Are you planning to start a business in Hungary? You have various forms of business to choose from. Consider what kind of activity you intend to perform, and choose accordingly.
Business setup in Hungary
The first question you should ask yourself is whether freelancing or company operation is what fits your circumstances and your goals in Hungary. Most importantly, freelancing is available only to those who have Hungarian residency (or at least intend to register). If you are not interested in Hungarian residency, only business setup, that eliminates freelancing as an option for you, so only company operation remains.
There are various company forms available in Hungary, but we always recommend setting up a limited liability company (LLC, or “KFT” in Hungarian), because that is the safest, easiest, and fastest option. In line with this, the table below lists the main differences and similarities between operating an LLC and a freelancing business. A more detailed explanation is added below the table.
Company setup and freelancing
| Company (LLC) | Freelancing |
Setup time | 4-5 business days | 1 day |
Registration | Need a lawyer | Possible on your own |
EU VAT number | Available immediately | Available immediately |
Chamber of Commerce registration | Required | Required |
Registered seat | Required | Required |
Separate business bank account | Required | Optional if VAT exempt, otherwise required |
Accountant | Required | Not required but strongly recommended |
Liability | Limited | Full |
Starting capital | At least HUF 3 million | Not required |
Residency | Not required (but available based on operation) | Required |
Products | Goods or services | Goods or services |
Employees | Allowed | Allowed |
Main tax regimes | TAO, KIVA | Regular, KATA, Flat-rate |
Revenue limit | Not on TAO, yes on KIVA | Not on Regular, Yes on KATA and Flat-rate taxation |
VAT exemption | Available below HUF 18 million yearly revenue | Available below HUF 18 million yearly revenue |
Setting up either a limited liability company or a freelancing business takes very little time, just a few days. You will need a registered seat and a bank account, and preferably an accountant. You can also immediately apply for an EU VAT number without meeting any additional requirements or waiting for a decision. Your business will be listed with the Chamber of Commerce and in its public online databases (companies in the Electronic Company Registry and freelancers in the Electronic Registry of Freelancers).
The greatest difference is that company registration can only be done by a lawyer and it has a set fee, while you can register a freelancing business on your own, fully online, with just a few clicks. This is in line with the degree of liability of each business form. When you set up a limited liability company, your liability for damages is limited. The company has a share capital that can be used to cover damages. If the damage is greater than the capital, that can hurt the business, but not the personal assets of the shareholders. Freelancers, on the other hand, are liable for damages to the full extent of their personal assets. This is why freelancers must be residents of Hungary, while company setup is available to every nationality.
Apart from this, business operation is pretty similar for company owners and freelancers. Both can sell both goods and services, and both are allowed to have employees. As a result, the next question will concern revenues and taxes. Standard taxes are roughly the same:
| Regular corporate tax | Regular freelancing |
Profit tax | 9% | 9% |
Personal income tax | 15% | 15% |
Social contribution tax | 13% | 13% |
Social security contributions | 18.5%, only if you are a resident | 18.5% |
However, there are additional, more favorable tax regimes available to both company owners and freelancers, and each has its own advantages. Mind you, they also have limits on yearly revenues and other features.
- If you are more interested in setting up a company, here you can find a calculator to see whether it makes more sense for your business to pay the regular corporate tax under TAO or choose KIVA, the small business tax.
- If you are more interested in setting up a freelancing business, here you can find a comparison of the 3 main tax regimes: regular taxation, KATA, and flat-rate taxation.
Make sure to also consider whether it would make sense for your business to be VAT exempt. VAT exemption is available if your yearly revenue is below HUF 18 million, so small businesses may choose not to charge VAT. However, this way they cannot reclaim VAT from their own purchases. As a result, most businesses, especially companies are VAT subjects from the start to reduce their operational costs.
Business planning with the best in Hungary
If you need help starting your business in Hungary, reach out to us and tell us about your plans. We will be happy to help you set up your business, while we also offer assistance with accounting, residency application, and the full range of related services. Tell us what you need, and we will find the best solutions for you.
Was this article useful? Follow us on Facebook and never miss an update.