Part II of the series “Navigating the Hungarian Legal Landscape”

Establishing a business in Hungary is relatively straightforward for foreign investors — but maintaining it successfully often depends on navigating subtler legal challenges. These pitfalls are rarely due to ill intent; most arise from assumptions based on foreign legal systems or underestimating local rules and practices.

In this article, we highlight common legal missteps that international clients encounter in Hungary — and how to proactively avoid them.

1. Underestimating Local Corporate Formalities

Hungarian companies (especially Kft.’s) offer operational flexibility, but they still require ongoing corporate governance and documentation. Common issues include:

• Failing to update the Company Register with changes in directors, ownership, or address
• Missing deadlines for annual general meetings
• Improper record-keeping of shareholder resolutions

Tip: Keep your articles of association and corporate records in sync with real-world changes — and file amendments promptly through legal counsel.

2. Ignoring Local Employment Law Nuances

Many foreign businesses assume they can apply home-country labor practices. In reality, Hungarian labor law is protective and strictly regulated. Common missteps include:

• Offering “contractor” roles that legally qualify as employment
• Improperly drafted or unwritten employment contracts
• Ignoring working time rules and required breaks

Tip: Use localized contracts reviewed by legal counsel. Ensure all hiring, termination, and working hour practices are in line with the Hungarian Labour Code.

3. Failing to Comply with Tax & Reporting Obligations

Hungary’s low corporate tax rate is attractive, but its tax compliance regime is among the most aggressively enforced in the EU. Frequent traps include:

• Late or inaccurate VAT filings
• Misclassifying intra-EU transactions
• Failing to register a local fiscal representative when required

Tip: Work with a Hungarian accountant familiar with cross-border activity. If you’re operating remotely, clarify PE (Permanent Establishment) risk to avoid unintended corporate tax liability.

4. Misunderstanding Contract Enforcement & Dispute Resolution

Hungarian contract law is civil law-based and may differ substantially from common law expectations. Common misunderstandings include:

• Assuming verbal agreements are enforceable without written terms
• Failing to define governing law and jurisdiction in cross-border contracts
• Not using a bilingual contract — leading to disputes over interpretation

Tip: Use well-drafted contracts in Hungarian and English. Always specify dispute resolution mechanisms and applicable law in advance.

5. Overlooking Industry-Specific Licensing or Regulatory Rules

Hungary has strict sectoral rules in areas such as:

• Real estate development and building permits
• Import/export licensing
• Financial services regulation (including crypto-related business)
• Advertising, health products, and food labeling

Tip: Before launching an operation, seek advice on industry-specific permits and required filings. Local rules can be complex even within EU-harmonized sectors.

6. Weak Beneficial Ownership Transparency

Hungary maintains a central register of beneficial owners (UBO Register) as part of its AML compliance regime. Errors or inconsistencies can trigger:

• Red flags in banking relationships
• Regulatory scrutiny
• Fines or suspension of company activity

Tip: Ensure UBO records are up to date and match internal shareholding structures. A mismatch between company and UBO data is a serious red flag.

7. Not Having Local Legal Representation or Advice

Foreign businesses sometimes take a “light touch” approach early on — engaging a local lawyer only when something goes wrong. This often leads to:

• Missed opportunities to prevent risk
• Delays in urgent filings
• Unfamiliarity with local procedures and legal culture

Tip: Appoint a trusted Hungarian legal partner from the beginning. Ongoing legal support saves time, reduces costs, and helps build long-term success.

Final Thoughts

Hungary offers a stable and investor-friendly legal environment — but only for those who take local legal compliance seriously. Many issues can be avoided with clear contracts, proper filings, and good professional support from day one.

Want to Avoid Legal Pitfalls?

We support foreign companies and investors in navigating Hungary’s legal landscape — whether it’s company formation, employment law, taxation, or industry-specific regulations. With our experience and bilingual legal guidance, we help ensure your business remains compliant and avoids common mistakes.

Get in touch with us — strategic legal planning is the foundation of a successful market entry.