Creating a branch
If you want to expand your business to Hungary, it is not an obligatory to form a Hungarian company, you can create a Hungarian branch or a commercial representation for your foreign company as well.
The branch is an organizational unit of the foreign company, which is financially autonomous, but it does not have legal personality. The branch is indicated in the company register, as an independent  company form. The branch can acquire rights for the benefit of the foreign company, and it can make commitments to the foreign company, therefore the branch can earn wealth, make contracts, it can sue and it is actionable. The branch can also operate in several cities.
Similar to the company formation, for creating a branch you have to submit an application at the Registry Court. After the submit of the application, the right-holders can act on behalf of the branch, but they have to indicate this fact on the documents, until the registration. The branch can’t perform activities, which are subject to authority licensing, until the registration. If the application is denied by the Registry Court, the branch is obliged to terminate its operations, and the foreign company is bound to settle the debts arising from the commitments of the branch. In some cases the law may require that for pursuing a certain business activity, the foreign company has to be established in the EEA or the organization, which majority is owned by the company, has to be established in the EEA.
The branch’s address has to be a real estate, owned by the foreign company, or a real estate for which the company is entitled to use. The authorized capital of the branch  has to be the assets provided by the company, which are necessary for the operation of the branch, and for the equalization of the debts.
The branch can be represented,
- by the employee of the branch, who is in an employment relation with the branch, or is assigned by the branch, or
- a person with a long-term mandate, and a domestic residential address.
The branch can’t represent the foreign company. The foreign company is bound to provide the assets which are necessary for the operation of the branch, and for the equalization of the debts. The foreign company and the branch are jointly and severally liable for the debts incurred in the activity of the branch. The persons who are employed by the branch are in a legal relationship with the foreign company, the foreign company exercises the employer’s rights through the branch.
The branch is obliged to comply with the domestic taxation regulations in connection with all tax categories:
- The local business tax rate is subject to the location of the branch,
- The corporate tax is calculated in such a way, that the branch has to be treated as an independent enterprise, from the foreign company, in connection with the revenues and expenses,
- In connection with the VAT, it is an essential fact, that the transactions between the foreign company and the branch are VAT free.
You can find more information  about the Hungarian Taxation System on this website: https://company-formation-hungary.com/accounting_services/tax_informations
The Hungarian commercial representation is also financially autonomous and is indicated in the company register just like as a branch, and it does not have a legal personality neither. In contrast to the branch, the commercial representation can’t acquire rights for the benefit of the foreign company, and it can’t make commitments. The commercial representation’s function is that it can mediate and prepare contracts on behalf of the foreign company, as well as performing advertising activities.
Since the commercial representation can’t perform business activities, it is not subject of the Hungarian Act C of 2000 on Accounting.
Similar to the branch, the commercial representation’s employees are in legal relationship with the foreign company, which also exercises the employer’s rights.
Establishing a branch or a commercial representation in Hungary, similar to the company formation, is a complicated and elaborate process, which requires professional, legal administration. If you entrust us with your confidence, we are willing to help you with creating a branch for your foreign company. For creating the branch, the foreign company’s documents, which will be the parent company of the branch, are necessary.
If you have any further questions please do not hesitate to contact us.