An important legislative change concerning the way Hungarian companies are incorporated and registered is due to be implemented in 2012. This change may affect the existing and future structure of companies in Hungary, and could also affect future transactions. It is therefore important for Hungarian companies to consider the implications of this change, and, if necessary, to contact their legal advisers to take precautionary steps during 2011.
From 1 January 2012, the consent of the Hungarian tax authority will be required before a Hungarian company is incorporated. For existing companies, this will take the form of a subsequent objection following the replacement of a director or, in the case of private limited companies, a majority owner. A lack of consent means that the business may not receive a tax number, whereas an objection means that its existing tax number may be cancelled. Without a tax number, business activities cannot be pursued, which may lead to the dissolution of existing companies and the denial of incorporation of new ones.
Broadly, the consent will be denied or an objection will be lodged if the director, the representative or, in the case of private limited companies, the majority owner of the company had been involved in the operation of other companies which have accumulated tax arrears or which were involved in other negligent activities. For instance, if one of the holding companies of a group used to be the majority owner of a subsidiary which was liquidated leaving behind unpaid taxes, then this holding company may no longer be able to incorporate or acquire majority ownership in any other Hungarian private limited companies as majority owner (generally, this restriction applies for 5 years from the 'wrongdoing'). Likewise, if such a director is appointed to a company who had been involved in accumulating tax arrears in some other company, then there is a risk of that company's tax number being cancelled as a result of the track record of the director (although this can be prevented if the director is removed pursuant to the tax authority's demand which must be made before cancelling the tax number).
There are of course a number of detailed conditions to the above rules, and it is possible to file a challenge when the consent is denied, or once the objection is lodged. However, these procedures place a heavy burden of proof on the company and its representatives which will often make it practically difficult and time-consuming to avert the sanctions. For the above reasons it is imperative that before a company is incorporated, or changes to its ownership structure/directors are implemented, the track-record of the new owners/directors is properly checked and verified. These verifications may either be done through an official procedure or by your legal and tax advisers. Finally, depending on the specifics of the Hungarian company, and especially if they are contemplating a sale or an acquisition within their group, they may also want to take precautionary steps during 2011 to prepare their holding structure for the new rules.
Gabriella Ormai Hungary Managing Partner - CMS Cameron McKenna
Aniko Kircsi Partner - CMS Cameron McKenna
Eszter Kálmán Senior Associate - CMS Cameron McKenna