If you are interested in establishing a Ukrainian company, our experts have prepared an overview on company formation in Ukraine to provide all the necessary information about local forms of business, registration process and requirements.

Download our 2024 company formation guide for Ukraine as a PDF, or read more below

Legal forms of business

Join-Stock Company (Aкціонерне товариство)

The Join-Stock Company is a business entity with a charter capital divided into a certain number of shares of the same value. The joint stock company not later than after six months since an emission of shares had been registered must provide Shareholders with shares (certificate of the shares).

The Join-Stock Company is not liable for the obligations of the shareholders.

The company may be created by establishment, merger, division, separation or transformation of the business (business) companies, public (state), municipal (public) and other companies in the corporation.

Full name of the company in the Ukrainian language must contain the business type (public or private) and legal form (joint stock company).

Joint stock companies are divided into:

  • Public Joint Stock Companies (Публічне акціонерне товариство | ПАТ)
  • Private Joint Stock Companies (Приватне акціонерне товариство | ПрАТ)

Limited Liability Company (Товариство з обмеженою відповідальністю | ТОВ)

The Limited Liability Company is the company which has the capital divided into shares, as determined by the constituent documents.

The maximum number of participants in a Limited Liability Company is not declared.

Additional Liability Company  (Товариство з додатковою відповідальністю)

An Additional Liability Company is the company with an authorized (share) capital divided into shares, as determined by the constituent documents.

The members of the company are liable for its obligations by their contributions to the charter (share) capital, and at the failure of these amount additionally by their property. This amount is the same for all participants and it is relevant to the contributions of each participant.

The maximum liability of members is detailed in the constituent documents.

The General Meeting is the supreme governing body of the Joint Stock Companies, Limited Liability and Additional Liability Companies.

The executive bodies of the company, which provides management of its current activity, are board or other bodies, defined by statute. In a Limited and Additional Liability created by the executive body: Collegial (management) or sole (Director). Directorate headed by General Director. Members of the executive body may also be persons who are not members of the partnership.

General Partnership (Повне товариство | ПТ)

The General Partnership is a company, whose members are engaged in joint business activities and liable for the partnership’s obligations with all their property.

The name of the company must contain the names (names) of all its participants, the words “full partnership” or contain the name (title) of one or more members with the addition of the words “and company” and the words “full partnership”.

Limited Partnership (Командитне товариство)

A Limited Partnership is a company, where one or more members do business on behalf of the partnership and is/are responsible for the company’s obligations with all their assets. There are one or more members whose liability is limited by contribution in property companies (investors) and who do not participate in the activities of the company.

If the Limited Partnership involves two or more participants with full responsibility, they are jointly liable for the debts of the company.

Administration of the Limited Partnership can be made only by participants with full responsibility.

Administration of the General Partnership must be agreed with all participants.

Individual/ entrepreneur (Фізична особа-підприємець)

A citizen recognized as an entity if it exercises the entrepreneurial activity with the state registration as an entrepreneur without legal entity status.

Representative office (Представництво іноземного суб’єкта господарювання)

Foreign business entities that want to do business in Ukraine can open a branch of a foreign entity. For this, the foreign entity must fill in an application and submit it to the Ministry of Economy of Ukraine (or other Ministry depending on the type of business activity of the foreign entity), together with a request for registration of the representation composed in any form, where should be noted:

  • the name of the foreign entity
  • country of origin of the foreign entity
  • location of the foreign entity
  • telephone number and fax number
  • the city in which the representation will be established, indicating its future location (address)
  • location of branches (if they exist)
  • the number of foreign nationals who will work in the representation
  • date of establishment of the foreign entity
  • the legal form of the foreign entity
  • number of employees of the foreign entity
  • the name of the bank and account number
  • scope/type of activities of the foreign entity
  • the purpose of opening and scope of representation, information about business relations with Ukrainian partners and prospects development cooperation

Minimum capital and contribution

The form of business
Minimum capital (approx. in EUR)
Number of shareholders
English Ukrainian

Public joint-stock company

Публічне акціонерне товариство (ПАТ)

200 amounts of minimum salaries on the date of registration:

As of 01/01/2024 – UAH 1,420,000. (approx. EUR 34 700)

As of 01/04/2024 – UAH 1,600,000. (approx. EUR 39 000)

1 or more

Private joint-stock company

Приватне акціонерне товариство (ПрАТ)

200 amounts of minimum salaries on the date of registration:

As of 01/01/2024 – UAH 1,420,000. (approx. EUR 34 700)

As of 01/04/2024 – UAH 1,600,000. (approx. EUR 39 000)

1 or more

Limited Liability Company

Товариство з обмеженою відповідальністю (ТОВ) NS ND

Additional Liability Company

Товариство з додатковою відповідальністю NS ND

General Partnership

Повне товариство (ПТ) NS ND

Limited Partnership

Командитне товариство NS ND

Individual/entrepreneur

Фізична особа-підприємець N/A ND

Representative office

Представництво іноземного суб’єкта господарювання N/A 1 (not a shareholder, mother company)

NS=not stated, ND=not declared

Minimum documentation

A Join-Stock, Limited and Additional Liability Company are established and are operating under the constituent documents, while the General and the Limited Partnership are operating under the foundation agreement.

Constituent documents

The documents must contain at least the following information:

  • company type, subject and purpose of its activities
  • founders and members
  • company name
  • the size and procedure of formation of the authorized (share) capital
  • procedure for distribution of profits and losses
  • the composition and competence of the company and decision-making rules, including a list of issues which require a qualified majority
  • procedure of signing the constituent documents
  • the procedure for amending the founding documents and the procedure of liquidation and reorganization of the company

Foundation agreement

The founding contract of a General Partnership must include in addition to the conditions specified above also the following:

  • the size of the share of each participant
  • the size, composition and procedure of making contributions
  • the form of their participation in the affairs of the company

The founding contract of a Limited Partnership, in addition to the above conditions, must include:

  • the size of each member’s part with full responsibility
  • the size, composition and procedure of making contributions, the form of participation in the affairs of the company

Company registration

General aspects

The company acquires legal personality from the date of its registration. Under normal conditions, the incorporation time (registration procedure time) lasts 24 hours.

The state registration is conducted in the order prescribed by law for state registration of legal entities.

The company may open current and deposit accounts in banks and enter into contracts and other agreements only after its registration. Agreements concluded before the company registration deemed to be concluded with this company, only if it is approved after registration.

Registration documentation

For registration of the legal entity the following documents are needed:

  • application to the state registration of a legal entity (for legal entities formed as a result of division, it is required to add also the information about the separate units in terms of their membership of a legal entity – successor)
  • the simplified tax system and / or registration application for voluntary registration as a payer of value added tax and / or application for inclusion in the Register of non-profit institutions and organizations in the form approved under the law – if the applicant requests
  • original copy (certified copy) of the founders’ decision, and in the cases stipulated by law – decision of the public body about creation of a legal entity
  • founding document of the legal entity
  • document confirming the registration of the foreign entity (extract from trade, bank, court register, etc.) – in case of a legal entity, the founder(s) representing the foreign legal entity
  • original copy (notarized copy) of transfer act – in the case of a legal entity it is created as a result of transformation or merger
  • original copy (notarized copy) of a distribution balance – in the case of a legal entity is created as a result of division or separation

General overview of corporate taxes

Corporate income tax (CIT)

For residents

Ukraine’s standard CIT rate is 18%.  Special rates apply to insurance and gambling activities.

Exit capital tax (ECT)

ECT rate is 9%. It is a special tax regime for the residents of Diia City*

For non-residents

Rates for legal non-resident entities vary from 0% to 20% based on income type. Tax rates and taxable profit for permanent establishments are the same as for residence in Ukraine.

Personal income tax (PIT)

The standard PIT rate is 18%. This rate also applies to the taxable income received from abroad.

Value added tax (VAT)

Standard VAT rate in Ukraine is 20% and is imposed on domestic sales of goods and/or services, imported goods or services.

A reduced rate of 7% is applied to supply and import of registered medicines and specific medical goods. For export of goods and other services defined by law, 0% rate applies under special conditions.

Provision of services to a non-resident are subject to 20% VAT or it can be considered as an outside the scope of VAT, depending on the place of supply.

*Related deadlines for taxpayers you may find in our 2024 Tax calendar for Ukraine.

Europe offers a solid and attractive market for business opportunities, with long-term political stability, strategic location, competitive tax system, highly skilled workforce and international community. The wave of globalization calls for reaching beyond the borders, encouraging companies and corporates to conquer new locations. If you are tempted by doing business in Europe, countries such as the Czech Republic, Hungary, Poland, Romania, Slovakia, Ukraine and the United Kingdom should definitely rank high on your list of destination.

Valuable 2024 country guides and tools for doing business in Europe

To provide the necessary initial information for your decision making in regards to doing business in Europe, our experts prepared comprehensive guides and overviews on matters related to the statutory framework of the local entrepreneurial environment.

Read about the fundamentals of establishing a business in our company formation eBooks, discover the details of the local tax systems and VAT legislation in our guidelines, browse through the upcoming deadlines in our tax calendars, learn about transfer pricing and documentation methods, gain a valuable insight on employment-related matters from our labour law overviews or try the local salary calculators for 2024. In case you require more information or need professional advice on how to leverage your business potential when it comes to expansion in Central and Eastern Europe, feel free to contact us.

Czech Republic
Hungary
Poland
Romania
Slovakia
Ukraine
United Kingdom

The main types of companies in Poland are Partnerships (Registered Partnership, Professional Partnership, Limited Partnership, Limited Joint-Stock Partnership) and Capital companies (Limited Liability Company, Joint-Stock Company). There are also 2 other alternatives (Branch and Sole Proprietorship), but special conditions apply.

Download our 2024 guide on company formation in Poland, or read more below

Freedom of business activity

Freedom of business activity

Polish law stipulates the principle of freedom of business activity. This means that undertaking, pursuing, and terminating economic activity is free for everyone on an equal basis.

In some cases, running business requires consent of an appropriate authority, e.g., a license or a permit

This applies to the performance of economic activity in areas of particular importance for the security of the state or citizens, or other important public interest. Granting of a license or a permit may be subject to the fulfilment of specific conditions, for example, no criminal records of board members.

Foreigners

Citizens of the European Union and European Economic Area Member States who want to conduct business activity in Poland may:

Set up own sole proprietorship or any commercial company in Poland

Provide cross-border services – without registering business in Poland

Set up a branch or representative office of foreign entrepreneur in Poland

The EU member states are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czechia, Denmark, Estonia, Finland, France, Greece, Spain, Netherlands, Ireland, Lithuania, Luxembourg, Latvia, Malta, Germany, Poland, Portugal, Romania, Slovenia, Slovakia, Sweden, Hungary, Italy.

The member states of the European Economic Area, apart from the EU member states, are Norway, Iceland, and Liechtenstein.

Citizens of the USA and the Swiss Confederation can establish a sole proprietorship, any commercial company, branch, or representative office in Poland.

Citizens of countries that do not belong to the European Union may:

  • Set up a sole proprietorship or any commercial company in Poland, if they have a residence permit that entitles them to do so
  • Set up a limited partnership, limited joint-stock partnership, limited liability, simple joint-stock company, and joint-stock company in Poland
  • Join a limited partnership, limited joint-stock partnership, limited liability, simple joint-stock company, and joint-stock company, and acquire and take up shares or stocks in these companies
  • Set up a branch of a foreign entrepreneur in Poland, if ratified international agreements signed with Poland do not exclude such a possibility

Registered Partnership

Minimum capital, minimum contribution

There are no requirements regarding the amount of company’s capital.

Business name

The business name of the Registered Partnership should include the surname or the business name of at least one partner.

Minimum documentation

In order to establish a Registered Partnership, the founders of the company have to adopt articles of partnership. The articles of partnership shall be made in writing, or else they will be invalid.

Next, the motion to the National Court Register should be prepared. The Registered Partnership is considered established from the date of its registration at the commercial register.

Details about shareholders

Each partner of a Registered Partnership is liable for the obligations of the company without limitation with all his assets jointly and severally with the remaining partners and the partnership. However, a creditor of the partnership may conduct execution from the partner’s assets only if execution from the assets of the partnership proves ineffective.

Each partner has the right to represent the company. The right of representation includes all acts in court and out of court and cannot be limited with effect towards third parties. The partner may be deprived of the right to represent the partnership only for significant reasons under a final and court decision.

Management of the affairs of the partnership may not be entrusted to third parties to the exclusion of the partners. Management of the affairs of the partnership may be entrusted to one or several partners under the articles of partnership or under a subsequent resolution of the partners. In such a case, the remaining partners are excluded from managing the affairs of the partnership.

Professional Partnership

Minimum capital, minimum contribution

There are no requirements regarding the amount of company’s capital.

Business name

The business name of the Professional Partnership should include the surname of at least one partner.

Minimum documentation

In order to establish a Professional Partnership, the founders of the company must adopt articles of partnership. The articles of partnership shall be made in writing, or else they will be invalid.

Next, the motion to National Court Register should be prepared. The Professional Partnership is considered established from the date of its registration at the commercial register.

Details about shareholders

Only natural persons qualified to pursue liberal professions, i.e., legal advisers, notaries, doctors etc. can be partners of Professional Partnership.

A partner is not liable for the obligations of the partnership which arise in connection with the pursuit by the remaining partners of the profession in the partnership, or for the obligations of the partnership which arise as a result of acts or omissions of persons employed by the partnership under an employment contract or another legal relationship who have been guided by another partner in the provision of services connected with the objects of the partnership.

The articles of partnership may provide that one or more partners agree to be liable as a partner of a Registered Partnership.

Each partner shall have the right to represent the partnership individually, unless the articles of partnership provide otherwise. A partner can be deprived of the right to represent the partnership only for significant reasons under a resolution adopted by a majority of three-fourths of the votes in the presence of at least two-thirds of the total number of partners. The articles of partnership may provide for stricter requirements for such a resolution. Such depriving of a partner of the right to represent the partnership is effective from the date of registration of this fact in the commercial register.

The articles of partnership of a Professional Partnership may provide that the management of the affairs and the representation of the partnership be entrusted to the management board.

Limited Partnership

Minimum capital, minimum contribution

There are no requirements regarding the amount of company’s capital.

Business name

The business name of the Limited Partnership should contain surname or business name of at least one of the general partners. The surname of the limited partner may not be placed in the business name of the partnership or else that limited partner shall be liable to third parties like a general partner.

Minimum documentation

In order to establish a Limited Partnership, the founders of the company must adopt articles of partnership. The articles of partnership of a Limited Partnership shall be made in the form of a notarial deed.

Next, the motion to National Court Register should be prepared. The Limited Partnership is considered established from the date of its registration at the commercial register.

Details about shareholders

There are 2 types of partners in a Limited Partnership: general partners and limited partners.

  • A general partner is liable to the creditors for the obligations of the partnership without limitation
  • A limited partner is liable only up to the amount specified in the articles of partnership. Such amount is set up individually for each limited partner. The limited partner is released from liability up to the value of contribution made to the partnership

Unless the articles of partnership provide otherwise, the limited partner’s contribution maybe made in a value lower than this specified amount. However, a decision of the partners to release the limited partner from the obligation to make a contribution shall be invalid.

The Limited Partnership is represented by the general partners, who are not deprived of the right to represent the partnership under the articles of partnership or a final and non-appealable court judgement. A limited partner may represent the partnership only as a proxy.

The affairs of the company are managed by the general partners. A limited partner does not have the right or obligation to manage the affairs of the partnership, unless the articles of partnership provide otherwise.

Limited Joint-Stock Partnership

Minimum capital, minimum contribution

The minimum capital in a Limited Joint-Stock Partnership amounts to PLN 50,000. The nominal value of the share cannot be lower than PLN 0.01.

Business name

The business name of the Limited Joint-Stock Partnership should include the surnames of one or several general partners. The surname of a shareholder cannot be placed in the business name of the partnership or else that shareholder shall be liable to third parties like a general partner.

Minimum documentation

For establishing a Limited Partnership, the founders of the company must adopt a statute of the company. The statute of a Limited Joint-Stock Partnership should be made in the form of a notarial deed.

Next, the motion to National Court Register should be prepared. Like other partnerships, Limited Joint-Stock Partnership is considered established from the date of its registration at the commercial register.

Details about shareholders

In a Limited Joint-Stock Partnership there are 2 types of partners: general partners and shareholders.

  • General partners are liable for the obligations of the partnership without limitation, while the shareholders are not liable for company’s obligations.
  • The partnership is represented by the general partners, who are not deprived of the right to represent the partnership under the statute or a final and non-appealable court judgement. Any subsequent deprivation of a general partner of the right to represent the partnership should constitute an amendment to the statute and requires the consent of all the remaining general partners. A shareholder may represent the partnership only as a proxy.

Affairs of the company are managed by general partners. The statute may provide that management of the affairs of the partnership shall be entrusted to one or several general partners. An amendment to the statute depriving a general partner of the right to conduct affairs of the partnership or granting such right to a general partner who was previously deprived of such right shall require the consent of all remaining general partners.

Supervisory board

A supervisory board may be established in any Limited Joint-Stock Partnership. If there are more than twenty-five shareholders, the creation of a supervisory board is obligatory. The members of the supervisory board shall be appointed or revoked by the general meeting.

Under last year’s amendment to the Code of Commercial Companies, the powers and duties of supervisory boards have been increased, enabling them to request management bodies to prepare or provide any information, documents, reports, or explanations regarding the company.

Limited Liability Company

Minimum capital, minimum contribution

The share capital of a Limited Liability Company shall be at least PLN 5,000. The share capital of the company can be divided into shares of equal or non-equal nominal value. However, the nominal value of a share may not be lower than PLN 50. The shares may not be subscribed for the amount below their nominal value. The amount of contribution shall not be lower than the share capital.

Business name

There are no requirements regarding the business name of the Limited Liability Company.

Minimum documentation

In order to establish a Limited Liability Company, the founders of the company must adopt articles of association. The articles of association should be made in a form of notarial deed.

In contrast to the partnerships, capital companies can start their activity right after execution of the articles of association. Until the date of registration at the commercial register, capital companies are obliged to add to their business name the term “in organization” (in Polish “w organizacji”). After the registration, the companies obtain legal personality.

Also, the motion to the National Court Register must be prepared. Following documents should be attached to the motion:

  • Articles of association
  • Board statement that the contribution has been made by all shareholders in full
  • The list of shareholders
  • Resolution of shareholders on board appointment
  • The board members’ statements concerning their addresses for delivery and consent for appointment on the position of a board member
  • The document concerning full names and addresses for delivery or company’s name, or name and registered office of the members of the bodies or persons authorized to appoint the management board; if the shareholder is a legal person, it is required to provide full names and addresses for delivery of members of the body authorized to represent that legal person.

Details about shareholders

The shareholders of the Limited Liability Company can be natural persons, as well as companies. A Limited Liability Company cannot be formed solely by another single-shareholder Limited Liability Company. The shareholders are not liable for the obligations of the company.

Management board

The management board manages the affairs of the company and represents the company. The management board is composed of one or more members. Members of the management board are appointed and dismissed by a resolution of the shareholders, unless the articles of association provide otherwise. If the management board comprises several members, the rules for representation should be stipulated in the articles of association. If the articles of association do not include any provisions in this respect, representations in the name of the company may be made by two members of the management board acting jointly or by one member of the management board acting together with a commercial proxy.

Supervisory board

The articles of association may create a supervisory board or an audit committee or both. In companies where share capital exceeds PLN 500,000 and where there are more than twenty-five shareholders, the establishment of supervisory board or audit committee is mandatory. The supervisory board (or audit committee) consists of at least three members appointed and dismissed by a resolution of the shareholders. The articles of association may provide a different method of appointment and dismissal of members of the supervisory board. The supervisory board exercises permanent supervision over all areas of the activities of the company. However, the supervisory board does not have the right to give the management board any binding instructions with respect to the management of the affairs of the company. But, last year’s amendment to the Code of Commercial Companies strengthens the position of supervisory boards by granting them the power to request management bodies to prepare or provide any information, documents, reports, or explanations concerning the company. Whereas the acquisition of new information by the supervisory board from the management boards of companies, will result in the imposition of new obligations on it with regard to the analysis of this information.

Joint-Stock Company

Minimum capital, minimum contribution

The minimum amount of share capital in Joint-Stock Company is PLN 100,000. The share capital shall be divided into shares of equal nominal value. Nominal value of the share may not be lower than PLN 0.01.

The shares subscribed for in-kind contributions shall be paid in full not later than within a year from the date of registration of the company.

The shares subscribed for cash contributions shall be paid prior to registration of the company to the extent of at least one fourth of their nominal value.

If the shares are subscribed solely for in-kind contributions or for in-kind contributions and cash contributions, the share capital shall be paid in prior to registration to the extent of at least one fourth of its amount.

Business name

There are no requirements regarding the business name of the Joint-Stock Company.

Minimum documentation

In order to establish a Joint-Stock Company, the founders of the company must adopt statute of the company. The statute of the Joint-Stock Company should be made in a form of notarial deed.

Establishment of a Joint-Stock Company also requires the consent to the formation of the Joint-Stock Company and the wording of the statutes, as well as to the subscription for the shares. The consents should be adopted in a form of one or more notarial deeds.

Also, the motion to National Court Register must be prepared. Following documents should be attached to the motion:

  • Statute
  • Notarial deeds on the formation of the company and subscription for the shares
  • Statement of all members of the management board that the payments towards the shares and the in-kind contributions required under the statute have been legally made
  • Confirmation, certified by a bank or an investment company, of payment for the shares made to the account of the company in organization or, in the event of coverage of share capital by in-kind contributions after the registration, the statement of all board members that payments of the contributions within statutory period is ensured by the statute
  • Document confirming that the governing bodies were formed with details about members of the bodies
  • The board members’ statements concerning their addresses for delivery and consent for appointment on the position of a board member
  • The document concerning full names and addresses for delivery or company’s name, or name and registered office of the members of the bodies or persons authorized to appoint the management board; if the shareholder is a legal person, it is required to provide full names and addresses for delivery of members of the body authorized to represent that legal person.

Details about shareholders

The shareholders of the Joint-Stock Company can be natural persons, as well as companies. A Joint-Stock Company may not be formed exclusively by a single-shareholder Limited Liability Company. The shareholders are not liable for the obligations of the company. The shareholders are not liable for the obligations of the company.

There are two kinds of shares: registered shares and bearer shares. The registered shares indicate the shareholder. The registered shares certificate can be issued before making a full payment. The statute can state that the sale of registered shares requires a consent of the company or limits such sale in a different way. The bearer share does not indicate entitled party, which is the holder of the share certificate. Such share cannot be issued before the full payment. Sale of the bearer shares cannot be limited. The change of the ownership of the bearer share requires handing over the share certificate.

Upon the request of shareholder, registered shares can be changed to bearer shares (or vice versa), unless the law or the statute provide otherwise.

Management board

The management board manages the affairs of the company and represents the company. The management board is composed of one or more members. Members of the management board are appointed and dismissed by the supervisory board unless the statute provides otherwise. The board member can be dismissed or suspended also by the general meeting of the shareholders. The board members can be appointed for maximum 5 years term of office.

If the management board comprises several members, the rules for representation should be stipulated in the statute. If the statute does not include any provisions in this respect, representations in the name of the company may be made by two members of the management board acting jointly or by one member of the management board acting together with a commercial proxy.

Supervisory board

Establishment of a supervisory board in the Joint-Stock Company is mandatory. The supervisory board exercises permanent supervision over all areas of the activities of the company.

The supervisory board consists of at least three members (five in case of public companies) appointed and dismissed by the general meeting of shareholders. The statute may provide a different method of appointment and dismissal of members of the supervisory board. Members of the supervisory board can be appointed for maximum 5 years term of office.

The amendment to the Code of Commercial Companies strengthens the position of supervisory boards by granting them the power to request management bodies to prepare or provide any information, documents, reports, or explanations regarding the company. However, the supervisory board’s acquisition of new information from the management boards of companies imposes new obligations on it in terms of analysing this information.

Simple Joint-Stock Company

Minimum capital, minimum contribution

The minimum amount of share capital in Simple Joint-Stock Company is PLN 1. The shares have no nominal value, do not constitute part of the share capital and are indivisible.

The amount of the share capital is not specified in the articles of association. The provisions on amendments to the articles of association do not apply to changes in the amount of share capital.

The contributions shall be paid in full within three years from the company’s entry in the register.

Business name

There are no requirements regarding the business name of the Simple Joint-Stock Company.

Minimum documentation

In order to establish a Simple Joint-Stock Company, the founders of the company have to adopt articles of the association. The articles of association should be made in a form of notarial deed.

Establishment of a Simple Joint-Stock Company also requires the establishment of company bodies required by the law or the articles of association and making contributions by shareholders to cover the share capital.

Also, the motion to National Court Register must be prepared. Following documents should be attached to the motion:

  • Articles of association
  • A declaration of all members of the management board on the amount of the share capital
  • Declaration by all members of the management board that the contributions to cover the shares were made in the part provided for in the articles of association
  • If the appointment of members of the company’s governing bodies does not constitute a notarial deed containing the articles of association – proof of their appointment, specifying their personal composition
  • A list of shareholders signed by all members of the management board, giving the surname and first name or company (name) as well as the number and series of shares taken up by each of them
  • The board members’ statements concerning their addresses for delivery and consent for appointment on the position of a board member
  • The document concerning full names and addresses for delivery or company’s name, or name and registered office of the members of the bodies or persons authorized to appoint the management board; if the shareholder is a legal person, it is required to provide full names and addresses for delivery of members of the body authorized to represent that legal person.

Details about shareholders

The shareholders of the Simple Joint-Stock Company can be natural persons, as well as companies. A Simple Joint-Stock Company may not be formed exclusively by a single-shareholder Limited Liability Company. The shareholders are not liable for the obligations of the company. Shareholders are only obligated to perform the services specified in the articles of association.

Shares are not in the form of a document, and they are registered in the register of shareholders.

Management board

It is mandatory to establish a management board or board of directors.

The management board manages the affairs of the company and represents the company. The management board is composed of one or more members. Members of the management board are appointed and dismissed by the shareholders, unless the article of associations provide otherwise.

If a supervisory board has been established in the company, the members of the management board shall be appointed, dismissed, and suspended for important reasons by the supervisory board, unless the articles of association provide otherwise.

If the management board comprises several members, the rules for representation should be stipulated in the articles of association. If the articled of association do not include any provisions in this respect, representations in the name of the company may be made by two members of the management board acting jointly or by one member of the management board acting together with a commercial proxy.

Board of Directors

The board of directors manages the company’s affairs, represents the company, and supervises the conduct of the company’s affairs. It is composed of one or more directors.

Directors are appointed, dismissed and suspended by shareholders for important reasons by a resolution, unless the articles of association provide otherwise.

The articles of association, the rules of the board of directors or a resolution of the board of directors may delegate some or all the activities of the company’s business to one director or some directors (executive directors). Directors who are not executive directors (non-executive directors) exercise permanent supervision over the conduct of the company’s affairs.

If the board of directors comprises several directors, and the articles of association do not contain any provisions on this matter, two directors or one director together with a commercial proxy are required to make statements on behalf of the company.

Supervisory board

Establishment of a supervisory board in the Simple Joint-Stock Company is not mandatory. However, the articles of association may provide that, in addition to establishing a management board, the company must also establish a supervisory board. The supervisory board exercises permanent supervision over all areas of the activities of the company.

The supervisory board consists of at least three members appointed and dismissed by a resolution of shareholders. The articles of association may provide a different method of appointment and dismissal of members of the supervisory board.

The mandate of a body member shall expire on the date of the general meeting approving the financial statements for the first full financial year following the date of appointment, unless the articles of association provide otherwise for an indefinite period.

If the articles of association provide the appointment of a member of the body for a term of office, it shall be counted in financial years, unless the articles of association provide otherwise. In such a case, the mandate of the body member shall expire on the date of the general meeting approving the financial statements for the last year of the body member’s term of office, unless the articles of association provide otherwise.

The amendment to the Code of Commercial Companies grants the supervisory board the power to request management bodies to prepare or provide any information, documents, reports, or explanations regarding the company. However, the supervisory board’s acquisition of new information from the management boards of companies imposes new obligations on it in terms of analyzing this information.

Company registration via internet

Two ways of online registration

Currently, an application for company registration can be submitted in the National Court Register online only. It is not possible to submit a paper application. However, there are two methods of applying for registration with the National Court Register:

  • Via the S24 system – in the case of companies whose articles of association has been concluded in this system
  • Via the Court Registers Portal – in the case of companies whose articles of association has been concluded in a traditional form.

Types of companies that can be set up online (S24)

Registration of a company via Internet, in the S24 system, is a good form for the companies established by one person or those that have only standard provisions in their articles of association.

In the S24 system, it is possible to conclude an agreement and register:

  • Registered partnership
  • Limited partnership
  • Limited liability company
  • Simple joint-stock company

Registration process

The main condition for establishing a company in the S24 system is that all persons signing the articles of association and participating in its registration should have a qualified electronic signature, a trusted signature (ePUAP) or an electronic personal signature.

It is possible to use S24 portal after creating an account. To log in, it is necessary to provide login and password. Each person who will sign the registration application (each of the management board members

listed in the articles of association that is not suspended, or theirs representative), and shareholders or their representatives should have an account.

The system will notify which documents are needed and will guide through all stages of their preparation. S24 provides most of the model documents, but not all of them, for example, a declaration of the status of a foreigner should be prepared independently.

After correctly completing the previous steps, the S24 system will automatically transfer applicant to the electronic payment system.

After payment, the application will be sent to the registry court competent for the company’s seat. The court should verify an application within one day from the date of receipt. However, the verification time may be extended if the court asks for additional documents, e.g., if the shareholder is a foreign company (then a translated excerpt from the foreign company’s register along with an apostille may be required).

Advantages and disadvantages of registering a company via S24

Advantages:

  • All formalities related to the establishment and registration of companies may be done online
  • There is no obligation to visit a notary public, as opposed to setting up a company in a traditional way
  • The court fee is lower. Instead of PLN 600, it is PLN 350.

Disadvantages:

  • Fewer possibilities of adjusting the articles of association than in the case of using the services of a notary public
  • No possibility to modify the financial year
  • Share capital may be covered only with cash contributions.

Additional notifications

In addition to the registration of the company in the National Court Register, the following data should also be reported:

  • Supplementary information for the tax office, for example bank account numbers, information on the special status of companies, expected number of employees or place of business and detailed contact details, within:
    • 21 days from the date of entry of the company into the National Court Register
    • 7 days from the date of commencement of business activity – if it is planned to pay social security contributions.
  • Ultimate beneficial owner to the Central Register of Real Beneficiaries (CRBR),
    • the application should be made within 7 days from the date of entry into the National Court Register
    • the application must be signed with e-PUAP or qualified electronic signature by
      the board members/proxies according to company representation rules
    • the application must be submitted electronically – can be done by PoA.

Branch

Purpose

Foreign entrepreneurs can conduct business activity on the territory of Poland trough a branch. A branch can only conduct such activity which coincides with the scope of business activity of foreign entrepreneur. According to Polish law, the branch is considered a part of mother company, not an independent entity. However, the branch may hire employees on its own behalf.

Business name

The branch operates under the same business name as the mother company.

To the business name should be added the form of business of the mother company translated into Polish (e.g., LTD = spółka z ograniczoną odpowiedzialnością) and the term “oddział w Polsce” (in English: branch in Poland).

Minimum documentation

The branch can start conducting business activity after the registration in the National Court Register. The following documents should be attached to the registry motion:

  • Articles of association, statute, or other document on basis which the foreign entrepreneur conducts the activity
  • Excerpt for the register of foreign entrepreneur
  • Document stating name and address of the person entitled to represent foreign entrepreneur in branch.

Additional notifications

In addition to the registration of the company in the National Court Register, additional data must be submitted to the tax office, such as bank account numbers, information on the special status of companies, the expected number of employees or place of business, and detailed contact details. Applications must be made within the:

  • 21 days from the date of entry of the foreign entrepreneur’s branch into the National Court Register
  • 7 days from the date of commencement of business activity – if you intend to pay social security contributions.

Sole proprietorship

Purpose

The sole proprietorship is an alternative for establishment of a company. In this case natural person conducts business activity on his/her own behalf. Such entrepreneur is solely liable for obligations connected to business activity without limitation.

Registration

Natural persons who conduct business activity are registered in the Central Registration and Information on Business (CEiDG). The entrepreneur can register in CEiDG, tax office and social insurance institution (ZUS) with a single application. Such application can be submitted electronically by CEiDG website, sent by post to a selected municipal office or filed in person in selected municipal office.

Documentation

Together with the application, the entrepreneur shall provide a statement that he owns legal title to the real estates, with addresses already entered into the register (i.e., correspondence address and all addresses of conducting business, including main address of business and addresses of branches – if there are such). The legal title can be for example a property sales agreement or a lease agreement.

Such legal title is not attached to the registry motion, but the ministry responsible for economic affairs may request the entrepreneur to provide it within 7 days from receiving the request. If the entrepreneur will not provide it or changes the addresses in the register, the ministry can decide on erasing the entrepreneur from the register.

Incorporation time and fees

Incorporation time

All types of companies must be register at the commercial register held by district courts. The duration of the registration procedure depends on the relevant court. The procedure in Warsaw currently lasts approximately 2-3 weeks.

Fees

The court fee for registration of the company in the National Court Register amounts to PLN 600 or PLN 350 in case of registration via S24 platform.

Registration of a group of companies

Creation of a group of companies

In connection with the amendment of the provisions of the Polish Code of Commercial Companies, the rights of groups of companies were introduced to the Polish legal order.

A group of companies within the meaning of the new regulations should be understood as a parent company and a company or subsidiaries that are capital companies and follow a common strategy to pursue the common interest of the group of companies.

Decision to create a group of companies

In order to establish a group of companies, the partners or shareholders of a subsidiary should adopt an appropriate resolution specifying the parent company in its content. A resolution is passed by a majority of three-fourths of votes. However, it is possible to determine in the articles of association or the company’s articles of association a number of votes higher than the statutory number of votes necessary to adopt such a resolution.

Disclosure of accession of a subsidiary to a group of companies

Participation in a group of companies is disclosed in the National Court Register, and the application of the provisions of the law on groups of companies is possible only after disclosing this information in the register.

  • If the registered office of the parent company is in Poland – the management board of the parent company and the subsidiary notify the registry court of the fact of joining the group of companies of the subsidiary
  • If the parent company has its seat abroad – the obligation to disclose in the register the fact of joining a group of companies rests only with the management board of the subsidiary.

Supervisory Board

The amendment to the Code of Commercial Companies, in force since last year, gave new powers and duties to supervisory boards of companies belonging to the group. When supervising a subsidiary, the parent company’s supervisory board may request the management board of a subsidiary participating in a group of companies to provide books and documents and to provide information for supervision. However, in the absence of a supervisory board in the parent company, its competencies will fall to the management board (or the board of directors in the case of a simple joint-stock company).

Company transformation

Unified Rules for EU Companies

In 2023, a new amendment to the Commercial Companies Code came into effect in Poland. The primary objective of this amendment is to incorporate into Polish law the Directive (EU) 2019/2121 of
the European Parliament and of the Council dated November 27, 2019. This directive amends Directive (EU) 2017/1132 concerning cross-border conversions, mergers, and divisions of companies.

The law, enacted on August 16, 2023, amends the Commercial Companies Code and certain other statutes, marking another crucial step in implementing the so-called “company law package” to deepen integration within the European Union’s single market.

In light of the implementation of regulations regarding new types of cross-border operations for companies, significant changes have been introduced concerning domestic types of company transformations. These changes expand the range of possible forms of reorganization. The aim of these modifications is to prevent the reverse discrimination of Polish entities participating in company transformation processes at the national level compared to entities participating in such processes at the cross-border level.

e-Deliveries for entrepreneurs

What are e-Deliveries?

e-Deliveries (“e-Doręczenia”) is a service that allows for sending and receiving correspondence electronically, with an effect equivalent to a registered letter with acknowledgment of receipt.

Who is required to have an e-Deliveries mailbox?

Entrepreneurs registered in CEIDG (Central Register and Information on Economic Activity) and in National Court Register are required to have an e-Deliveries (“e-Doręczenia”) mailbox.

When does an entrepreneur need to have an e-Deliveries mailbox?

Entrepreneurs are required to have an e-Deliveries(“e-Doręczenia”) mailbox based on the following timelines, depending on the registration date of the company in CEIDG or National Court Register:

  • companies registering their business in CEIDG from January 1, 2025, and in National Court Register from October 1, 2024, will set up e-Doręczenia mailboxes during the registration process
  • companies that registered or will register their business in CEIDG by December 31, 2024, must have an e-Doręczenia address by September 30, 2026
  • companies that registered or will register their business in National Court Register by September 30, 2024, must have an e-Doręczenia address from January 1, 2025.

Taxes on corporate income

Income and capital gains

  • 19% is the standard corporate income tax rate
  • 9% is the reduced rate for small taxpayers and new companies in the first year of business activity

Withholding tax on cross border payments

Withholding tax of 20% is levied on income from interest, copyright or related rights, rights to inventive designs, trademarks, and decorative designs, disclosing the secret of a recipe or production process, for the use or right to use an industrial device. The taxation may be diminished by application EU Directives or double taxation treaties.

Withholding tax of 19% covers payment of dividends, also in this case tax burden may be diminished by application of EU Directives or double taxation treaties.

For the following payments “pay and refund” mechanism is applicable:

  • To the related entities
  • Of interest, royalties, and dividends
  • In case yearly payment towards a certain contractor exceeds PL 2M.

Under this mechanism WHT rate needs to be withheld at a standard rate (19% and 20% respectively) and may be refunded on the later stage upon taxpayer’s/tax remitter’s application if according to Double Tax Treaty or EU Directives lowered rate or WHT exemption would be applicable.

In order not to apply pay and refund mechanism a tax remitter should obtain an opinion on WHT preferences or submit a statement.

Minimal income tax

Minimal income tax was supposed to be implemented from 2022, however it has been postponed until 2024. For the first time taxpayers will be obliged to calculate and pay minimal income tax for 2024 by the end of March 2025.

The regulation applies to corporations incurring a loss or whose share of income in revenue is less than 2%. Taxpayer will have the right to choose the way of calculating the tax base:

  • 3% of the revenues
  • 1,5% of the revenues and excess of debt financing costs exceeding 30% of tax EBITDA and costs of intangible services from related entities exceeding 5% of tax EBITDA over PLN 3 M

Tax rate is 10%.

Exempt will be i.a:

  • taxpayers in the year in which they set up their business and in the two following tax years
  • financial enterprises
  • small enterprises
  • companies if in one of the 3 years prior the current year 2% rentability ratio was exceeded
  • taxpayers, if their revenues are lower by at least 30% compared to the year preceding
  • taxpayers that are owned exclusively by natural persons and do not hold certain shareholding rights in other entities
  • taxpayers that are part of a group of at least two companies if the rentability of the group is greater than 2%
  • taxpayers in bankruptcy, liquidation or restructuring proceedings.

Flat tax rate on the revenue of capital companies
(the so-called Estonian CIT)

In this form of taxation, the company’s profit is not taxed as long as it remains in the company and is allocated for investment.

Estonian CIT tax is available to a certain  catalogue of entities. Estonian CIT tax rules may be applied by joint-stock companies, limited liability companies, limited partnerships, limited joint-stock partnerships, and simple joint-stock companies. There are some additional requirements in terms of investors’ structure (natural persons only) and minimal employment (3 employees).

If the entrepreneur decides to apply the Estonian CIT regulations, they will be applied for the next 4 tax years. If the entrepreneur does not resign from the flat-rate income tax during this period, the tax period based on these rules will be automatically extended by another 4 tax years.

Regime for holding companies

Holding company is a Polish entity with unlimited tax obligation, not benefiting from CIT exemption, running real business activity, having at least 10% of shares in companies with seat in countries other than tax heavens, not part of a CIT group.

Special method of taxation for holding companies assumes the CIT exemption of 95% of the amount of dividends received by the holding company from subsidiaries and under certain conditions full CIT exemption for profits from the sale of shares or stocks in subsidiaries.

Tax on transferred income

If advisory, royalties, debt financing, remuneration for transfer of functions, risks etc. costs exceed 3% of taxpayer’s costs, tax on transferred income may be due. Subsequent requirements concern:

  • Relations between entities (related entities)
  • Effective tax rate for related entity
  • Structure of costs/revenues/dividend in the related entity.

Corporate income tax – general information

Residence

A company is treated as resident if it has its legal seat or place of effective management in Poland.

Taxable income

Resident companies are taxable on their worldwide income, including capital gains. The taxable income is computed based on the accounting profits and is adjusted for several items as described in the tax law. Revenues are divided into two sources – business activity and capital gains.

Tax period

Tax settlement period for a corporate income tax is tax year. Standard tax year is 12 months, it can be similar to calendar year but also may be changed. Tax advances are paid throughout the year on a monthly or quarterly basis and reconciliated annually.

Tax returns and assessment

The taxpayer has to calculate and report revenues, tax deductible costs and tax due in the annual tax return (self-assessment). The deadline for filing the return is by the end of the third month following the end of the tax year.

Tax advances

Tax advances should be calculated and paid by the taxpayer generally on a monthly basis. Quarterly payments are possible, in the first year or if gross sales did not exceed EUR 2,000,000 in the previous year. Basis for calculation are current taxable revenues and tax-deductible costs. In certain cases, a taxpayer may pay simplified advances monthly, being as a rule 1/12 of a tax paid in the tax year preceding the previous year (current year – 2).

Deductions

As a rule, expenses incurred in connection to obtaining, ensuring and maintaining taxable income are fully deductible, unless they are listed as non-deductible items. Some items are deductible only up to a limit set by the law.

Carry forward of losses

Tax losses may be carried forward up to 5 tax years. During each year the company cannot utilize more than 50% of the loss incurred in a given year. Alternatively, a taxpayer may utilize PLN 5M of loss from a given year at once, whereas remaining part of loss will be settled compliant with general provisions. Loss from one source (business activity/capital gains) must be utilized within the same source.

Expected changes in income taxes

Based on Directive no 2022/2523 Poland will be obliged to implement global minimal tax (further: “Globe”).

Globe

The details of implementation of Globe into Polish tax system are not known yet (neither in terms of timing nor in terms of scope of taxation). The general concept of Globe is that the effective taxation of multinational companies (entities whose yearly consolidated revenue exceeds EUR 750 M) at the level of at least 15%.

Investment incentives

Special Economic Zones

Certain territory of Poland is considered as a Special Economic Zone, however, the intensity of public aid is different and depends on the region. General rule is that depending on the volume of investment, number of employees and additional local requirements, the taxpayer may benefit from tax exemption. Conditions are established for each taxpayer by a special agency responsible for Special Economic Zone which after application procedure issues a decision granting exemption in the particular case.

Research and Development (R&D)

Polish CIT act provides for special taxation regime encouraging investments into new technologies. Main tool is special Research and Development (R&D) relief based on which taxpayer can additionally deduct expenses on R&Dincluding development of prototypes and pilot projects, demonstration, testing, and validation of new or improved products, processes or services whose main purpose is to improve the technical encoding products.

Polish Investment Sphere is a kind of tax relief for new investment based on the decision on support in Polish Investment Sphere (dedicated for industrial sector and sector of innovative services).

Another tax benefit dedicated to the investor is so called IP Box. Based on the IP Box provisions, income derived from intellectual property can be preferentially taxed with 5% tax rate.

Remaining preferences in the CIT Act are i.a.:

Tax relief for robotization

Tax relief for consolidation

Tax relief for trial production of a new product and its market placement

There are also other tax benefits for various economic sectors and legal forms.

In order to set up a company in Romania, you first need to choose the type of business form, to prepare the file and to submit the application at the Trade Register. Note that the most common forms of business in Romania are the Limited Liability Company along with the Joint Stock Company and Branches.

Download our 2024 Company formation guide for more information, or read more below

Legal forms of business, minimum capital, contribution

The type of business forms available in Romania are summarized below with their specific information: the minimum share capital, the liability of the shareholders/stockholders, the minimum number of shareholders/stockholders.

The most common forms of business used in Romania are the Limited Liability Company along with the Joint Stock Company and Branches.

General Partnership (Societate in nume colectiv | S.N.C.)

  • There is no minimum share capital required.
  • A General Partnership must have 2 or more shareholders.
  • The shareholders have unlimited and joint liability for social contributions.

Limited Partnership (Societate in comandita simpla | S.C.S.)

  • There is no minimum share capital required.
  • The Limited Partnership must have at least one limited partner and at least one general partner.
  • The limited partners have no management authority and they are not responsible for the debts of the partnership. They respond in the limit of the subscribed shares.
  • The general partners have management control and they have joint and several liabilities.

Limited Liability Company (Societate cu raspundere limitata | S.R.L.)

  • The share capital is divided into equal shares and, according to Law no. 31/1990, it cannot be less than 1 RON.
  • A Limited Liability Company in Romania may have between 1 and 50 shareholders.
  • The shareholders are liable in the limit of the contribution to the share capital.

Joint Stock Company (Societate pe actiuni | S.A.)

  • The minimum capital cannot be less than the RON equivalent of EUR 25,000.
  • The Joint Stock Company must have 2 or more stockholders.
  • The stockholders are liable in the limit of the subscribed shares.

Company Limited by Shares (Societate in comandita pe actiuni | S.C.A.)

  • The required minimum capital cannot be less than the RON equivalent of EUR 25,000.
  • The Company Limited by Shares must have a minimum of 2 stockholders.
  • The limited partners have no management authority and they are not responsible for the debts of the partnership. They are liable in the limit of the subscribed stocks.
  • The general partners have management control and they have joint and several liability.

Branch (Sucursala)

  • There is no share capital or shareholders required for establishing a Branch in Romania.
  • The Parent Company is liable for its branch.

Sole Entrepreneur (Persoana Fizica Autorizata)

  • There is no share capital required for registering as a Sole Entrepreneur.
  • The Sole Entrepreneur is also the sole responsible.

Minimum documentation

Companies can be incorporated by natural persons or legal entities and must register to the territorial Trade Register. Certain activities need prior authorization (e.g. credit institutions, insurance brokers, companies which produce, sell firearms and ammunition, pension entities). Certain activities need to be authorized after the registration of the company (e.g. work agent, transportation).

The main document needed for incorporating a company is the articles of incorporation. This document must specify the following:

company form and name and its registered seat

the company’s business (main) activities (certain activities require special permits)

representation of the company, the method of signing in the name of the company

the duration of the company, if founded for a fixed period of time

the identification data of the shareholders, and in the Limited Partnership will be indicated also the shareholders limited

the amount of the equity capital, the method and date of its availability

shareholders representing and managing the company or non-associated directors, their identification data, the duration of the mandate, the powers conferred on them and whether they are to exercise them jointly or separately

details identifying the beneficial owners and how the company control is exercised, if applicable

all other items relevant to the given form of business as required by the applicable laws in force

The types of documents requested by the Trade Register for the company establishment are:

  • Proof of verification of company name availability and its reservation thereof
  • articles of incorporation for the incorporated company
  • excerpts issued by the Trade Register where the shareholders are incorporated- legal entities
  • the identity document of the shareholders natural persons
  • passport or ID of the future director of the Romanian company
  • the document attesting the right of use over the space with destination of registered office ( e.g. lease agreement) and the ownership property documents
  • standard application form(s)

On the incorporation, the company in registered with the Romanian Fiscal Authorities by submitting the registration request with the Trade Register. However, in order to choose the appropriate tax regime, subsequent formalities with the tax authorities are necessary to be performed.

Registration process and registration time

The incorporation procedure of a Romanian company consists mainly in:

  • reserving the name of the company
  • drafting the relevant documents (mainly articles of incorporation of the company and shareholders and directors’ statements)
  • filling the registration application within the Trade Register

The registration of a company is mandatory in Romania.

  • The incorporation procedure must be initiated by request.
  • The registration request must be filed with the competent Trade Register Office.
  • Company registration request may be submitted with qualified electronic signature via the Trade Register portal or at any of the Trade Register offices.

After submitting the complete file to the Trade Register, the request is usually processed within one working day from the date of registration of the application. Sometimes, the approval of the file may be delayed, because additional documents/information are requested by the registrar who will handle the request.

The same term applies also for approval of mentions (e.g. update of the Articles of Incorporation, revocation of directors, appointing of directors, relocation of headquarter).

A newly registered company must also register with the Social Security Authorities and Labour Authorities (in case it has employees).

In order to voluntarily liquidate and dissolve a company with the Trade Register, the procedure will take longer than the registration of the company, respectively up to 3 months.

This procedure consists in 2 steps. First, the General Shareholder Meeting resolution will be published in the Official Gazette in order to be brought to the attention of the public and, afterwards, the interested parties may submit an opposition to the liquidation request.

Stockholders/Shareholders (company board)

Regarding the shareholders of different forms of companies in Romania:

  • The shareholders of General Partnership or stockholders of the Joint Stock Company are severally liable for the social obligations.
  • In the LLC’s case, the number of shareholders cannot be higher than 50 and the shareholders are liable only up to the subscribed share capital.

The Joint Stock Company is managed by one or more directors. Joint stock companies, whose annual financial statements are subject to audit legal obligations, are managed at least by three directors.

The Limited Liability Company is managed by one or more directors, appointed by the Articles of incorporation or by General Meeting of Shareholders.

As a general rule, the role of the director is performed by a natural person. In its current form, Law no. 31/1990 establishes that a legal person can be appointed as director, but it is required to appoint also a natural person, as representative.

General overview of corporate taxes

Tax rates

The standard corporate income tax rate in Romania is 16% and the standard VAT rate is 19%.

Romanian taxpayers that are carrying on activities such as gambling and nightclubs are either subject of 5% rate from the revenues obtained from such activities or 16% of the taxable profit, depending on which is higher.

Besides the VAT 19% rate, the following reduced rates would apply:

  • 9% for restaurant and catering services, hotel accommodation, water, food, save for food containing a certain amount of sugar, beverages, save for alcoholic beverages, medical treatments, prosthesis, housing under certain conditions, etc.
  • 5% for schoolbooks, newspapers, magazines, admission fees to castles, museums, sport events, etc.

Registration requirements

VAT registration for taxable persons having the place of business activity in Romania should be performed when the annual turnover of EUR 88,500 (RON 300,000) is exceeded.

Voluntary VAT registration before the threshold is exceeded is also possible. The VAT registration procedure is complex, and several types of documents are required. Non-resident taxable persons established in Romania through fixed establishments and non-residents having no actual presence in Romania can register without observing the above threshold. However, a VAT number must be in place before the commencement of the economic activity.

A taxable person not registered for normal VAT purposes in Romania and not required to register is liable to request the special VAT registration in the following situations:

  • purchase of services from persons established outside Romania having the place of supply in Romania
  • supply of services with place of supply in another EU Member State
  • intra-community acquisitions of goods from another EU Member State cumulatively exceeding the annual threshold of EUR 10,000 (RON 34,000)

Fees and penalties

The incorporation of the company, the mentions or the liquidations are tax free as per Law no. 265/2022.

Amounts for publishing the documents (e.g. resolutions, Articles of incorporation) in the Romanian Official Gazette will apply.

Investment incentives

Special taxation of micro-enterprises

The microenterprise regime is optional and may be enjoyed by all companies obtaining revenues below the threshold of EUR 500,000 computed at the NBR exchange rate valid for the last day of the financial year and met several other criteria (e.g. revenues from consulting and management services lower than 20% out of the total revenues, one minimum employee etc.).

The microenterprise tax rate applicable is 1%.

Income tax exemption for programmers

Main conditions

A company that conducts creative activities of computer programs for trading purpose can benefit of (salary) income tax exemption for its employees engaged in such activities, up to a limit of Lei 10,000 gross per month under certain conditions provided by law. The tax exemption is granted only for Romanian entities that perform the creation of computer programs to achieve a final product or a component of the final product for trading purposes. 

Starting with February 1st, 2018, tax exemption in the IT industry is also granted to those employees who do not have a bachelor’s degree at all but are enrolled at a university (not necessarily on the IT area), as well as to those who have graduated superior education programs with a short duration. The main condition is that these employees perform one of the activities stipulated in the local legislation, otherwise they cannot benefit from the tax exemption.

Other aspects

Opening a bank account

For a Romanian company it is mandatory to have a bank account. For opening a bank account, the legal representatives’ personal presence is mandatory at the opening. In the previous years, the banks also accepted a special notarized Power of attorney for another individual, but this practice changed and usually, at the opening, they request the presence of the administrator of the company.

Subsequent modifications in the statute of the company

All modifications regarding the statutory information of the companies (change of registered seat, mandate of directors, change of the shareholders or directors etc.) need to be registered at the Trade Register in 15 days as of the amending deed.

Unique European identifier (EUID)

All Romanian companies receive, beside the unique registration number and the Trade Register identification number, the unique European identifier (EUID).

Through the system of interconnection of the Trade Register institutions in Europe, documents and information relating to the professionals registered in the Trade Register of each country are made available to the public. It will be possible to obtain information on identification and status of a company in the European Union and to obtain copies of certificates of electronic documents.

The corporate law in Hungary is governed by the Civil Code which incorporates the fundamental regulations and mandatory rules for all economic entities and also governed by the Act on Public Company Information, Court Registration Proceedings and Dissolution Procedures – “Registration Act” – which provides a flexible and expedient legal regime.

Download our 2024 overview on company formation in Hungary, or read more below

Legal forms of business, minimum capital, contribution

The Hungarian Civil Code determines four different corporate forms that may serve for investors as a basis to carry out business activity in Hungary. In addition to those 4, there are two other forms with which investors can establish Hungarian presence. All of these forms can exclusively be established and operated by foreign owners and management:

  • Limited Liability Company (Kft.)
  • Company Limited by Shares which may be privately founded (Zrt.) or publicly operated (Nyrt.)
  • Limited Partnership (Bt.)
  • General Partnership (Kkt.)
  • Branch Office, Representative Office.

Limited Liability Company (Korlátolt Felelősségű Társaság | Kft.)

A Limited Liability Company is established with a predetermined amount of initial capital that is HUF 3,000,000 provided by its Founders.

The liability of its members is limited to the provision of the company’s initial capital. As a general rule, members are not otherwise responsible for the company’s liabilities, meaning that the private property of the members cannot be touched by the liabilities of the company, except few cases which are specified by relevant legislation.

Members of a Limited Liability Company may not be solicited by public invitation. The capital contribution of members is provided in the form of core deposits. The capital contributions of members may differ in terms of value, however, the amount of each contribution may not be less than one hundred thousand forints. Each member shall have one core deposit. The members’ rights and their title to the company’s assets are represented by quotas (business share) in the company. Business shares shall come to existence upon the company’s registration. The business shares of members shall be consistent with their respective capital contributions.

No securities may be issued in respect of the business quotas. A Limited Liability Company could operate even having one member (as a single-member Limited Liability Company).

Wish to open a LLC in Hungary? Get it done through our eShop.

Company Limited by Shares (Részvénytársaság | Rt.)

This is the most strictly regulated corporate form, which shows similarity to the German AG or to the English Plc.

There are two types of stock companies:

Private Limited Company (Zártkörűen működő részvénytársaság; Zrt.)

Public Limited Company (Nyilvánosan működő részvénytársaság; Nyrt.)

A stock company is particularly suitable to large business entities with several investors, but it is also possible to establish such entity as a single-person company.

A Private Limited Company in Hungary shall be founded with an initial capital consisting of a predetermined amount. The minimum of the share capital of a Private Limited Company may be HUF 5,000,000, while in the case of a Public Limited Company it is HUF 20,000,000.

Minimum of the share capital of a Private Limited Company
5,000,000 HUF

%
Minimum of the share capital of a Public Limited Company
20,000,000 HUF

%

The amount of cash contributions at the time of foundation may not be less than thirty per cent of the share capital. The liability of its members is limited to the provision of the nominal or issue value of the shares.

At foundation of a company limited by shares, it is compulsory to establish Private Limited Company, later the company may transform into Public Limited Company.

Shares may be:

  • ordinary shares
  • employee shares
  • interest-bearing shares
  • redeemable shares
  • preference shares

Limited Partnership (Betéti Társaság | Bt.)

In a Hungarian Limited Partnership, the members of the partnership agree to make available to the partnership the capital contribution necessary for its activities.

The minimum number of members is two, of which at least one – the general partner – bears joint and several liability and while at least one other partner – limited partner – is not liable for the obligations of the partnership, unless the relevant legislation provides otherwise.

Only the general partners may manage the partnership and represent the partnership in its dealings with third parties. The profit distribution is generally proportional to the capital contributed, but the parties are free to agree otherwise. It is against the law, however, to exclude any partner from the distribution of profits.

General Partnership (Közkereseti Társaság | Kkt.)

In a General Partnership, the members of the partnership agree to make available to the partnership the capital contribution necessary for its activities, the liabilities of its members are joint and several for the partnership’s obligations.

No minimum initial capital requirement is set forth by law. By law, every member is entitled to represent the partnership unless its articles of association state otherwise.

The partnership must have at least two members. Individuals may also become members of a General Partnership, however minor persons and individuals already bearing a joint and several liability in another company are excluded.

The active participation of the partners in conduct of the partnership’s business is legally required. No minimum capital is required to found and operate a General Partnership.

Representative Office, Branch Office

There are two other forms foreign investors might choose in Hungary to establish their presence.

Through a Representative Office, foreign investors can perform normal liaison functions, including assisting with contract negotiation, advertising and exhibiting products and other forms of marketing on behalf of the parent company; but the office is not allowed to pursue core business activities. This form can be useful if the foreign undertaking intends to familiarize itself with the local business conditions before embarking on an investment.

The other form to establish a presence in Hungary can be done via a Branch Office, which is an organizational unit of a foreign company, being authorized to carry out independently normal business activities.

Minimum documentation

Companies formed and registered under Hungarian law may undertake obligations
and acquire rights in their own name.

As a general rule, companies may freely pursue activities; however, a license of the competent authority is required for certain activities. Thus, for example, banks can only be founded and operated as a company limited by shares and with license of establishment issued by the Central Bank of Hungary.

Companies can be founded by natural or legal entities, Hungarians and foreign nationals alike.

The founders of a company must first sign the company’s constitutive document after which an attorney-at law (a member of the Hungarian bar) must countersign and file it to the competent Court of Registration with the other documents necessary for the foundation of the company. The company is established by the court’s act of registration. A company’s fundamental corporate data (instrument of incorporation) and its internal regulations are set forth in its constitutive document, i.e. (i) articles of association, or (ii) deed of foundation, or (iii) statutes depending on the corporate form.

The instrument of incorporation must specify the following as a minimum:

company name

registered seat

a list of the company’s founding parties, with their respective addresses

the company’s business (main) activities (certain activities require special administrative permits)

the amount of the equity capital, the method and date of its availability

representative of the company, including decision on whether they perform the company management according to service contract OR labour relationship

Most documents at a company establishment will be prepared and countersigned by the attorney-at-law according to the will of the founder(s).

The list of the essential documents depends on the company form but followings shall be highlighted at establishment by a foreign person, or entity:

  • If a foreign company establishes a Hungarian company, the not more than 3 months old Register extract of the founder company and its attested translation to Hungarian language is necessary for an establishment. It is important to obtain these in timely manner because the attested translation is slow procedure, only provided by one official translation office.
  • If a foreign person (who is not resident in Hungary) will be the member or executive officer of the company, a delivery agent shall be mandated by the person. The mandated person shall have a registered Hungarian address.
  • if the required documents will be signed abroad in a foreign country, the documents shall be signed before a public notary and an apostille is also needed OR they shall be signed before the Hungarian consul.

Looking for a company seat in Hungary? Get it sorted on our eShop.

Registration process

The registration of business associations is a must in Hungary.

The Company’s constitutive document must be drafted and countersigned by a Hungarian registered attorney-at-law. Incorporation procedure must be initiated by request.

The registration request must be filed with the competent Hungarian Court of Registration within 30 days from the conclusion of the constitutive document.

Company registration proceedings is fully electronic.

If the applicable laws require any official license for the establishment of the company, it must be attached to the request form and the request form must be submitted within 15 days as of the receipt of the official license.

When the registration court receives the application for registry, a certificate is issued for the company with the company’s name, address, temporary tax and statistical number and the number of reference of the registration. After receiving the above certificate, the company may commence to operate in the form of a pre-incorporated company. This means that the company may operate as an incorporated company but special provisions regarding personal liability of the founder(s) apply. A pre-company may pursue business activities but is not allowed to conduct business activities requiring an official license. Upon registration by final decision of the court of registry the business association shall cease to function as a pre-company, and all transactions concluded in that capacity will be treated as if they were concluded by the business association.

Protect your brand and get your trademark registered too on our eShop.

Shareholders

Company’s supreme decision-making entity in Hungary is the supreme body.

In case of General Partnership the supreme body is the Meeting of the Members, where all the members have the same value, and only members may be managing director of the General Partnership.

In case of a single-member company the only member practises the rights of the supreme body. In matters falling within the supreme body’s competence the founder or the sole member shall take decisions in writing, and such decisions shall take effect when communicated to management.

In case of Limited Partnership the supreme body is the Meeting of the Members, and only the general partner(s) – with unlimited liability – may be the managing director of the Limited Partnership.

In case of Limited Liability Company the supreme body is the Members’ Meeting and the members entitled to dividend in the proportion of their quotas (business share). Not only members, anybody may be managing director of a Limited Liability Company.

In case of a Company Limited by Shares the supreme body is the General Meeting and the executive body is the Board of Directors.

Foreign and Hungarian persons also may be Member (Shareholder) and executive officer (managing director) in a company, but there are some general restrictions towards these people which must be satisfied independently from the nationality of a person.

Requirements for executive officers (grounds for exclusion)

  • The executive officer must be of legal age (18 years) and must have full legal capacity in the scope required for discharging his functions. The executive officer shall perform management functions in person.
  • In the case if the executive officer is a legal person, that legal person shall designate a natural person to discharge the functions of the executive officer in its name and on its behalf. The rules pertaining to executive officers shall apply to the designated person as well.
  • Any person who has been sentenced to imprisonment by final verdict for the commission of a crime may not be an executive officer until exonerated from the detrimental consequences of having a criminal record.
  • A person may not be an executive officer if he has been prohibited from practicing that profession. Any person who has been prohibited by final court order from practicing a profession may not serve as an executive officer of a legal person that is engaged in the activity indicated in the verdict.
  • Any person who has been prohibited from holding an executive office may not serve as an executive officer within the time limit specified in the prohibition order.

Conflict of interest

Executive officers may not acquire any share in the capital of a business association – except for the shares of public limited companies – which is engaged in the pursuit of the same economic activity, as its main activity, as the business association in which they hold an executive office.

In the event of accepting a new executive office, within fifteen days of accepting such office the executive officer shall notify any other company in which he already serves as an executive officer or a supervisory board member.

With the exception of everyday dealings, an executive officer and his close relatives may not conclude any transactions falling within the scope of the main activities of the business association in his own name and on his own behalf.

Disqualification

The person who has been disqualified by a Registry Court of Hungary, according to the binding legislation, cannot be member or executive officer.

Tax law restrictions

Members, executives of those companies which:

  • had tax debts for a long period;
  • has been terminated (by forced termination) due to tax debt;

would not be eligible to be member or executive officer of another company due to the above stated reasons.

The examination of the above stated restrictions shall be done at the establishment of the company.

Get an extensive consultation for your taxes – book it on our eShop.

Incorporation time

The registration request must be filed with the competent Hungarian Court of Registration within 30 days from the conclusion of the constitutive document.

Companies can be incorporated in two ways: simplified or standard electronic filing.

Simplified electronic filing

The Court of Registry shall make decision within 1 working day from the submission of the application and the concerning documents. In present procedure the companies must use a standardised template for the constitutive documents.

Only Limited Liability Company, Limited Partnership, General Partnership and Private Limited Company can be established by the simplified procedure.  Public Limited Company cannot be incorporated by the simplified procedure.

Standard electronic filing

In course of standard electronic filing, the companies are not bounded by the standard templates for constitutive documents; content of it may be freely determined by the founders according to the relevant laws. The Court of Registry shall make decision within 15 working days from the submission of the application and the concerning documents.

Branch Offices and Commercial Representation Offices should also be registered by the Court of Registration and may start their activities only after the registration. The time of registration may take up to 15 days.

General overview of corporate taxes

Corporate income tax

Businesses in Hungary are subject to corporate income tax. The corporate tax rate is 9% of the positive tax base.

Amortization

When determining taxable income for the corporate income tax, the relevant legislation allows for calculating with amortisation.

Accounting is done on a net value basis: depreciation increases corporation´s pre-tax earnings, while amortization under the tax law reduces corporation’s earnings before taxes.

In certain cases, the tax law allows for amortization or permits accelerated depreciation (e.g. immaterial assets, leased equipment).

Losses carried forward

All losses can be carried forward and used up within 5 years following the given tax year. Losses can be offset against future positive tax bases, up to max 50% of the given tax base.

Losses shall be used up with FIFO method.

Tax credits

Tax credits reduce corporate income tax and can also reduce taxable corporate income.

Duties, fees and penalties

Duties

Duty on company registration of the different corporate forms in Hungary are as follows:

Duty on company registration of Private Limited Company in case of simplified electronic filing
50,000 HUF

%
Duty on company registration of a Branch Office or a Representative Office of a foreign enterprise is
50,000 HUF

%
Duty on company registration of Private Limited Company in case of standard electronic filing
100,000 HUF

%

Duty on company registration of Private Limited Company is HUF 50,000 in case of simplified electronic filing and HUF 100,000 in case of standard electronic filing.

Duty on company registration of a Branch Office or a Representative Office of a foreign enterprise is HUF 50,000.

The registration of Limited Liability Companies, General Partnerships and Limited Partnerships shall be exempt from duties.

Publication fee

Publication fee of company registration
5,000 HUF

%

Publication fee of company registration is HUF 5,000 for Private Company Limited in standard electronic filing.

In any other cases (for General Partnership, Limited Partnership and Limited Liability Company regardless the form of filing, and Private Company Limited, in case of simplified electronic filing) payment of publication fee is not needed.

Penalty

Minimum penalty
50,000 HUF

%
Maximum penalty
900,000 HUF

%

Failure to comply with deadlines stated by relevant legislation could result in a penalty amounting from HUF 50,000 to HUF 900,000.

Investment incentives

The Hungarian Investment and Promotion Agency supports high value-added investment projects with a one-stop-shop service including a VIP treatment and comprehensive information about available subsidies for investment projects.

The maximum available aid intensity decreases if the investment is a large investment (exceeding EUR 50 million):

50% of the maximum aid intensity determined in the regional aid map is available for investment between EUR 50 and EUR 100 million
50%

%
34% of the maximum aid intensity for investment over EUR 100 million
34%

%

The incentive package may consist of the following elements:

  • cash subsidy decided individually by the Hungarian Government (for investments, training, job creation and R&D)
  • development tax allowance (reduction of corporate tax, social tax, or for encouraging R&D activities)
  • low interest loans
  • special incentives of the free enterprise zones

Key investment sectors: Automotive; Electronics; Information and Communications Technology; Shared Services Centres; Renewable Energy; Medical Technology; Life Science; Food Industry; Logistics.

Other aspects

Other registrations of a newly registered company

A newly registered company must also register with the local municipalityHungarian Tax Authority, Central Statistical Office and Social Security Authorities.

Simultaneously with the submission of the registration application, the court registers companies with the Hungarian Tax Authority (for VAT and income tax purposes) and with the Statistical Office through an online system.

Opening a bank account

According to the binding registration, a bank account shall be opened in 15 days from the tax registration of the company.

For opening a bank

According to the binding registration, a bank account shall be opened in 15 days from the tax registration of the company.

For opening a bank account, personal presence of the executive officer is mandatory in most cases.

Communication with Hungarian state authorities no longer has to be a headache. Unburden yourself with our company gate administration service!

Limited liability company in the Czech Republic (in Czech: Společnost s ručením omezeným | s.r.o.) is the most common form of business. This company exists independently of its shareholders, and it may be formed either by one person (a natural or legal person) or more persons (the maximum number of persons is not set).

Download our 2024 guide on limited liability company in the Czech Republic, or read more below

What is a limited liability company or LLC?

The basics of a limited liability company in the Czech Republic

A limited liability company (in Czech: Společnost s ručením omezeným | s.r.o.) is the most common form of business in the Czech Republic. This company exists independently of its shareholders, and it may be formed either by one person (a natural or legal person) or more persons (the maximum number of persons is not set).

Main Advantages of a limited liability company in the Czech Republic

  • Simple company formation
  • Minimal contribution requirements – the minimum contribution of each shareholder is in the amount of CZK 1
  • Wide scope of business – suitable for the vast majority of business activities and plans, multiple investors can be easily involved
  • Easy transferability of shares
  • Simple organizational structure
  • Limited liability – shareholders are liable only up to the amount of their outstanding contribution to the company’s registered capital as recorded in the Commercial Register
  • Tax optimization

Organizational Structure of a limited liability company in the Czech Republic

Supreme Body

General meeting; or

Sole shareholder who exercises the powers of the general meeting
Statutory Body One or more managing directors
Supervisory Board (optional) Optional body which supervises the managing directors, various documents, and accounts

Incorporation procedure of a limited liability company in the Czech Republic

The incorporation procedure of a limited liability company in the Czech Republic consists of the following steps:

Adopting the Memorandum of Association / Foundation Deed by the Notary Public

Arranging consent to the provision of the company’s registered office address

Registering the necessary trade licences of the limited liability company in the Czech Republic

  • Either before or after the registration of the company in the Commercial Register

Opening a bank account for contribution payments

  • This applies if the contribution is more than CZK 20,000; otherwise, the contribution can be paid to the contribution administrator

Registration of the company in the Commercial Register of the competent District Court

The incorporation time of a limited liability company in the Czech Republic is approximately 1 week after receiving the incorporation documentation.

How we can help you with our limited liability company in the Czech Republic

We will prepare all the necessary documents and advise you on the formalities (e.g., notarisation, legalisation).

We will incorporate the company and proceed with all the steps under the powers of attorney granted to us.

Once the limited liability company in the Czech Republic is duly incorporated, we will guide you through all the necessary steps and registrations and help you with them.

What documents are required from you?

  • A written consent on the provision of the registered office address (we can arrange this for you)
  • Documents relating to the appointment of the statutory body
    • Criminal background extracts of the appointed managing directors (for non-Czech citizens)
    • Personal data of the appointed managing directors
  • Extracts from the Commercial Register of shareholders and/or managing directors, if they are legal persons

Overview of obligations after incorporation of a limited liability company in the Czech Republic

  • Registration of the necessary trade licences (if not completed as a part of the incorporation process)
  • Registration of Corporate Income Tax within 15 days from the day the company is registered in the Commercial Register.
  • VAT registration if the annual turnover exceeds 2,000,000 CZK. If the annual turnover is below this amount, VAT registration can also be done voluntarily.
  • Ultimate Beneficial Owner (UBO) registration – business corporations must register their beneficial owners in the Register of Beneficial Owners without undue delay once the company is duly incorporated. If a company fails to do so, sanctions may be imposed against them.
  • Insurance registration – employers must notify the competent office of the Czech Social Security Administration of the date of commencement or termination of an employment relationship within 8 days of it occurring.
  • Personal income registration – employers must also register with the local tax office for withholding income tax within 15 days of commencing an employment relationship.
  • Opening a bank account – company must open a current bank account after its incorporation.

Frequently asked questions about the limited liability company in the Czech Republic

Does a managing director of a limited liability company in the Czech Republic have to be of Czech nationality?

No, the managing director can be of any nationality.

Can we incorporate the limited liability company in the Czech Republic remotely or is our personal presence required?

All but one of the steps can be arranged remotely by a power of attorney. The only step that requires personal presence is the opening of a current bank account once the company is duly incorporated.

Is personal presence required for opening a current bank account?

Yes, the personal presence of the person who will be authorised to use the bank account (usually the managing director) is necessary. This is due to European legislation which sets strict conditions on KYC and compliance policy.

Who is an Ultimate Beneficial Owner (UBO)?

The beneficial owner is every natural person who directly or indirectly owns more than 25% of participation in the capital or voting rights in the company; or who is entitled to a share of profit exceeding 25%; or who exercises actual control over the company on other grounds. Other grounds may refer to a partnership agreement, for example.

What is the time limit for registering the UBO after the incorporation, and what are the sanctions in case the UBO is not registered or is registered improperly?

The Czech law does not provide a precise time limit for the registration of UBO. However, it states that the registration should be made without undue delay. In practice, this usually means within two weeks after the incorporation.

Companies that fail to register the UBO without undue delay may face the following consequences:

  • Profits will not be paid out
  • Shareholders will not be allowed to vote in the general meeting
  • A fine of up to CZK 500,000 may be imposed
  • Bank accounts may be blocked, problems with auditors may arise, and overall loss of credibility may ensue

What is a Data Box?

The Data Box represents a secure and state-guaranteed electronic communication portal, which can be used to communicate with authorities, courts or other entities, including private entities. It is a kind of e-mail box established upon the registration of each company. As part of our service, we can manage your Data Box and keep you informed of messages received and other necessary actions. The Data Box interface is only available in Czech.

What is the corporate income tax for a limited liability company in the Czech Republic?

Corporate income tax is levied at a standard rate of 21%. Find out more about taxation in the Czech Republic in our dedicated tax guideline.

What is a contract on performance of the office of a member of the statutory body, and is a company obliged to conclude it with its managing directors?

The essence of this contract is to regulate the rights and obligations of the company and the members of the statutory body in their mutual relationship. In practice, this contract is usually concluded, but it is not obligatory. If the contract on performance of the office of a member of the statutory body is not concluded, the relationship between the statutory body and the company is governed by the provisions of the Czech Civil Code.

Other forms of business*

*This list is not exhaustive

Joint-Stock Company (Akciová společnost | a.s.)

A joint-stock company is another form of business whose share capital consists of shares which are represented by securities. The company may be established by a sole shareholder. It may be formed by a private agreement to subscribe to all shares, or by a public offering.

Features of a Joint-Stock company:

  • High share capital requirements – CZK 2,000,000 or EUR 80,000
  • More complex and costly administration
  • Shareholders are not liable for the company’s debts or obligations
  • Suitable form of business for a large number of shareholders

Branch

A branch (in Czech: odštěpný závod) is a part of a company located in a different country from the parent or founding company. It is an economically and functionally independent part of the parent company, which is registered in the Commercial Register. It has its own registration number, registered office and its own accounts.

Features of a Branch:

  • Short establishment period and no liquidation requirements
  • No share capital
  • Easy administration
  • It does not have legal personality (e.g., all agreements must be concluded through the parent company).

Company formation in the Czech Republic is regulated by the Civil Code and Business Corporations Act. Czech or foreign investors entering the Czech market may choose between several corporate forms. There are no limitations for foreign investors when it comes to setting up companies. A foreign natural or legal person may establish any form of company either together with other foreign or Czech persons, or alone as a sole shareholder. In this respect, foreign natural and legal persons enjoy the same rights and bear the same obligations as Czech persons and may not be discriminated against.

Download our 2024 guide on company formation in the Czech Republic, or read more below

Legal forms of business, minimum capital, contribution

General Partnership (Veřejná obchodní společnost | v.o.s.)

A General Partnership is a company in which at least two persons carry out business activities under a common business name and bear joint and several liabilities for the obligations of the partnership with all their property. There is no requirement of a minimum registered capital, nor for the minimal contribution.

Limited Partnership (Komanditní společnost | k.s.)

A company in which one or more partners are liable for the partnership’s liabilities up to the amount of their unpaid contributions (limited partners), and one or more partners are liable for the partnership’s liabilities with their entire property (general partners).

The minimum contribution of the limited partner should be set in the Articles of Association. Again, there is no requirement of a minimum registered capital.

Limited Liability Company (Společnost s ručením omezeným | s.r.o.)

This is the most common form of doing business in the Czech Republic. The company exists independently of its members, and it may be established either by one (natural or legal) person, or by two or more persons (the maximum number of persons is not set).

According to the Business Corporations Act, the minimum contribution of each shareholder is in the amount of CZK 1. The minimum registered capital is not set in the legislation, so it is derived from the amount of minimum contribution of a shareholder (for a Limited Liability Company with one shareholder the minimum registered capital is CZK 1).

A Limited Liability Company is liable for the breach of its obligations with all its assets, while shareholders guarantee for the breach of the obligations of the Limited Liability Company only up to their committed but unpaid contributions to the registered capital registered with the Commercial Register.

ESTABLISHING AN LLC IN THE CZECH REPUBLIC HAS NEVER BEEN EASIER

Did you know that LLC is the most common form of business in the Czech Republic? Benefit from our 2024 Limited Liability Company formation guide and learn more about the incorporation procedure, obligations and how we can help you with the establishment process.

Joint Stock Company (Akciová společnost | a.s.)

The company may be established even by a sole founder. A Joint-Stock Company may be formed by a private agreement to subscribe for all shares, or by a public call for the subscription of shares.

The minimum registered capital required is CZK 2,000,000 or EUR 80,000.

Cooperative (Družstvo)

The purpose of a Cooperative is to undertake business activities or to ensure the economic and social or other benefits of its members.

A Cooperative is a community of an indefinite number of persons, but it shall have at least 3 members.

The Business Corporations Act does not set out the amount of minimum registered capital or minimum contribution.

Branch (Odštěpný závod)

Foreign companies may conduct business in the Czech Republic provided that they have their business or branch offices located in the Czech Republic, registered with the Czech Commercial Register.

No minimum registered capital or contribution is required.

Other forms of business

There are other 3 legal forms of business – entities primarily regulated by EU regulations – which are legally binding for all EU Member States:

  • European Company (or “SE”, Societas Europaea)
  • European Cooperative Society
  • European Economic Interest Group

Minimum documentation and incorporation time

The most important document required when establishing a company in the Czech Republic are the Articles of Association / Foundation Deed adopted in the form of a notarial deed.

Other documents required are subject to circumstances. Usually the following documents are also required:

an affidavit of a managing director on their ability to perform on a position of statutory body of the company

a clean Criminal Register extract for non-Czech managing directors

a declaration on registered capital payment

a consent with the provision of a registered office address (from the office landlord)

Incorporation time varies based on company type. For example: the establishment of a capital company could be finished within 7 working days, while the establishment of a partnership is generally less time consuming, and it could be completed in 5 working days.

Shareholders and company´s bodies

Common setups

In the following table we present an overview of possible setups of shareholders and other company’s bodies in the most used legal forms of business:

Common setups Limited Liability Company Joint Stock Company Limited Partnership General Partnership
Shareholders Natural person(s) or legal entity(ies) Natural person(s) or legal entity(ies) At least 2 natural persons or legal entities At least 2 natural persons or legal entities
Company’s bodies

Managing director(s)

Supervisory board (voluntary)

Sole shareholder

or general meeting

General meeting

Monistic system: Managing board

Dualistic system: Supervisory board, board of directors
The statutory body consists of all of the general partners. The Articles of Association may specify that the statutory body is formed of only some of the General Partners or one of them. The statutory body consists of all of the Shareholders. The Articles of Association may specify that the statutory body is formed of only some of the Shareholders or one of them.

Special requirements

Persons who will form the statutory body have to prove their clean criminal history by obtaining and submitting their criminal background check from their country of citizenship.

If the shareholder is a legal person, the proof of its existence (excerpt from a commercial register) shall be required.

General overview of corporate taxes

Company formation in the Czech Republic and related taxes

Both corporate income tax residents and tax non-residents are subject to Czech corporate income taxes. A corporation is a tax resident if it is incorporated or managed and controlled from the Czech Republic. Tax residents are taxed in the Czech Republic on their worldwide income while tax non-residents only on their Czech-source income.

The taxable income is calculated on the basis of the accounting profits. As a general rule, expenses incurred on obtaining, ensuring and maintaining the taxable income are tax deductible.

Corporate income tax is levied at a general (standard) rate of 21%. Moreover, lowered corporate income tax rate of 5% applies to basic investment funds while pension funds are subject to a corporate income tax rate of 0%.

The tax period may be a calendar year or a fiscal year. The taxpayer has the obligation to calculate the tax due in the corporate income tax return (self-assessment). The time-limit for corporate income tax return filing is three or six months depending on certain conditions.

Advance tax payments are paid semi-annually or quarterly depending on the amount of the last known tax liability.

Find out more about taxes in the Czech Republic in our dedicated tax guideline.

Investment incentives

Czech and foreign legal entities, as well as natural persons engaged in business activities in the Czech Republic, can apply for investment incentives. The supported areas include:

manufacturing industry

technology centres (R&D)

production of strategic products for the protection of life and health

strategic service centers

When meeting the conditions, investment incentives can be provided in the form of:

  • corporate income tax relief for a period of 10 years
  • financial support for acquisition of tangible fixed assets up to 10% of the eligible costs
  • cash grant for job creation
  • cash grant for training of employees

Other aspects

Liability for damages caused by the statutory bodies

It is very important for the statutory body to act with due care and diligence when performing their role in a company. If the statutory body fails to comply with due care and diligence, it is liable for damages sustained by a company.

Unfortunately, this liability cannot be limited in any way (for example by an agreement with the company etc.).

In order to protect the statutory bodies, insurance companies in the Czech Republic provide a commercial insurance option, meant to insure against damages caused by the decisions of statutory bodies.

Slovak or foreign investors entering the Slovak market may choose between several corporate forms. The fundamental law that regulates company formation in Slovakia is the Slovak Commercial Code. The Commercial Code regulates the corporate forms and business (entrepreneurial) activities that are defined as systematic activities conducted independently by an entrepreneur (either an individual or legal entity), in their own name and under their own responsibility for the purpose of making a profit.

Foreign persons may conduct entrepreneurial activity in the territory of the Slovak Republic under the same conditions and to the same extent as Slovak persons, unless stipulated otherwise by law. A foreign natural or legal person may establish any form of company either together with other foreign or Slovak persons or alone as a sole shareholder. In this respect, foreign natural and legal persons enjoy the same rights and bear the same responsibilities as Slovak persons and may not be discriminated against.

Download our 2024 guide on company formation in Slovakia, or read more below

Legal forms of business, minimum capital, contribution

Corporate forms introduced by the Slovak Commercial Code are:

General Partnership

Slovak: “verejná obchodná spoločnosť” or the abbreviation “v. o. s.” or “ver. obch. spol.”

A General Partnership is a company in which at least two persons carry out business activities under a common business name and bear joint and several liabilities for the obligations of the partnership with their entire property. There is no requirement of a minimum registered capital.

Limited Partnership

Slovak: “komanditná spoločnosť” or the abbreviation “k. s.” or “kom. spol.”

A company in which one or more partners are liable for the partnership’s liabilities up to the amount of their unpaid contributions (limited partners), and one or more partners are liable for the partnership’s liabilities with their entire property (general partners). The minimum contribution of the limited partner is in the amount of EUR 250.

Limited Liability Company

Slovak: “spoločnosť s ručením obmedzeným” or the abbreviation “spol. s r.o.” or “s.r.o.”

This is the most common form of doing business in Slovakia. The company exists independently of its members and it may be established either by one person, a natural or legal person (with statutory restrictions described hereunder), or by two or more persons (up to 50).

According to the Commercial Code, minimum registered capital of EUR 5,000 is required. The minimum contribution of each shareholder is in the amount of EUR 750. The Commercial Code also requires that at least 30% from each contribution of the shareholder, but altogether at least 50% of the minimum registered capital stipulated by the Commercial Code shall be paid before the application for the registration of the company is filed with the Commercial Register.

A Limited Liability Company is liable for the breach of its obligations with all its assets, while shareholders guarantee for the breach of the obligations of the Limited Liability Company only up to their committed but unpaid contributions to the registered capital registered with the Commercial Register.

Simplified method of establishment of an LLC company

As of February 1, 2023, the shareholders may establish a limited liability company in addition to the standard method of incorporation also by using a simplified method, which consists in filling in a special electronic form for the drafting of the memorandum of association.

The simplification also consists in the elimination of one of the steps prior to the registration of company in the Commercial Register, which is the obligation to apply to the Trade Licensing Authority for a trade licence. On the other hand, it is important to mention that the registered court shall be obliged to verify the integrity of the executive director. The regime for verifying the integrity of executive director is set more strictly for the incorporation of a company established by simplified method compared to the regime set in the Trade Licensing Act, as in this case absolute integrity is required, i.e. an executive director cannot be legally convicted of any criminal offence or have his/her convictions expunged.

Due to the fact that this is a simplified method of incorporation, the law stipulates certain limitations, resp. conditions according to which it is possible to use this method of incorporation over the standard method.

These conditions especially relate to:

  • the maximum number of shareholders, which is five;
  • the fact that the company can only be established for business purposes;
  • limit the shareholders to decide about the type and number of business activities of company;
  • stipulate executive director as the administrator of the contributions and prohibit the creation of a supervisory body.

With this method of incorporation, the shareholders are largely bound by the pre-prepared wording of the memorandum of association within the electronic form, from which they cannot deviate.

Joint-Stock Company

Slovak: “akciová spoločnosť” or the abbreviation “a. s.” or “akc. spol.”

The company may be established by a sole founder (provided that the founder is a legal entity) or by two or more founders. A Joint-Stock Company may be formed by a private agreement to subscribe for all shares, or by a public call for the subscription of shares.

The minimum registered capital is of EUR 25,000.

Simple Joint-Stock Company

Slovak: “jednoduchá spoločnosť na akcie” or the abbreviation “j.s.a.”

The Simple Joint-Stock Company is a new corporate form, introduced in Slovakia in 2017. It represents a lean version of Joint-Stock Company with minimum registered capital of EUR 1 and minimum nominal share value of Cent 1.

Simple Joint-Stock Company can provide greater flexibility comparing to Limited Liability Company or Joint-Stock Company in relation to unlimited number of shareholders (although the Simple Joint-Stock Company cannot be formed by public call for subscription of shares), minimum registered capital, or the possibility to issue several different types of shares with different rights of shareholders (e.g. more voting rights or greater profit share).

However, it is presumed that this form of company should cease to exist within following years and be replaced by LLC.

Co-operative

Slovak: “družstvo”

The purpose of a Co-operative is to undertake business activities or to ensure the economic and social or other benefits of its members.

The Co-operative bears liability for obligations of the Co-operative with its entire property, however the members do not bear liability for the obligations of the Co-operative.

Minimum registered capital of EUR 1,250 is required. The Co-operative can be established by minimum of 5 natural persons or 2 legal persons.

The Co-operative can provide certain level of anonymity to its owners (members) comparing to the other corporate forms, as the owners (members) are not registered within the Commercial Register, only listed internally within the Co-operative.

Enterprise or Organizational Branch of a foreign company

Slovak: “podnik” or “organizačná zložka podniku zahraničnej osoby”

Foreign persons may conduct business in Slovakia provided that they have their business or branch offices located in Slovakia, registered with the Slovak Commercial Register, from the day of its registration.

However, there are exceptions from the obligation to establish business or branch offices located in Slovakia for persons established in EU or EEA member states stipulated within the free movement of services guaranteed by the EU in Treaty on the Functioning of the European Union.

Simplified method of establishment of an enterprise or an organizational branch of a foreign company

As of February 1, 2023, in addition to the standard method of establishment of an enterprise or an organizational branch of a foreign company with its registered office in an EU or EEA state, there is introduced a simplified method of their establishment.

It is not possible to use this simplified method in all situations, but only if the conditions stipulated by law are fulfilled. The simplification consists in the elimination of one of the necessary steps prior registering an enterprise or an organizational branch of a foreign company in the commercial register, which is the obligation to apply to the Trade Licensing Authority for a trade licence certificate.

Consequently, on the basis of data from the information systems of public administration authorities, the Trade Licensing Authority shall issue a trade licence immediately after the registration of the enterprise or organizational branch of the foreign company in the commercial register. Registered persons may use this method of establishment only if they seek to register an object of business which is included in the relevant list according to the law.

The last but not least, it should be underlined that even in this simplified method of establishment it is necessary to verify integrity of a head of the enterprise or the organizational branch of the foreign company. In addition, foreign company has a bank account only at a bank, which has its registered office in one of the EU or EEA member states.

Exchange of information by the system of interconnection of registers

As of February 1, 2023, the registered court is obliged to notify to the commercial register or other register in which the foreign legal entity is registered or in which the foreign legal entity is obliged to file documents the registration of data or the deletion of data on the enterprise or on the organizational branch of a foreign legal entity with its registered office in one of the EU or EEA member states,  through the system of interconnection of registers.

Other forms of business

Legal forms of business entities primarily regulated by EU regulations, which are legally binding for all EU Member States:

  • European Company (or “SE”, Societas Europaea)
  • European Cooperative Society
  • European Economic Interest Group

A Limited Liability Company (in Slovak: spoločnosť s ručením obmedzeným) is the most used corporate form and is therefore dealt with in detail in the following parts.

Registration requirements

Registration procedure for company formation in Slovakia and documents

The procedure consists of the following phases:

  1. Establishment of the company by signing of:
  • the Memorandum of Association/Foundation Deed,
  • other required documents mainly as Signature Specimen of the persons who will form the statutory body; administrator´s declaration regarding the payment of the contributions,
  • approval for the premises of the registered seat in the Slovak Republic,
  • affidavit that the founders have no debts accrued on tax or stamp duties or in respect to payments of social security insurance, otherwise consent of the respective authority to the establishment of the company; this duty, however, does not apply to foreign nationals/companies.
  1. Acquisition of the necessary trade licences.
  2. Registration in the Commercial Register of the competent District court. Please note, that as of November 01, 2018, ultimate beneficial owners (UBOs) of a company about to be registered have to be specified in an application for registration of the company with the Commercial Register as a new AML requirement. For more information on legislation regarding ultimate beneficial owners, please refer to our Newsflash.

It is important to stress that a limited liability company acquires legal personality status upon its registration in the Commercial Register.

The incorporation time is approximately 3 weeks after the receipt of duly executed establishment documentation.

Requirements for foreign investors

The citizens of the EU or EEA (except Slovak citizens) who will form the statutory body have to prove their integrity by obtaining and submitting the criminal record from the state of citizenship or residency (if residing for longer than 6 months in other country than country of their citizenship).

The non-EU or non-EEA citizens, in order to become members of the statutory body, shall have a residence in Slovakia.

Under Slovak law, the company shall have registered seat in the territory of Slovakia. The document proving the seat (confirmation with the seat in the premises) is the obligatory annex to the Registration application.

Shareholders and statutory body

A Limited Liability Company may be established by a sole shareholder or by more shareholders, in both cases it is irrespective of whether they are a legal or a natural person. In respect of one shareholder there are the following restrictions:

  • a limited liability company owned by a sole shareholder must not be a sole shareholder in another limited liability company,
  • a natural person must not be a sole shareholder in more than three limited liability companies.

The maximum number of shareholders is limited to 50.

The registered capital must be at least of EUR 5,000 with a minimum contribution of EUR 750 of each shareholder. Contributions can be monetary or non-monetary, while an official appraiser must value a non-monetary contribution.

Minimum contribution
750 EUR

%

At least 30% of each shareholder’s monetary contribution, and in cases of non-monetary contributions at least 50%, must be paid up before the application for the registration of the Limited Liability Company is filed at the Commercial Register. The contributions do not have to be paid to the bank account and for the purposes of registration, the person administering the contributions will issue an affidavit declaring that the respective contributions have been paid up. If the Limited Liability Company is founded by a single entity, the registered capital must be paid up in full.

general meeting is composed of all shareholders and decides on all major issues as the appointment and dismissal of the executive directors, modification of the statutes and Memorandum of Association/Foundation Deed, increases and decreases of the registered capital.

The statutory body of the Limited Liability Company is formed by one or more executives (executive directors). Only a natural person can be appointed as an executive director. In the event that there are several executive directors, each of them is entitled to act individually on behalf of the company unless stipulated otherwise in the Memorandum of Association/Foundation Deed.

Establishment of a supervisory board is optional. If it is established, the supervisory board must be composed of at least three members appointed by the shareholders’ meeting.

Fees and penalties

The activity would be regarded as an unauthorized trading if the person systematically, independently, on own behalf, on own responsibility, for the purpose of earning profits, without holding a trade licence performs an activity subject to craft, regulated or unregulated trades or licenses.

The fine for unauthorized trading ranges from EUR 1,659 to EUR 3,319. Unauthorized trading can be also considered as an offence under the Slovak Criminal Code.

General overview of corporate taxes

The Slovak tax system comprises the following taxes:

Income taxes (personal income tax, corporate income tax)

Personal income tax

The tax rates applicable for income derived in 2024 are:

  • annual taxable income (except for income from business activity, capital and dividend income) up to EUR 47,537.98 is taxed at 19%
  • annual taxable income (except for income from business activity, capital and dividend income) above EUR 47,537.98 is taxed at 25%
  • income from business activity is taxed at reduced tax rate of 15%, if its annual taxable value does not exceed EUR 60,000 (note: in 2020 the threshold was EUR 100 thousand; between 2021 – 2023 the threshold was EUR 49,790); otherwise, 19% rate applies for taxable business income up to EUR 47,537.98 and 25% rate applies to the amount, which is above that threshold
  • income from capital is taxed at flat rate of 19%
  • income from dividends paid out of pre-2004 profits and profits derived from January 1, 2017 to December 31, 2023 is taxed at 7% (35% applies if dividends are from foreign sources of non-cooperating state).
  • income from dividends derived from profits for periods starting after January 1, 2024, a tax rate of 10% applies (while the rate of 35% still applies for dividends from foreign sources of non-cooperating states).

Moreover, an additional tax of 5% is to be paid by the representatives of constitutional bodies (e.g. the President, Members of Parliament) on their employment income.

Certain types of income are not aggregated but are subject to a final withholding tax of 19%, 10% or 7% in the case of dividends paid out by domestic company.

Corporate income tax

Corporate income tax is levied at a rate of 21%. However, since January 1st, 2021, taxpayers with taxable revenues not exceeding EUR 60,000 per tax period (note: in 2020 the threshold was EUR 100,000; between 2021 – 2023 the threshold was EUR 49,790) are entitled to apply reduced tax rate of 15%. This is the final tax burden on 2024 corporate profits in some cases because dividends paid out of 2024 profits are not taxed in the hands of shareholder if the shareholders are corporate and based in other than non-cooperating state.

Starting from the 2024 tax period, the minimum corporate tax (commonly known as tax licenses) has been reinstated in the tax legislation, following its abolition from 2017 to 2023. Legal entities are required to pay a minimum corporate tax of between EUR 340 and EUR 3,840 based on the amount of taxable income. Only a limited number of exceptions from the payment of the minimum tax are allowed, such as companies in bankruptcy, companies in their initial taxable period, non-profit organizations, etc.

Value added tax (VAT)

  • 20% is the standard VAT rate in Slovakia
  • 10% is the first reduced VAT rate
  • 5% is the second reduced VAT rate

Export of goods and services is zero rated.

Intra-Community supplies of goods are zero rated under certain conditions.

Excise duties

Excise duties are levied on mineral oil, beer, wine, spirits, electricity, coal, natural gas and tobacco products.

Motor vehicle tax

Levied on motor vehicles and trailers in categories L, M, N, and O if registered in Slovak Republic and used for business purposes.

Special taxes

Special taxes cover special duty paid by regulated industries and special levy on non-life insurance premium. Further, in 2023 and 2024, companies operating in the oil, gas, coal and refinery sectors shall pay a special solidarity contribution.

Moreover, there are local taxes to be paid, e.g. real estate tax.

For more details about taxation in Slovakia, download our free 2024 Tax Guideline!

Investment incentives 

Investment incentives are serious arguments in favour company formation in Slovakia. As an EU member country, Slovakia must ensure compliance with EU rules. In general investment incentives (or state aid) are linked to the region where the investment takes place and the European Commission has determined which regions are entitled to receive aid and the amount of aid each of those regions may receive. The connection with a certain region is one of the fundamental characteristics of the incentives and their provision shall serve to support not only foreign, but also Slovak investments.

In general, there are four categories of projects that can be supported by the investment incentives for company formation in Slovakia:

  • industrial production
  • technological centres
  • shared service centres
  • tourism

Each category has specifically defined conditions which shall be met in order to apply for the investment incentives. The incentives are provided in general in the form of:

  • a subsidy for the acquisition of material assets and immaterial assets
  • an income tax relief
  • a contribution for newly created jobs
  • transfer of immovable property or exchange of immovable property at a price lower than a general asset value

The provision of the state aid is governed in particular by the European Union law that forms the basic legal framework also for the Slovak authorities.

Legally recognised corporations in Europe take on many forms. We decided to shed some light on useful legislation insights, general incorporation requirements and characteristics of a LLC or Limited Liability Company in Europe.

Moreover, we decided to compare the legal aspects of LLCs in the Czech Republic, Hungary, Poland, Romania, Slovakia and Ukraine to provide a comprehensive yet clear overview of the requirements in the region.

Dive into the general features of LLCs, such as the basic characteristics of founders, minimum capital nature and limits, types of contributions and payment deadlines, guarantees required by shareholders, incorporation time, obligation of VAT registration, and much more.

Download the free PDF version of the comparison of LLCs in Europe, or find some selected data below

General features of a limited liability company in Europe

Founders

CZECH REPUBLIC

Natural persons or legal entities

No. of founders: Unlimited

HUNGARY

Natural persons or legal entities

No. of founders: Unlimited

POLAND

Natural persons or legal entities

No. of founders: Unlimited

 

ROMANIA

Natural persons or legal entities

No. of founders: up to 50

SLOVAKIA

Natural persons or legal entities

No. of founders: up to 50

UKRAINE

Natural persons or legal entities

No. of founders: Unlimited


Minimum capital and contribution

CZECH REPUBLIC

Minimum capital: CZK 1

Minimum contribution: CZK 1

Type of contribution: Monetary / non-monetary

HUNGARY

Minimum capital: HUF 3,000,000

Minimum contribution: HUF 100,000

Type of contribution: Monetary / non-monetary

 

POLAND

Minimum capital: PLN 5,000

Minimum contribution: PLN 5,000

Type of contribution: Monetary / non-monetary

ROMANIA

Minimum capital: RON 1

Minimum contribution: RON 1

Type of contribution: Monetary / non-monetary 

 

SLOVAKIA

Minimum capital: EUR 5,000

Minimum contribution: EUR 750

Type of contribution: Monetary / non-monetary

UKRAINE

Minimum capital: Not specified

Minimum contribution: Not specified

Type of contribution: Monetary / non-monetary

 


Registration procedure duration

CZECH REPUBLIC
1 – 2 weeks

%
ROMANIA
3 working days

%
HUNGARY
1-15 working days

%
SLOVAKIA
10 – 15 working days

%
POLAND
1-2 days online*

%

*2 – 4 weeks at the notary

UKRAINE
24 hours*

%

*after submitting documents to a state register


Court fee

CZECH REPUBLIC

CZK 6,000

HUNGARY

No fee for the court procedure

POLAND

PLN 600

(PLN 350 in case of registration via S24 platform)

ROMANIA

From February 2017, the Trade Register fees for incorporation have been removed, only Official Gazette publication fees are applicable

SLOVAKIA

EUR 150

UKRAINE

No state fee for registration

Thanks to the value added tax harmonized system between the EU member states and the valid conventions signed with more than 80 countries, cross-border services can flow without hindrance and the significant part of the activities can be carried out in Hungary without any permanent establishment, just in the possession of a Hungarian tax number. Thereby, there are a huge number of foreign companies in Hungary, which carry out (economic) activity under the Hungarian tax number but without creating permanent establishment according to the corporate law. However, due to a nearly 30-year-old Hungarian legislation, it is still not fully cleared which activities can be performed without permanent establishment, mere in the possession of a tax number in Hungary. In the present newsletter we try to draw your attention to the legal controversies that surrounded this topic.

Basic definitions regarding the permanent establishment obligation of foreigners in Hungary

First of all, the definition of the permanent establishment and the establishment of business should be clarified. Unfortunately, there is not a unified glossary amongst the Hungarian laws which can serve as a base for some precise descriptions in laws. In the lack of such glossary, there is no other solution, but to respect the separate legislations’ own terminology in case of all regulation. In most cases, the legislations include the definitions in respect of the most important notions occurring in them, where not, there is a need to consider whether any other act considers to be the former background in law and if it includes the definition of the notion in question. If not, the secondary legislations will remain.

So the permanent establishment and establishment of business concepts should not be (just) examined in corporate law perspective but also from corporate income tax and value added tax point of view as well.

Permanent establishment

According to point 33, paragraph 4 of the Act LXXXI of 1996 on Corporate Income Tax (hereinafter referred to as Act on CIT) permanent establishment is a permanent business location, device or equipment, where and/or with which the taxpayer is engaged in business activities in whole or in part, regardless of the title under which the taxpayer is using it.

The term of permanent establishment includes especially the place of management, representative established with domestic seat, the office, the factory, the facility, the workshop, the mine, the oil or gas well, or facilities used for natural resource exploration, exploitation. The legal definition clearly highlights that the permanent establishment does not depend on the title of use, which is may be owned by the undertaking, but it can be rented as well.

Consequently, if the foreign company is in the possession of an office in Hungary, or has even just a rented, hidden work desk where it carries on business activity with the purpose to achieve corporate profit, this fact alone rises a permanent establishment and causes corporate income tax registration and payment obligations on behalf of the foreign company.

Of course, all rules must be applied in the light of international conventions. Thus, if there is a tax treaty to avoid double taxation between the state of foreign company and Hungary, then the contained provisions of permanent establishment should be applied. Here we note that the wording of permanent establishment recommended by the OECD Model Convention is almost completely identical to the one included in the Act on CIT. 

Tax ID request

According to point 2, paragraph 259 of the Act CXXVII of 2007 on Value Added Tax (hereinafter referred to as Act on VAT) permanent establishment is a geographically isolated area established outside of the headquarters established to economic activity for an extended period of time, where other conditions required for the stand-alone continuation of the economic activity – independently from the seat – are actually available. Thus if the company is in the possession of above mentioned physically existing place, then it will have registration obligation (also) according to the Act on VAT, i.e. a tax number should be requested in Hungary.

However the VAT is specialized in the sense that there are cases when the foreign company must obtain for a tax number in Hungary, despite the fact that there is no permanent establishment from VAT point of view. The reason is that VAT liability can not only arise in connection of permanent establishment, but simply regard the nature of single transactions (due to the place of performance).

We note that even the structure of the tax numbers can be different depending on the fact if they were requested in connection with permanent establishment determined by the Act on VAT or Act on CIT (or both). While the last two digits of tax number requested by taxpayers only having permanent establishment under Act on VAT, is in each case “51” (KAIG), the tax number of taxpayers having permanent establishment under Act on CIT, contains the site code of the relevant territorial tax authority. However, in the last case only if the permanent establishment exists physically and not only due to the so-called “virtual permanent establishment” because of dependent agents.

It is evident that both the Act on VAT and the Act on CIT and all the tax treaties define the cases when a foreign company should apply for a tax number in Hungary.

After done, we could stop… we might think. Unfortunately, no. This picture is tinged (overshadowed) by the Act XXIV of 1988 on the investments of foreigners in Hungary (hereinafter referred to as “Inv. of for. in Hun.”).

Foreigners’ economic establishment

Point c, paragraph 2 of the Inv. of for. in Hun. aligns, which cases are specified by the law. Accordingly, foreigners’ economic establishment in the territory of Hungary means the facilities, premises, office, shop or other places, equipment or means of fixed equipment used to perform  economic activity carried out effectively and durable, independently, commercial scale – regularly, to achieve profits beside economic risk-taking.

Under the law, determined in point 1, paragraph 3, foreigners may carry out independent, business-like economic activity in the territory of Hungary only in one of the following forms:

Accordingly, in principle economic activity can be performed only in form of any type of establishment prescribed by the law.

However, the same paragraph (2) includes some exceptions to the general rule.

In case the foreigner does not employ employee inland (which exposure is valid also for the employment of foreign employees’ secondment or posting to Hungary), then the following activities can be carried out without the obligation of creating a Hungarian form of business:

Under certain conditions it is possible to continue economic activity without permanent establishment, however the conditions are even limited. As mentioned above, if the activities carried out by a foreign company in Hungary cannot be categorized into any of the activities listed above , then in principle the foreign company must be settled in Hungary, regardless of whether it has an employee in Hungary or not.

International conventions

Of course, this legislation should also be applied in accordance with the relevant international conventions, as stated in paragraph 6. Thus if it is provided otherwise by the applicable international treaty or the general effective, directly applicable legal act of the European Union, the provisions contained therein should be valid.

Therefore, the permanent establishment defined by the relevant tax treaty on avoiding double taxation must be examined in each case, because it is feasible that although according to the Inv. of for. in Hun. settlement obligation arises for the foreign firm, the activity performed does not create a permanent establishment in Hungary according to the tax treaty. But more interesting is the case when according to the tax treaty permanent establishment arises for the foreign company, since in this case it also must be examined whether according to the Inv. of for. in Hun. also arises permanent establishment obligation. It cannot be stated that if a foreign company has a permanent establishment under the tax treaty in Hungary, then its activity will consider as durable and long lasting performed also according to the Inv. of for. in Hun. In fact, even if it is considered as durable and long lasting performed, further investigation is needed as the activity could belong to one of the exceptions. However, the assessment is complicated by the general interpretation, which according to if an activity causes permanent establishment according to the tax treaty, then it cannot be treated as temporary and is to be considered as sustained and regular according to the Inv. of for. in Hun. as well. Assuming, but not allowing the correctness of this interpretation, we realize the contradiction that applying related rules of the tax treaty and Rules of Taxation, there is a theoretical possibility to fulfill the corporate income tax obligation in the possession of a tax number but without the presence according to the Hungarian company law, however, due to the strict rules of the Inv. of for. in Hun. such cases are virtually inconceivable. As a typical example let’s imagine a construction which  exceeds one year. In this case the majority of the tax treaties of Hungary considers the building site as permanent establishment which is then automatically considered as a permanent establishment by economic reasons also according to the Inv. of for. in Hun, and it does not belong to the exceptions. But even if it would belong to the exceptions, it is hard to imagine that the foreign company does not delegate at least one employee to Hungary to supervising the work and ensure the quality.

Thus the case when according to the tax treaty permanent establishment arises but according to the Inv. of for. in Hun. not, beyond the exception cases, is only be imaginable if the latter act does not consider the activity as systematic, durable and long lasting continued. However, this cannot be stated safely in any cases and because of this there is no common practice regarding the treatment of such cases, therefore it cannot be always clearly decided in connection of continuing the specific activity whether the permanent establishment in Hungary of the foreigner is needed or not. Moreover, it raises the question whether our national legislation is in line with the EU principle of free movement of the services or not.

The above shows that the three legislations define separate definitions of permanent establishment. However, while the Act on CIT and the Act on VAT allows the continuation of the activities after tax registration but without having permanent establishment, the Inv. of for. in Hun. includes clear rules on what activities can be performed only in the possession of tax number, without having establishment according to the (company) law.

If you like our writing, please share it. Please feel free to contact our tax advisors in further permanent establishment related issues.

 

apartmentpencillockcogflagfile-emptylicenseuseruserscartmap-markermapcalendar-fulllaptopdiamondbriefcasedownloadlinkcrosslistplus-circle