Subsidiary, branch office and commercial representative office in Hungary

May 22, 2020

When you wish to start a business in Hungary while you already have an operational business abroad, you have several options. The most popular is incorporating an individual LLC, but you may also want to learn about setting up a branch office or a commercial representative office.

LLC in Hungary: standalone or subsidiary

The most popular form of business in Hungary is the LLC. If you choose this form, it will be an autonomous company whether the owner is a person or another company. Since it is a “limited liability” company, the company owners are liable only for providing the share capital, which is a major advantage compared to all other company forms.

Read about the further benefits of setting up an individual company in Hungary.

When the owner of your Hungarian company is your foreign company, you get a subsidiary. Ownership structure might matter for certain procedures, e.g. if you wish to bring employees to Hungary through intra corporate transfer. Moreover, since profits go directly to the parent company, dividend tax is not applicable for subsidiaries.

Branch office in Hungary

If you open a branch office in Hungary, it will be in fact an outpost of your foreign business, even though it has to be registered in the Hungarian company registry. The Hungarian branch office will be able to sign contracts, but it will do it on behalf of the parent company. The parent company will be 100% liable for all damages, which is a major disadvantage compared to setting up an LLC.

When you want to open a branch office in Hungary, you will also need to present the articles of association of the parent company. The branch office is taxed similarly to an LLC in Hungary, as it is considered an individual company form, and as such, it is taxable: it pays corporate tax, local business tax, and all taxes as required by law. Moreover, the branch office must be audited each year unless the parent company’s seat is in an EU member state.

For example: The branch office is selling the products of the parent company, on behalf of the parent company. Customers can walk in their office or store and purchase products. The branch office can sign the rental agreement for their office and the labor contracts of the employees, all on behalf of the foreign company – and all is paid by the foreign company.

Commercial representative office in Hungary

Just like the branch office, the commercial representative office is also an outpost of a foreign business. In this case as well, the foreign parent company is 100% liable for any damages caused. The commercial representative office cannot sign any contracts, neither on its own nor on behalf of the parent company. It can only perform three types of activities in Hungary: promotion, mediating contracts and preparing contracts for signing by the Hungarian client and the foreign company.

Unlike the branch office, the commercial representative office is not a separate legal person and cannot do actual business in Hungary. As a result, it does not pay corporate tax nor local business tax in Hungary – the corporate tax is paid by the parent company where it has its seat.

For example: The commercial representative office has a showroom where customers can check out the products of the parent company, e.g. cars of a certain brand. However, customers cannot purchase products directly from the commercial representative office, as it can only mediate and prepare contracts. Customers will enter into a contract directly with the foreign company. Rental agreements for the showroom and labor contracts of the employees are also concluded directly with the foreign company.

Which option should I choose for my Hungarian business?

The answer should depend on what operations you are planning for Hungary, and how much liability you are willing to assume. If you are not sure, tell us more about your plans and expectations, and we will help you choose the form that best fits your business strategy.

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