Hungary: a dynamic economy at the heart of Europe

Foreward by Andrew Chilvers

During the past two decades the key nations of Central and Eastern European (CEE) have grown significantly following moves to liberalise their economies. On average Poland, the Czech Republic, Hungary, Bulgaria and Romania, to name a few, increased their per capita GDP by 115% between 2004-2020. Employment was at its lowest ever at a mere 4.6% and productivity levels were catching up with the developed states of the EU.

In CEE countries growth has been the result of several factors such as the prosperity of the traditional industries, competitive exports and foreign investment, as well as the significant inflow of various funds from the EU and others.

However, this growth ground to an abrupt halt last year with the onset of the Covid-19 pandemic. As elsewhere, the pandemic hit the CEE region on several fronts, with disruptions to the regional services sector and global supply chains – this was particularly damaging to those countries with large vehicle manufacturing sectors. Nevertheless, the CEE economies are known for their economic resilience and many believe they are better positioned to cope with the aftermath of the Covid-19 crisis than their West European counterparts.

Indeed, many analysts predict that the next year or so will be only a temporary setback as CEE economies quickly find their feet again. With this gradual re-opening, the economies in the region are forecast to grow by a healthy 4.1% in 2021 from what was a severe 5.1% contraction last year, according to Moody’s Investors Services.

Overall, economic growth is expected to be more robust in the region compared with countries to the West due to the regional economies’ reliance on traditional manufacturing and heavy industry, with less exposure to hospitality and tourism. The collapse of the latter sectors has had devastating effects on countries such as Croatia and Greece but has spared the majority of CEE countries.

Hungary: a dynamic economy at the heart of Europe

Central & Eastern Europe ecosystem – business opportunities

Since the transition to a market economy, Central and Eastern European countries (CEE region) have been continuing to grow economically. Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia recorded an average GDP growth of 114% between 1996-2017. This has made the CEE region one of the most attractive investment destinations in the world, allowing these countries to partially close the economic gap with Western Europe. In CEE countries, growth has been the result of several factors such as the prosperity of the traditional industries, competitive exports and foreign investment, as well as the significant inflow of various funds from the EU, among others. Although this rapid growth has slowed recently, the region is still a popular location to set up a business.

The CEE’s central location and its excellent connections to many other regions (flights as well as various means of overland transports) makes it easily accessible for businesses and clients. The region’s expanding economy may provide an economic environment in which businesses can prosper and grow rapidly. Favourable taxation systems (especially regarding corporate tax) and the low salary levels compared to other countries in Europe makes the CEE region a more attractive option for a business to be based and operate in.

Starting a business in Hungary

Hungary is in the heart of the European continent and has a dynamically developing economy and business-friendly environment for overseas businesses and investors. Foreign investors are free to set up a business without using a local partner. Company registration fees and regular maintenance costs are low compared to other European countries. Corporate income tax is only 9%, the lowest in the EU. Investors may benefit from a wide range of refundable and non-refundable subsidies. Also, an exclusive 5% VAT rate for newly built residential properties has given the property market a boost.

Establishing a Hungarian legal entity has several advantages. The procedure for a company registration is quick as the documents are filed electronically and the Court of Registry only undertakes a formal check of the documents (rather than a material legal check, as it used to be). It is worthwhile mentioning that a Hungarian company may operate as a pre-company after the corporate documents have been countersigned by the local lawyer – giving the company a further time advantage, which can be worth its weight in gold in some situations, e.g. when participating in a tender.

Hungary is a member of all the key international organisations such as the EU, NATO, OECD, WTO. The country may serve as an ideal platform for investment for the CEE region. Moreover, Hungary is deemed as an entry from the EU to neighbouring non-EU member countries in the Balkan Peninsula and vice versa as an entry from those countries to EU markets.

Hungary has not only a thriving economy, but is equipped with state-of-the-art logistics facilities and infrastructure; highways, industrial parks etc. Budapest, the capital city, is a thriving commercial hub where tourism, retail and technology play a large role in the economy of the city, as many start-ups and tech companies have their headquarters in the capital.

Another “asset” that potential investors may find attractive in Hungary is the country’s political stability and its investment-friendly government policies, especially at the local municipalities level, for the SME sector. Central government focusses on larger enterprises, e.g. recently BMW agreed to set up a new factory in Debrecen (Eastern Hungary) with an investment of euro1 billion. Other multinational companies that have set up in Hungary include GE, Microsoft, IBM, Coca Cola, Morgan Stanley, Audi, Mercedes, British Petrol, Wizzair, Tesco etc.

Choosing the right legal consultant – Budlegal Hungary

Budlegal Hungary offers a variety of proven solutions for streamlining the process of setting up a company in Hungary. One of the best tools is our company set-up questionnaire, focussing on the few relevant questions of the desired corporate design of the Hungarian entity such as company name, seat, shareholder(s), managing director(s) and share capital.

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Contributing Advisors