Have you done market research, figured out the market size for your product/ service, and grasped the strengths and weaknesses of your potential competitors yet? And now, if your idea has emerged as a strong fighter that can break new grounds, you may proceed to reify it into a full-blown business.
Are you playing with the idea of locating your business in Hungary? Well, great. This nation of mixed, high-income economy and the 9th most sophisticated economy as per the Economy Complexity Index extends substantial opportunities to new businesses. Furthermore, this country, with the 57th largest economy in the world, flaunts the 13th lowest income inequality and offers skilled labor, among other perks to new ventures. Reliable internet and telecommunication facilities, along with the environment that is highly conducive to starting a business, make it one of the ideal business destinations.
Launching your dream venture in any part of the world can be overwhelming, given that you will have to endure many formalities, procedures, abide by rules, and so forth. Fret not. Whatever it takes to start a business in Hungary, we have it all covered. Read on!
The process of starting a business anywhere begins by conceiving a potential business idea, then performing in-depth research on its viability, marketability, the demand for the product/ service, market size, competitors, their weaknesses and strengths, etc. As soon as you are done with this phase, you can head on to collate this information into a proper business plan, which is basically a map showing yourself and others the point of your venture. Now, you need to prepare your company’s corporate documents, which must be signed by a Hungarian attorney.
You will need to set up a business bank account where paid-in minimum share capital is deposited. The process may take a day, while the cost may vary depending upon which bank you have chosen. As a next step, you would need to register the business at the Hungarian Court of Registry and procure your tax identification number. Now, head to register your company with Hungarian tax authorities, the Central Administration of National Pension Insurance, and the chamber of commerce.
That was all a rundown of the complete process of starting a business in Hungary. In further sections, you will know the process in detail. Read on!
Process of setting up a business in Hungary
If you plan to base your business somewhere in Europe, Hungary would be one of the best choices you can make here. The country offers the benefits of its strategic location, low living costs, and the lowest corporate tax rates on the continent. Now, since the requirements and formalities that constitute the process of starting a business in different countries varies, you would need to do it specifically for Hungary. Typically, you would need only three things to base a business here, namely, a business bank account, a registered address, and an accountant. Let’s dive into the process. It can be exhaustive but worth it!
- Get your valid identity document: Before signing the documents of a company, check the validity of personal documents such as address card, passport, driver’s license, ID card, etc. In the case there occurs any issue, it may hold back the foundation of your company.
- Procure a company name: If you find yourself on the somewhat leaner side of the creative field, you may struggle to find a good business name. Nonetheless, you can’t do away with this step. Come up with a simple yet creative name, or ask some professional to do it for you. Furthermore, before finalizing any name option, do consider checking its availability. Else, if it is already taken by someone else, your request would be rejected by the court of registration.
- Prepare your corporate documents: Here, all the founders of a company need to sign the constitutive document of the company, which along with other papers, is to be signed by a Hungarian attorney. This process is typically completed in a day, while fees you would have to reimburse the attorney would vary.
- Get your address registered: Companies in Hungary need to own a registered address. If you are establishing your business office in a self-owned property, then you would have to certify the right to utilize it with a title deed. However, if you are relying on a rented property to operate your company, the owner’s statement is a primary requisite. Mails and letters delivered to the registered address are counted as read by the individual in charge of the business. Thus, authorities sending mails here expect a response within 8 days.
- Open a Hungarian business bank account: All Hungarian businesses must open a business bank account, as stated by law, which should be opened within eight days of the incorporation of the company. Furthermore, the company’s owner must be present when setting up the business bank account. You can’t accomplish this step without Power of Attorney. The process would take a single day, while the cost of opening a bank account depends on the bank you choose.
- Register the business: The business is based on the act of the Hungarian court of registration. All sole trader businesses and companies need to register their company’s registered office at the court of registration. If you want to register or amend any detail, it can be done online through a legal representative. Now, you would need to get the licenses to operate your business, where one is a foundational license, and the other is related to the activity your business undertakes.
- Register the company with tax authorities: The company is then registered with the Central Administration of National Pension Insurance, the chamber of commerce, and the Hungarian tax authorities. You would need a certified tax expert or a company representative to accomplish the administration needed for the business registration. Within 15 days of submitting the application for company registration, you would have to report and register the company with tax authorities. The process takes a day and is done free of charge.
- Submit data provision on employees to Hungarian tax authorities: Once you have registered the company at the Client Gateway, you must submit the data relating to the employees as mentioned by the law on the Government Portal online mode. This is to be done within the first day of the legal insurance relationship before starting employment.
Hiring Employees in Hungary
After completing the above steps and finalizing the registration of your business, you need to think about hiring people to handle different operations. Startups must not overhire the workforce; instead must prefer to recruit staff and employees in the least required number. Furthermore, every country has certain rules and regulations that oversee the domain of labor and employment, which you need to be familiar with. This is where having an experienced HR consultant like Zimyo takes care of all your requirements.
Let’s help you know them. Read on!
- Trial Period/Probation Period: The employer may mention in the contract the probationary period, which cannot exceed three months in Hungary. In case the probationary period is shorter, the parties may extend the probationary period. However, in either scenario, a trial period cannot surpass three months period. The trial period can be stretched up to 6 months under mutual agreement.
- Leave and Holidays: An employee is entitled to get 15 days of sick leave annually, and they are paid 80 percent of the absentee pay. The inability of an employee to work shall be attested by the verified report of the physician. The unused proportion of sick leave cannot be claimed later. Alteration and termination of services must be mentioned in the employment contracts in writing.
Under section 14 of the Hungarian Labor Act, employees shall be allowed unpaid leave from work for home construction or other reasons. The uninterrupted leave without pay is requested for at least one month upfront. Employees in Hungary are entitled to basic and extra vacation every year until they employee is associated with the company. The vacation period can be divided into two or more periods as per the employer’s request.
- Maternity Leave: Pregnant women are entitled to get 24 weeks of maternity leave which will commence four weeks before the anticipated date of child delivery. However, maternity leave can end in the following scenarios:
- Six weeks subsequent to the birth of a stillborn child.
- 15 days after the death of a newborn.
In case the newborn is receiving treatment in a health institute for premature infants, the remaining portion of maternity leave can be used after the child is released from there until the child turns one year old.
The employee has the right to procure leave in the following cases:
- To look after the child until the child turns three years old.
- If a child becomes ill, deliver home care until the child turns 12.
- To look after a child to take of the child until he/ she reaches the age of 14 (if the employee is given a child-care allowance).
- Termination of Services: Under collective agreement or unilaterally, the employment contract can be terminated. However, the employer would need to state the grounds for termination of services which must be rational, solid, and realistic. In case of immediate termination of the contract, the employer, as well as the employee, has to furnish a verified and substantial reason. Employees are entitled to 30 days of forfeit period for applying to the court in case the termination with instant effect contradicts the law.
- Pension: An employee is deemed as a pensioner in the following cases, according to Section 87/ A:
- If the employee turns 62 years old and qualifies for the service time needed to get an old-age pension.
- If an employee receives an early retirement pension
- If an employee receives a service pension.
- If an employee receives an old-age pension with an allowance for age
- If an employee receives other pension advantages due to old-age
- If an employee receives accident-related benefits.
Depending on the date of birth of an individual, the age limit in Hungary for a full old-age pension varies from 62 to 65 years.
- Work Hour Norms: Working time of young employees cannot surpass the limit of 40 hours per week and eight hours per day as mentioned in Section 129/ A of the Labor Act. For young employees working for four and half hours daily, an employer must allow a 30-minutes break time. For young employees, the resting period is a minimum of 12 hours under subsection (1) of Section 123. Young employees cannot be employed for working during night hours, for stand-by duty, or special work duty.
Employees are entitled to get two rest days per week, and one has to be on Sunday. If employees have to work for more than 6 hours per the work schedule, they must be allowed 20 minutes of break time from work after every three-hour period.
How easy is it to conduct business in Hungary?
You may establish your venture in some countries in a snap; however, in others, you might have to endure harrowing procedures. How easy it is to launch a venture in a nation is determined by its Ease of Doing Business rank. The World Bank peruses several factors like managing construction permits and licenses, getting credit or electricity, enforcing contracts, etc. After estimating the rankings of a particular economy in different sub-indices, its overall EODB rank is measured. The higher the EODB position of the country, the easier it is to kick off your venture there. According to the Doing Business 2020 report, Hungary has ranked the 52nd position among 190 countries and scored 73.4
- Starting a Business: There is a lot you need to accomplish to start a business, apart from conceiving a business idea, doing market research, etc. For instance, you need to deposit minimum paid-in capital, pay other fees, invest your time, and go through many formalities. That’s what Doing Business measures. It checks the time, cost, and formalities involved in starting a business in an economy. Hungary bagged 87th position among 190 countries and scored 88.2 out of 100. In 2009, the country reduced the minimum paid-in capital requirement and introduced electronic filing and publication, thereby rendering starting a business easier and less expensive.
- Managing Permits: Permits and licenses are required to perform business operations legally. This is another Doing Business indicator wherein the time, cost, and procedures entailed in the process of acquiring licenses and permits are measured. On top of that, the efficiency and strength of quality control and safety mechanisms are also assessed. Hungary got 108th position among 190 countries and scored 67 out of 100. The country executed a time limit for issuing building permits in 2011.
- Getting Electricity: Thrive a business without electricity. Can you do it? Without a second thought, anyone would answer no. Getting electricity is considered another indicator by the Doing Business, which studies the time, cost, and formalities the process of procuring electricity connection for a business entails. The reliability of the electricity supply and transparency of tariffs on the supply is also evaluated. Hungary got 125th position among 190 countries and scored 63.3 out of 100.
- Getting Credit: Businesses need credit to grow, meet outlays, recruit additional staff, and so forth. You surely can’t rely on funding from family and friends forever. Just like other aspects involved in starting a business, getting credit may render your journey easier or more challenging. Hungary was ranked at the 37th position among 190 countries and scored 75 out of 100 in this sub-index. In 2013, the country implemented the first credit bureau law, which mandated the development of a database that held positive credit details about individuals.
- Managing Payroll: To manage the records of employee and staff payments and reimbursements, one needs to integrate an efficient payroll management system. That would support you in abiding by the laws and also in the management of social security contributions, corporate tax, income tax, etc. This is where the services of Zimyo take care of all your payroll management requirements.
- Paying Taxes: To estimate the strength of this indicator, the Doing Business evaluates the power and efficiency of tax regulations and the time, cost, and formalities involved in the process of filing taxes. According to the Doing Business report 2020, Hungary bagged 56th rank among 190 countries and scored 80.6 out of 100. In 2011, the country streamlined tax and tax bases.
- Enforcing Contracts: Enforcing contracts is another potential indicator regarded by the Doing Business where it gauges the power and efficiency of judicial systems to settle a commercial dispute. Hungary got 25th rank among 190 countries and scored 71 out of 100, according to the Doing Business report 2020. In 2017, the country introduced an electronic filing system, thereby rendering enforcing contracts easier.
- Resolving Insolvency: A business may enter insolvency and how efficiently it can overcome and recover from it depends on the regulations and rules of the country laid to resolve it. The Doing Business evaluates the outcome, recovery, cost, and time the process of resolving insolvency entails. Furthermore, the potency and efficiency of the legal framework of an economy are also assessed. Hungary came at 25th position among 190 countries and scored 71 out of 100. In 2008, the country amended its bankruptcy law to prioritize secured creditors over their pledged security, thereby enhancing the insolvency process.
Hungary emerges as a remarkable choice to base a venture, for it furnishes them with a highly educated workforce and skilled individuals available at relatively low cost. Furthermore, the country’s proximity to central Europe and its markets is another enticing factor. Furthermore, the internet is reliable and cheap, telecommunication services are excellent, crime rates low, and public services are remarkable in Hungary. The country is one of the best lands to base a business in Europe that extends fantastic opportunities to new businesses.
Zimyo is a leading HR and Payroll management services provider in Hungary with multiple years of experience. The company helps businesses hire the best talent and takes care of the financial requirements of employees, such as advances or credit for a hassle-free work experience.