For doing business in Hungary, limited liability company is the most common legal form type of entity (abbreviated in Hungarian as ‘KFT.’). Beside limited liability companies, several legal forms are available, however this is the one to be usually chosen. To form a ‘KFT.’ it is not required to be a Hungarian citizen, however the minimum contribution is HUF 3,000,000 altogether. The registration process is done by Company Court. 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.

Incorporation

The Tax Office provides a tax ID to the new company doing business in Hungary within 1 working day if there is no legal obstacle of the registration. In case of applying the simplified procedures the incorporation if done by the resolution of the Court within 1 working day after assessing the tax ID by the Tax Office. In case of general procedures, the decision on the incorporation shall be made within 15 working days after submission of the application. The bank account opening requires personal presence from the MD of the company.

The duty (official fee) for doing business in Hungary and establishing such a legal entity depends on the nature of the legal form of the company, however it is duty free in case of limited liability companies – both in simplified and regular proceedings. If a foreign person (who is not resident in Hungary) will be the member or executive officer or the shareholder of the company, a delivery agent shall be mandated by the person. The mandated person shall have a registered Hungarian address.

For establishing a limited liability company one shareholder is required. As for the maximum, there is no upper limit regarding the number of the members.

It is possible to appoint either one or more managing director in a ‘KFT.’. The managing director(s) can also be legal persons, in this case a representative shall be appointed who is entitled to act on behalf of the managing legal person. Official company register in Hungary is open for public and can be accessible at  https://www.e-cegjegyzek.hu.

Entitlement to work

All Hungarian citizen above the age of 16 are entitled to work and also all foreigners who hold a permit for working (in case of EU workers a registration with the Immigration Office is required in accordance with EU regulations).

Employment contracts

Employment may be based on the general rules or atypical characteristics (such as part-time, remote working, definite time, occasional employment). The most important rules of employment are regulated in the Labour Code in order to protect both parties of the employee-employer relationship.

Employment must always be declared to the competent authorities and not being compliant with regulations may pose significant number of penalties and temporary termination of business.

There are essential items in the contract, which has to be included. The parties of the employment contract must agree, by all means, on both the personal base wage and the position of the employee – these terms are essential under Hungarian labour law.

Taxes on personal income

15% is the applicable personal income tax rate without threshold. For resident taxpayers, the tax base is their whole income, while for non-resident taxpayers it represents only their locally taxable incomes.

For personal income tax purposes, the taxable period in Hungary is set as the calendar year.

The due date for filing a PIT return falls on May 20 with the possibility of extension, however, the tax office needs to be notified beforehand.

In Hungary, a tax resident is:

• a person who is a citizen of Hungary (except for dual citizens)
• a citizen of the EU who spends more than 183 days in a calendar year in Hungary
• a third-country citizen with permanent residence status, whose vital interests are in Hungary
• any natural person who has a permanent home (i.e., habitually resides in the country) or has a habitual stay in Hungary (where they stay for more than 3 months without an intention to leave)

Taxable income of an individual

Taxable income, that falls under personal income tax obligation in Hungary, is:

• income acquired in Hungary – such as income from employment
• income acquired abroad, provided that the individual is resident in Hungary.

Social security and health insurance contributions

The social security contributions rate paid by the employer is 13%. The social security contributions rate for the employee is 18.5%.

The health insurance paid by the employer or employee is included in the social security rate. However, employees must register for health insurance as an insured person.

Entitlement to work

In Slovakia, any natural person who is over 15 years old and has completed a compulsory education is entitled to work. However, non-EU citizens have to have a working permit.

Employing foreigners of EU or EEA is possible based on the same conditions as employing Slovak citizens, since they have the right to free entry and stay in the Slovak Republic. The employer must inform a respective Office of Labour, Social Affairs and Family (ÚPSVaR, in short) about hiring such employee.

The conditions of employment of foreigners who are citizens of third countries varies depending on the type and duration of their residence in Slovakia, for example, blue card, temporary residence for the purpose of employment, national visa, etc., the type of work performed and other factors.

Employment contracts

The employment relationship is established by an employment contract, which may be concluded

• for definite period, which may not exceed 2 years in duration (it is possible to prolong such contract only twice during these 2 years)
• for indefinite period, available for both full-time or part-time work (is an employment relationship that shall last for an indefinite period unless a definite period has been expressly agreed)

In Slovakia, there are also agreements on work performed outside the employment relationship, such as:

• agreement on working activity: max of 10 hours / week
• agreement on working activity for seasonal work: max of 520 hours / calendar year
• specific work agreement: max of 350 hours / calendar year
• student work agreement: approx. 20 hours / week (possible to conclude only with natural person who holds a status of secondary school / university student and who is up to 26 years old)

Slovak tax residents are taxable on their worldwide income while Slovak tax non-residents are taxed on their Slovak-source income.

The personal income tax is levied at the following rates in Slovakia:

• 19% on annual taxable income below EUR 47,537.98 (except for income from business activity, capital and dividend income)
• 25% on annual taxable income exceeding EUR 47,537.98 (except for income from business activity, capital and dividend income)
• 15% on income from business activity if its annual taxable value is below EUR 60,000. Otherwise, 19% rate applies for taxable business income up to EUR 47,537.98 and 25% rate applies to the amount above that threshold
• 19% on income from capital
• 7% on income from dividends paid out of pre-2004 profits and profits derived from January 1^st, 2017 up to December 31^st, 2023 (note: 35% on dividends from foreign sources of a non-cooperating states)
• 10% on income from dividends paid out of profits derived from January 1^st 2024 (note: 35% on dividends from foreign sources of a non-cooperating states)
• Certain types of income are not aggregated but are subject to a withholding tax of 19%, 7% or 10% in case of dividends paid by a domestic company

The tax period for personal income is the same as the calendar year.

The tax return deadline falls on March 31, but it may be extended with written notification by up to 3 calendar months or by up to 6 calendar months, if part of the taxable income is from foreign sources.

In Slovakia, tax residency is based on fulfilling at least one of the following criteria:

• The individual has a registered permanent residence, a habitual abode or actual residence in Slovakia
• The individual has their habitual abode in Slovakia, if they are present in Slovakia for at least 183 days in a calendar year, except for purposes of study or medical treatment.

Individuals who are Slovak tax residents are taxable on their worldwide income. Taxable income of an individual is usually calculated by aggregating the separate net results of the following income categories:

• employment income
• rental income and income from the use of work and art performance
• other income (e.g., income from occasional activities)

Income from capital, dividend income and income from business activities are not aggregated, but on each income category a separate tax base is to be calculated.

Non-resident individuals are taxed only on their income earned from Slovak sources. In case the seat of the company doing business in Slovakia is situated outside of Slovakia and the employee has not been present in Slovakia for more than 183 days in 12 consecutive months, the income from such employment is exempt from tax. However, this exemption does not apply to artists or sportsmen, or to permanent establishments. The income of non-residents is generally taxed according to the rules applicable to residents, unless a law or a tax treaty specifies otherwise.

The income of natural persons is subject to further deductions in Slovakia, if falling under Slovak social security system, specifically due to contributions. The employer pays 25.2% of the social security contributions while the employee pays 9.4%. Regarding health insurance contributions, 11% is paid by the employer and 4% is paid by the employee.

Czech as well as foreign investors entering the market for doing business in the Czech Republic may choose between several corporate forms. There are no limitations for foreign investors when it comes to setting up companies, both enjoy identical rights and obligations.

Limited liability company in the Czech Republic

The most common legal form is a limited liability company (or LLC in short). The minimum contribution of each shareholder is in the amount of CZK 1. The LLC is suitable for the vast majority of business activities and plans and multiple investors can be easily involved. An executive director can be of any nationality and there is no need to have employees.

Incorporation in the Czech Republic

The LLC can be incorporated under Powers of Attorney granted to us, thus the personal presence of the directors / shareholders in the Czech Republic is not needed during the incorporation process.

Documents required for the establishment of the LLC would involve a clean Criminal Record and an Affidavit from the appointed executive director and an extract from the Commercial Register of the shareholder, if they are a legal entity.

The time required to set up the LLC is approx. 1 week from the receipt of all required powers of attorney and other documents.

The fee for establishing the LLC with us is EUR 850 excl. VAT and additional costs, such as notary and trade license fees, amounting to approximately EUR 450. Translation fees depend on the number of pages to be translated and the language. The fees for arranging the registered office depend on the provider. If the registered office is set up with Accace, the implementation fee amounts to EUR 130 (excl. VAT) and the monthly fee is EUR 90 (excl. VAT). To set up the LLC, at least one shareholder (either a natural person or a legal entity) and at least one director are required (these can be the same person). If more directors are appointed, the Memorandum of Association may stipulate whether they are authorised to act independently or jointly.

The Commercial Register in the Czech Republic is administered by the Registry Courts, and it is public, accessible at www.justice.cz. At the moment, the Register is available only in Czech. It is possible to directly download an electronically signed company extract (either a current one or a full history extract) for free.

For more information about company formation in the Czech Republic, take a look at our dedicated eBook.

Access to labour market

In the Czech Republic, the following natural persons may perform work:

• Czech nationals – they do not need any employment permission
• Foreigners – if fulfilling specific conditions to perform work in the Czech Republic

Foreigners from the EU, Switzerland and EEA and their family members do not need an employment permit and have free access to the Czech labour market.

Foreigners from third countries (except some special categories of employees, such as holders of long-term residency permits, students etc.) need one of the following:

For completeness we would also like to mention the Schengen visa for the purpose of performance of seasonal work. This type of visa is a short-term visa issued for the period of 90 days only, i.e. suitable for short-term period of work in the Czech Republic.

Employment types

The following employment types are available in the Czech Republic:

• Regular employment (employment relationship): Regular employment contracts in the Czech Republic may be concluded as short-term or long-term:
  • Employment contract for a definite period – generally, it can be concluded for a maximum of 3 years, and it is possible to prolong such contract only twice (maximum length 3×3 years)
  • Employment contract for an indefinite period – an employment relationship shall last for an indefinite period unless a definite period has been expressly agreed
• Work outside employment relationship: Furthermore, an employee may perform work outside employment relationship on the ground of two specific agreements:
  • Agreement to complete a job – the scope of work for which an agreement is concluded may not exceed 300 hours in one calendar year.
  • Agreement to perform work – the scope of work shall not exceed the maximum of 20 hours per week on average (as one half of the determined weekly working hours

The above employment types differ not only in the permissible scope of work, but also the termination conditions, certain rights and safeguards of the employees, insurance payments regimes etc. In general, work outside employment relationship tends to be more flexible and favoured for certain situations (e.g. student work, seasonal work or project-based work).

According to § 19 par. 1 of the Income Tax Act (ITA), it is possible to apply expenses that limit special regulations (e.g. the Labour Code and the Road Compensation Act) to tax deductible  expenses only within the limit set out there, except the cases, where:

• the higher claims are agreed by internal regulation or in a contract concluded between the employee and the employer in accordance with the provisions of the Labour Code (LC), and
• these higher claims are taxable income on a part of the employee according to § 5 par. 1 and par. 3 letter d) ITA.

Section 152 of the Labor Code (ZP), as amended by subsequent regulations, stipulates the employer’s obligation to provide meals for employees. The employer is obliged to provide its employees in all shifts with meals that meet the principles of proper nutrition, in particular by providing one hot main meal, including a suitable drink, during the working shift, directly at the workplace or in its vicinity.

Tax Exemption for Meals

From the employee’s point of view, the following are exempt from tax in accordance with Section 5 (7) (b) of the Income Tax Act (ZDP):

• The value of meals provided by the employer to the employee in non-cash form for consumption at the workplace or as part of meals provided through other entities pursuant to Section 152 of the Labor Code,
• Financial contribution to meals provided by the employer to the employee pursuant to Section 152 of the Labor Code.

It follows from the above that the following meal allowances are exempt for the employee:

• Employer’s contribution only up to 55% of the meal allowance provided for a business trip lasting 5 to 12 hours according to the current measure of the Ministry of Labor, Social Affairs and the Family of the Slovak Republic,
• Meal allowance from the social fund, which is not limited.

Note: Tax exemption cannot be applied to the value of meals that the employer provides to the employee after the working shift and outside the workplace, e.g., hot meals provided after working hours during company parties, teambuilding events, sports games, etc.

Example: The employer organized a company event on the occasion of the 15th anniversary of the company’s foundation, which took place after working hours in rented hotel premises. The employer provided dinner and refreshments for the employees, which were financed from the social fund. Since tax exemption in accordance with Section 5 (7) (b) and (c) of the Income Tax Act can only be applied to consumption at the workplace, the value of food and drinks served to employees represents taxable income for employees pursuant to Section 5 (1) (f) and (3) (d) of the Income Tax Act.

From the employer’s point of view, meal allowances are a recognized tax deduction if they are provided in accordance with Section 152 of the Labor Code. If the employer decides to provide meal allowances to employees in excess of the provisions of Section 152 of the Labor Code, it may claim meal expenses for employees as tax deductible expenses on the condition that the excess amount is taxed to the employee as an employee benefit.

Employer expenses for accommodation for employees in an employment relationship (§ 42 of the Labor Code (ZP)) in buildings classified under codes 112 and 113 of the Classification of Buildings Ordinance of the Statistical Office of the Slovak Republic No. 323/2010 Z.z. are also tax deductible expenses, if the employer’s main activity is production carried out in a multi-shift operation. These codes include two-family and multi-family buildings. To apply the new tax exemption amount, it is sufficient that it is a non-cash benefit provided to an employee in an employment relationship by the employer for the purpose of providing accommodation for the employee in a total amount of up to EUR 100 per month, and for an employee whose employment relationship with this employer lasts continuously for at least 24 months, in a total amount of up to EUR 350 per month, which is determined in proportion to the number of days in which the employee’s accommodation was provided in the respective calendar month.

If the taxpayer does not meet the conditions set out in § 19 (2) (s) of the Income Tax Act (ZDP), it is possible to recognize these expenses (costs) for tax purposes if they are provided as an employee benefit => they will represent taxable income for the employee and the said benefit will be agreed upon in the employment contract, collective agreement or internal regulation of the employer.

Example: An employer whose main activity is production in a multi-shift operation provides accommodation to employees in an employment relationship in a workers’ hostel. Since it is accommodation in a building classified under code 113 of the Classification of Buildings, the expenses for the provision of accommodation for employees are fully tax deductible for the employer. The value of the non-cash benefit for one accommodated employee is EUR 520 per month. If the employee has been in an uninterrupted employment relationship at the time of the provision of the benefit for at least 24 months, the amount of the non-cash benefit of EUR 350 will be exempt from tax and the amount of EUR 170 will be taxable non-cash income of the employee.

Income provided in the form of non-cash benefits for the purpose of ensuring employee transportation to and from the workplace in accordance with Section 19 (2) (s) point 1 of the Income Tax Act (ZDP) is exempt from tax on the employee’s side in a total amount of up to EUR 60 per month. If the non-cash benefit calculated from the employer’s demonstrably expended funds recalculated per seat in a motor vehicle exceeds the amount of EUR 60, only the benefit in excess of this amount is included in the tax base.

According to this provision, tax deductible expenses, which can be claimed only to the extent and under the conditions specified in the Income Tax Act, are employer’s expenses for employee transportation to and from the workplace on the grounds that public transport is demonstrably not carried out at all or to the extent corresponding to the needs of the employer and the employer uses motor vehicles classified under code 29.10.3 of the Classification of Products for this purpose.

It follows from the above that if the employer provides transportation for employees to and from work even though the transportation is provided by a public regular transport provider that meets the needs of the employer, or the employer uses motor vehicles classified under a code of product classification other than 29.10.3 for this purpose, then it is not transportation according to Section 19 (2) (s) of the Income Tax Act and it is not possible to apply the tax exemption in accordance with Section 5 (7) (m) of the Income Tax Act in this case. In such a case, the non-cash benefit provided to the employee is taxed without applying the exemption and the amount of the non-cash benefit is determined in accordance with Section 2 (c) of the Income Tax Act, e.g., in the amount of the fare that the employee would pay in public transport.

The employer may (but is not obliged to) provide such a contribution to an employee whose employment relationship with the employer has lasted continuously for at least 24 months, upon the employee’s request for a contribution to recreation in the amount of 55% of the deductible expenses, up to a maximum of EUR 275 per calendar year in total for all the employee’s children. The employer assesses the fulfillment of this condition as of the date of commencement of the period to which the document issued by the sports organization relates.

Tax exemption cannot be applied to the contribution if the employer provides the contribution to the employee on the basis of a document that is not issued by an authorized person, i.e., is not issued by a sports organization (PO) registered in the Sports Information System, for which the child performs sports, as well as if the document does not contain the child’s identification data or the period. The employer is obliged to verify whether the child is a person belonging to the sports organization according to a special regulation for at least six months. As far as parents are concerned, the Labor Code does not specify the provision of the contribution only for one of the parents, therefore, after fulfilling the specified conditions, both parents may claim the contribution for the same child (e.g., for another period of the child’s performance of the same sports activity).

Employers who employ more than 49 employees are obliged to provide an employee whose employment relationship has lasted continuously for at least 24 months, upon the employee’s request, a contribution to recreation in the amount of 55% of eligible expenses, up to a maximum of EUR 275 per calendar year. If the employee has more employers, he/she may request a contribution to recreation from only one employer for a calendar year. In the case of an employment relationship for a shorter working time, the maximum amount of the contribution to recreation for a calendar year is reduced in proportion to the shorter working time.

An employer with exactly 49 or fewer employees may, but is not obliged to, provide a contribution to recreation to its employees. If the employer provides a contribution, it does so under the same conditions and to the same extent as an employer with more than 49 employees.

From the employee’s point of view, contributions to recreation that are provided to the employee by his/her employer are exempt from income tax (the employee receives the contribution as “net income”), regardless of whether the employer was or was not obliged to provide this contribution upon the employee’s request.

As far as the employer is concerned, the contribution to recreation provided to the extent and under the conditions specified in § 152a of the Labor Code is a tax deductible expense of the employer in accordance with § 19 (2) (c) point 5 of the Income Tax Act.

The employer may provide employees with access to a recreational, pre-school, healthcare, educational, physical education or sports facility owned or leased by the employer, while on the employee’s side this non-cash income in the form of use of the facility provided by the employer to the employee will be exempt from tax. The same applies to such benefits provided to the employee’s spouse and children, who for the purposes of this Act are considered dependents of such employee or his/her spouse.

In this context, however, it is not possible to recognize the purchase of services and recreational vouchers as the provision of a service through a travel agency, but it is possible to recognize, for example, the rental of tennis courts or the rental of part of a recreational facility, etc. Likewise, it is not possible to recognize the provision of financial resources. Example: The employer entered into an agreement with a fitness center that between 3:00 p.m. and 6:00 p.m. each week, the fitness center will only be available to the employer’s employees. On the employee’s side, the use of the fitness center is a non-cash income exempt from tax in full.

Income of an individual from the acquisition of non-cash income in the form of employee shares or business interests is also one of the benefits through which employees can be motivated. Since 2024, non-cash benefits acquired by an employee in the form of employee shares or a business interest in connection with the performance of dependent work performed for the employer whose shares or business interest he/she has acquired are exempt from tax, if:

• the employer has not yet paid dividends from the profit of the business company and
• its shares have not been admitted to trading on a regulated market or a similar foreign regulated market.

This means that if an employee acquires so-called ESOP of another company, e.g., a foreign parent company, other than the one for which he/she works, the tax exemption cannot be applied.