Hungary has emerged as an attractive destination for entrepreneurs due to its central European location, business-friendly policies, and relatively low operating costs. Whether you are a local entrepreneur or a foreign investor, Hungary offers a variety of opportunities across different industries. However, starting a business in Hungary also comes with challenges that must be carefully navigated. This guide explores the key opportunities and obstacles for entrepreneurs looking to establish a business in Hungary.
Opportunities for Entrepreneurs in Hungary
1. Strategic Location in Europe
Hungary’s central position makes it an excellent gateway to both Western and Eastern European markets. The country is part of the European Union (EU) and the Schengen Zone, allowing businesses to benefit from free trade and mobility. This is particularly advantageous for companies involved in logistics, manufacturing, and export businesses.
2. Favorable Tax System
Hungary has one of the lowest corporate tax rates in Europe, set at 9%, making it an attractive destination for business owners. Additionally, personal income tax is 15%, which is relatively low compared to other EU countries. These tax advantages help businesses remain competitive and profitable.
3. Thriving Startup Ecosystem
Budapest, in particular, has a growing startup ecosystem supported by incubators, accelerators, and government-backed initiatives. The city is home to a vibrant tech scene, with many IT, fintech, and software development companies choosing Hungary as their base. Government programs, such as the Hungarian Startup University Program (HSUP), provide support for innovative business ideas.
4. Affordable Operating Costs
Compared to Western European countries, Hungary offers lower labor costs, office rent, and utility expenses. This makes it an appealing choice for startups and small businesses looking to minimize expenses while maintaining access to skilled labor and modern infrastructure.
5. Skilled Workforce
Hungary has a well-educated workforce, particularly in fields such as engineering, IT, and finance. Many professionals speak English and other foreign languages, which is beneficial for international businesses. The presence of universities and research institutions also fosters innovation and technological advancement.
6. Growing Tourism Industry
Hungary, especially Budapest, is a major tourist destination, attracting millions of visitors each year. Entrepreneurs in hospitality, travel, and entertainment can benefit from this steady influx of tourists. Investments in boutique hotels, restaurants, guided tours, and experience-based tourism have high potential.
Challenges of Doing Business in Hungary
1. Bureaucratic Procedures
Setting up a business in Hungary involves multiple administrative steps, which can be time-consuming and complex, especially for foreigners unfamiliar with local regulations. Entrepreneurs must register their business, obtain a tax number, open a bank account, and comply with various legal requirements. Hiring a local business consultant or lawyer can help streamline the process.
2. Language Barrier
Although English is widely spoken in business environments, Hungarian is the official language for legal and administrative processes. Many government documents, contracts, and official communications are in Hungarian, which may create challenges for foreign entrepreneurs who do not speak the language.
3. High VAT Rate
Hungary has one of the highest value-added tax (VAT) rates in Europe at 27%. This can be a burden for businesses, particularly those in retail and consumer goods sectors. However, VAT exemptions and reduced rates apply to certain industries and products.
4. Competition in Key Sectors
While Hungary presents many opportunities, certain industries—such as real estate, tourism, and IT—are already competitive. New businesses must develop a strong market strategy and offer unique value propositions to succeed. Conducting thorough market research before launching a business is crucial.
5. Changing Regulations
Hungarian business laws and regulations are subject to frequent updates, which can impact taxation, employment laws, and operational procedures. Entrepreneurs must stay informed about legislative changes to ensure compliance and avoid potential legal issues.
Steps to Start a Business in Hungary
Choose a Business Structure
Limited Liability Company (Kft) – The most common structure for small and medium-sized enterprises (SMEs).
Private Entrepreneur (Egyéni Vállalkozó) – Suitable for freelancers and solo entrepreneurs.
Joint-Stock Company (Rt) – Ideal for larger businesses requiring external investments.
Register the Business
Submit company registration to the Hungarian Company Registry.
Obtain a tax number from the National Tax and Customs Administration (NAV).
Open a business bank account.
Secure Necessary Licenses and Permits
Depending on the industry, businesses may require special permits from regulatory authorities.
Hire Employees and Set Up Payroll
If hiring staff, register employees with social security and comply with labor laws.
Ensure Tax Compliance
File tax returns and VAT reports regularly.
Conclusion
Hungary offers significant business opportunities, particularly in technology, tourism, manufacturing, and services. Its central location, favorable tax policies, and skilled workforce make it a competitive destination for entrepreneurs. However, challenges such as bureaucracy, language barriers, and regulatory changes require careful planning.
For those willing to navigate these challenges, Hungary remains a promising destination for business success in 2024.