Business Entities in Hungary: Subsidiary vs. Branch – Which Is Best for Your Company?

Hungary offers a business-friendly environment with the lowest corporate tax in the EU (9%) and strategic access to European markets. If you plan to expand, understanding the main business entity types: subsidiary and branch, is essential for compliance and success.

Expand Your Business in Hungary: Subsidiary vs. Branch

Hungary is a gateway to Central Europe, offering a business-friendly climate, low corporate tax (9%), and strategic access to EU markets. For foreign companies, the two most popular entry models are subsidiaries and branches, each with distinct legal and operational advantages.

Subsidiary: Full Market Presence with Legal Independence

A subsidiary is a separate Hungarian legal entity, often structured as a Kft (Limited Liability Company) or Zrt (Private Company Limited by Shares). It allows full operational control and shields the parent company from liabilities.

Key Benefits:

• Independent legal status
• Local market credibility
• Access to Hungarian tax incentives
• Flexibility in management and contracts

Branch: Lean Entry with Direct Control

A branch is an extension of the foreign parent company, not a separate legal entity. It’s ideal for companies seeking quick market access with minimal setup.

Advantages:

• Lower startup costs
• Simpler structure
• Direct control from headquarters

Which Is Right for You?

Incorporation Process and Required Documents

Limited Liability Company (Kft)

Requirements:

• Minimum Share Capital: HUF 3,000,000
• At least one shareholder (individual or legal entity)
• Hungarian registered office
• Foreign ownership and management allowed

Required Documents:

• Articles of Association
• Deed of Foundation (if single-member)
• Specimen signatures of directors
• Proof of capital contribution
• Identification documents of shareholders and directors
• Registered office declaration

Incorporation Steps:

• Reserve company name
• Open corporate bank account and deposit capital
• File electronically with Company Court
• Obtain tax number and register for local taxes
• Request EU VAT number if applicable

Timeline: Standard registration up to 15 days; Fast-track available in 1 business day.

Private Company Limited by Shares (Zrt)

Requirements:

• Minimum Share Capital: HUF 5,000,000
• No maximum number of shareholders
• Shares cannot be publicly traded
• Managed by Board of Directors or CEO

Required Documents:

• Deed of Foundation
• Articles of Association
• Memorandum of Association
• Identification documents of shareholders
• Capital contribution proof

Incorporation Steps:

• Fully electronic registration
• Can be done remotely via consulate or notary
• Submit to Court of Registration
• Obtain tax number and register for VAT if applicable
• Open Hungarian bank account

Accounting & Auditing Requirements in Hungary

Subsidiaries (Kft and Zrt)

Subsidiaries in Hungary are considered independent legal entities and must comply with full local accounting and reporting obligations.

Accounting Standards:

Must follow Hungarian Accounting Act and Hungarian GAAP.

Annual financial statements must be prepared in Hungarian and in HUF (Hungarian Forint).

IFRS may be applied to by certain entities (e.g., publicly listed companies or upon approval).

Reporting Obligations:

Annual financial statements must be filed with the Court of Registration.

Accounting records must be kept for at least 8 years.

Statutory audit is required if:

• Annual net sales exceed HUF 300 million (~€770,000), or
• The company has more than 50 employees on average.

Tax Reporting:

• Corporate income tax returns must be filed annually.
• Monthly or quarterly VAT returns depending on turnover.
• Local business tax and innovation contribution may apply.

Branch Offices

Branches are not separate legal entities, but they must still maintain accounting records in Hungary.

Accounting Standards:

• Must maintain Hungarian accounting records for their local operations.
• Financial results are consolidated into the parent company’s accounts.

Reporting Obligations:

• Must prepare annual reports for Hungarian tax authorities.
• No statutory audit required unless the parent company is subject to audit and Hungarian law mandates it.

Tax Reporting:

• Subject to corporate income tax, VAT, and local business tax like any Hungarian company.
• Transfer pricing documentation may be required if transactions occur with the parent company.

Comparison Table

Conclusion

Choosing between a subsidiary and a branch in Hungary depends on your business goals, resources, and compliance needs. If you have questions or need expert guidance, contact Leinonen Hungary today for tailored advice and support.