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Located in the heart of Europe, Hungary offers ideal access to a common market of more than 500 million people. But getting started and running business operations in the country can be a tricky endeavour without having local help on board.
Hungary has capitalised on its ideal geographical position to become a manufacturing, services and logistics powerbase. Excellent infrastructure, ready-made industrial sites, offices and science parks combined with a good balance of labour costs and quality make it an ideal location for expanding firms to build a presence within Europe’s huge consumer market. Some 250 million people are within a 1,000km radius of Hungary, while the EU common market of more than 500 million people is also within reach.
Governmental incentives - from cash subsidies to tax allowances - are available for overseas firms looking to grow in Hungary, making up an investment friendly economic policy which has propelled economic growth in the country. A competitive tax system and strong, modern economy have also proved to be big pull factors for international firms looking to grow.
But despite the attractiveness of the Hungarian business environment, there are several areas of business operations which can be difficult to navigate for overseas companies. The World Bank and International Finance Corporation (IFC) rank Hungary outside the top 100 nations in the world for ease of getting electricity, investor protection and paying taxes, which is why having local expertise to help navigate these tricky areas is crucial.
Starting a Business
Companies must be represented by a lawyer when setting up a corporate entity in Hungary who will represent the company, create the company deeds and prepare all other legal documents. Half of the subscription amount (at least HUF 250,000) must be deposited into the bank account designated at the time of subscription, and Registry Court applications are to be submitted before social security can be set up.
Dealing with Construction Permits
It takes 102 days to deal with construction permits and involves navigating 26 procedures. Inspections are to be completed by numerous inter-governmental departments before companies receive a statement from the Municipal Planning Committee and a letter from the Tax Authority. Once all the criteria has been met an Occupancy Permit must be obtained and registration of the building is to be completed at the Land Registry Office.
The World Bank and IFC rank Hungary in the bottom 50 countries in the world for ease of getting an electrical connection, taking 252 days to complete in total. Inspection, work and registration is completed by ELMŰ Hálózati Kft. Once the Grid Usage contract has been signed, they will install the meter and make the final connection.
Property registration is by far the most streamlined task of organising a residence for the company, taking just over two weeks to complete. Once again, legal advice must be sought when completing the process.
Other than the legal rights index, Hungary has quite weak indicators in terms of getting credit. The private bureau coverage is less than 20% of adults and there is no public registry coverage.
The World Bank and IFC rank Hungary in 128th place in the world for investor protection, largely because of its weak scores on the disclosure and liability indices.
Paying taxes can take an average of 277 hours of business hours to complete. Local business tax, rehabilitation contribution, training contribution and R&D tax are levies with which most companies are unlikely to be familiar.
Trading Across Borders
The cost of trading across borders is relatively cheap, but the time it takes to complete the procedure is excessive. Exporting goods takes an average of 17 days to complete and importing takes 19, slowing the movement of trade in and out of the country.
Enforcing Contracts and Resolving Insolvency
Enforcing contracts takes just over a year to complete, with 35 procedures to navigate before a judgement can be made. Insolvency cases can take up to two years to move through the courts and the recovery rate is much lower than the OECD norm.
Having a local representative in the country is really important when doing business in Hungary. They can help approach businesses, make appointments, act as an interpreter and be a decent source of cross cultural knowledge.
We have the local knowledge to help you navigate these minefields. Whether you want to set up in Hungary or just want to streamline your Hungarian operations, talk to us.