLC. in Hungary, 3 million HUF of starting capital is required, but in the case of a branch, the relevant legislation does not require a minimum amount of initial assets.
However, it stipulates that the foreign company is obliged to continuously provide the assets necessary for operational needs of its branch, and it is also obligatory once a year to prepare a report for the Hungarian Registry Court on the amount of assets allocated to the branch.
The branch, similarly to the LLC., is subject to corporate tax, the VAT rules and must also pay business tax to the competent municipality, as well as an “innovation contribution” (previously, branches were exempt from this, which was a minor advantage).
The other pan of the scale
However, there are differences in terms of responsibility between LLC. and branch: in the case of a LLC., the risk is limited to the amount of the share capital, but in the case of branch, the liability of the branch for debts incurred in the course of its activities is joint and unlimited with that of the parent company.
Problems with closing of company
While in the case of LLC. there are many cases about how long the process may take, in the case of branch, the procedure is much faster.
“On the basis of the foreign company’s decision to close its branch, and after the creditors have been notified, the Registration Court will close the branch without conducting a liquidation, if it has no debts or other obligations have been settled, or the foreign company has provided security for this case. Often the local tax authority also performs an automatic tax audit”
But here too, questions arise. In case of if foreign parent company of branch will want to continue to operate as an LLC. instead of operating as a branch, it cannot transform the branch into LLC. automatically. Firs branch must be closed and a new company, LLC., must be established, and the transfer of the branch’s assets may raise new issues and questions related to taxation.
Overall, it can be stated that the desire of foreign investors to establish branches their company in Hungary is unwaveringly popular, and it increases more and more. Especially in the banking sector we find more branches of foreign companies.
Property acquisition, insolvency
If the branch buys real estate, special provisions are applied. More specifically it is related to closing of the branch: the branch must sell the property within one year to its foreign parent company, unless it is not necessary to apply for a “permission” to acquire the property in Hungary, or if the capital and county government offices have granted an exemption.
Insolvency proceedings will be initiated against the foreign parent company in their “native” country, which must be reported to the Hungarian Registration Court by its Hungarian branch.
source: napi.hu
