Hungary

Ease of Doing Business Rank: 52

Overview

 

Geographic location

Hungary is a landlocked central European country. Slovakia lies to the north, Austria, Croatia, and Slovenia to the west, Serbia to the sout, and Romania and Ukraine to the east.

Spoken language

The official language of Hungary is Hungarian, spoken by 98.9% of the population as their first language.

The country also recognizes and protects 14 minority languages including Armenian, Boyash, Bulgarian, Croatian, German, Greek, Polish, Romani, Romanian, Rusyn, Serbian, Slovak, Slovenian and Ukrainian.

English is the most widely-spoke foreign language (20%), followed by German (11%).

Population

The 2019 population estimate is 9.77 million.

According to 2019 data, Budapest is the capital and largest city (2.96 million), followed by Debrecen (318,434), and Szeged (231,301). Hungary has 5 additional cities with populations over 100,000.

Popular industries

The top industries in Hungary are food processing, pharmaceuticals, motor vehicles, information technology, chemicals, metallurgy, machinery, electrical goods and tourism.

Education

The Times Higher Education World Rankings includes six Hungarian universities in the top 1,000 in the world.

The Legatum Prosperity Index ranks Hungary’s education system 32nd out of 149.

Popular entity types

The most common type of business entities in Hungary are the Limited Liability Company, Limited Partnership, General Partnership, Private Company Limited by Shares and Public Company Limited by Shares.

The overwhelming majority of businesses are in the form of a Limited Liability Company.

Hungarian incentives for business

Hungary offers a foreign tax credit to offset income tax paid abroad to a maximum of 90 percent, whether the host country has a tax treaty with Hungary or not.

The country also offers a development tax incentive of up to a maximum of 80 percent of tax payable on significant, area-specific or job creation investments. Qualifying companies may claim this incentive for up to the maximum of 16 years, in some cases.

Companies involved in zoogenic food production, environmental protection, film and video production or research and development may also qualify for tax incentives. Investment in shares, small enterprises, innovation, job creation or within free entrepreneurship zones may also present incentives.

Hungary also offers financial aid for new economic activity, product diversification or process innovation outside of Budapest. The country also has many free entrepreneurship zones in unprivileged areas throughout Hungary.

The country also offers a Tax Credit for Growth (TCG) which allows qualifying companies a method to defer tax payment liability, but outstanding taxes accrue interest. The incentive may be applied to up to 70% of CIT liability, regardless of location.

Companies that support film and spectator sports may enjoy a net tax savings 2.25%. Alternatively, companies that allocate half of their advance monthly or quarterly and 80% of CIT payable may enjoy a 7.5% tax credit.

SMEs may deduct interest paid on loans procured for the acquisition or production of tangible assets, with limitations. Qualifying startups may also decrease pre-tax profits threefold.

History & Features

 

Main cities for business

Budapest is the financial and hi-tech center of the country.

Popular historical & tourist attractions

Hungary offers many historical, architectural, cultural and natural attractions. The country has 7 UNESCO World Heritage Sites, including areas in Budapest on the banks of the Danube, the Buda Castle Quarter and Andrássy Avenue.

Budapest includes the remains of the Gothic castle of Buda. It was originally built in 1265, but later rebuilt by the powerful Austrian Habsburgs in the 18th century. The city also offers an architectural record from Paleolithic times, through Roman, medieval and renaissance periods. Andrássy Avenue clearly shows Hungary’s innovative tradition continued through to the 19th century.

The Danube River splits Budapest city in two. Originally, they were the two separate cities of Buda and Pest. Today, many historic bridges span the gap and the two regions operate as one.

The Cathedral of St. Peter in Pecs was originally built in 1009. It survived relatively unscathed for twelve centuries, until Mongols ravaged the building several times. It was completely rebuilt in 1891 to its former glory.

The Royal Palace in Visegrád lies just north of Budapest on the Danube. It was built in 1316 by Charles I and later extended.

Further afar, you’ll find Sopron near the Austrian border. The site includes 240 Baroque and medieval buildings, with 115 officially rated as monuments.

Hungary is also known for its many historic spas. Some date back 2,000 years to the Roman era. Others are 400-year-old Turkish baths, reminders of the Ottoman occupation. The thermal waters are said to relieve pain and speed healing.

Hungary also has many areas of outstanding natural beauty. The Buda Hills just outside Budapest offer a huge trail of networks, ideal for hiking and cycling. Alternatively, visitors can take the Cog Railway to the summit for spectacular views of the city.

Tihany is a nature reserve on Lake Balaton. It is vehicle-free and offers a large trail network and abundant flora and fauna.

The Caves of Lillafüred in the Bükk Mountains features three caves, two easily accessible and one more suited for adventurous hikes. Paleolithic remains were found in one of these caves. This resort area also includes hanging gardens, the tallest waterfalls in Hungary and an artificial lake with water activities.

History

Romans reached the Danube in 11 BC and eventually created a province called Pannonia. In the 2nd century, they conquered eastern Hungary, which they called Dacia. However, Roman power waned in the 3rd century and at the end of the 4th century they withdrew.

Germanic peoples occupied the area until the 6th century when the Avars conquered Hungary. They ruled for two centuries, until the Frankish Empire led by Charlemagne conquered central Europe and introduced Christianity.

When Charlemagne died in 843, the Frankish Empire divided into thirds. Hungary became the easternmost region. By the late 9th century, Magyars conquered the region and made it their homeland.

In the late 10th century, the Magyar tribes united and formed the Kingdom of Hungary under a single, powerful Christian ruler. After his death, power fragmented.

In 1241, the Mongols invaded Hungary. However, a Hungarian king reclaimed the country and it prospered again due to the discovery of gold and silver.

Hungary briefly united with Poland during the 14th century, but when Hungary’s ruler died without an heir Luxembourg ruled. Hungary declined and by the 16th century the powerful Ottoman Turks threatened the territory.

Peasant uprisings and divided nobility led to an Ottoman invasion. They sacked several areas, but withdrew from Hungary. This created a power vacuum and two powers claimed the Hungarian throne, which divided the territory. One leader was Transylvania and Hungary’s most prominent aristocrat and army commander and the other was Archduke Ferdinand of Austria who claimed Hungary for the House of Habsburg. Austrian forces overpowered their rival.

In 1683, the Ottoman Turks besieged Austria and failed. Later, Austria and its allies defeated the Turks and the Habsburgs ruled most of Hungary. However, Hungarians resented Hapsburg rule and taxation and revolted in 1703.

The War of Independence lasted until 1711 when Hungarians agreed to peace. The Habsburg monarch ruled as a king, not an emperor, and was now subject to the restraints of Hungary’s constitution and laws.

Hungary experienced economic decline during the 18th century .The country was largely agricultural with little industry and had suffered greatly during the war and Turkish occupation.

By the end of the 18th century, Hungarian nationalism had grown. In the 19th century, the country underwent major reforms, including the abolishment of serfdom. However, Austria negated the changes in 1848, repeatedly invaded the region, and failed to secure it each time.

In 1849, Hungary declared independence. However, Austria joined forces with Russia and defeated the Hungarians later that year.

The tables turned in 1866 when Prussia defeated Austria. Austria agreed to a dual Austro-Hungarian monarchy in 1867. The population and economy grew.

During World War I, the Austro-Hungarian Empire was part of the Axis forces. By 1918, it was clear they were on the losing side of the war and the demand for Hungarian independence rose. Hungary appointed a prime minister and Slovaks and Romanians within Hungary broke away, reducing Hungary’s territory by half.

The newly-formed Hungarian Communist Party joined forces with the Social Democrats in 1919 and began nationalizing industry and land. However, the government’s policies were unpopular and eventually opposed by a national army.

Tensions were high between Hungary and Czechoslovakia and Romania. Romania occupied Budapest and the Communist regime collapsed. The Romanians left Budapest the same year, but the leader of the army occupied the capital instead.

In 1920, Parliament decreed the throne of Hungary ‘vacant’ and elected the leader of the army as regent. He ruled under an authoritarian regime.

Hungary ceded two-thirds of its territory after losing World War I. In 1937 the Hungarian Socialist Party began, rearmed, and took an anti-Semitic stance. As a result, Hungary regained some of its lost territory when Germany occupied Czechoslovakia in 1939 and more when they invaded Yugoslavia in 1941.

In 1941, Hungary joined the attack on Russia and Britain declared war on Hungary. After German defeats in Russia in 1943, Hungary wanted to leave the war.

Germany occupied Hungary in 1944 and installed a right wing government. Allied forces retaliated and bombed Hungary and when the Germans faced certain defeat, the Hungarian regent negotiated an armistice with Russia. However, Germany removed the regent.

After World War II, the Soviet Union occupied Hungary. The Soviets believed the Hungarian Communist Party would win a free election. However, in 1945 the non-communist party won and they were forced to form a collation government.

Communists began strategically removing non-communist officials, nationalized industry, and collectivized agriculture. By 1948, Communists ruled Hungary exclusively. Many Hungarians were executed or imprisoned under a brutal totalitarian police state.

When Stalin died in 1953, the Hungarian Communist leader fell from power and the new leader moderated policies. However, two years later the severe policies returned.

In 1956 policies eased again. Nonetheless, unrest grew. Demonstrations sprang up which led to violence and more unrest. Russian troops were called in to control the situation and the prime minister was reinstated. He announced Hungary was leaving the Warsaw Pact signed with the Soviet Union to become a neutral country.

Russian forces invaded Hungary again, but Hungarians resisted or fled the country. Russia executed or imprisoned the resistance.

Hungary remained under strict rule until the 1960s, when cautious reforms began. Hungary prospered for the next few decades, but by the 1980s the country suffered from hyperinflation, high debt and poverty. Hungary eased travel restrictions and opened its border with Austria.

After the dissolution of the Soviet Union in 1989, a new constitution allowed the orderly transition to democracy and capitalism. The first free parliamentary elections were held in 1990 and the last Soviet troops departed in 1991.

Today, Hungary operates under a democratic parliamentary republic. They have an export-oriented market economy with a heavy emphasis on foreign trade.

Other relevant facts

According to the 2011 census, most inhabitants identify as Hungarian (84%), followed by Romani (3%), Germans (1%), Slovaks (0.3%), Romanians (0.3%) and Croats (0.2%).

According to the 2011 census, most Hungarians are Roman Catholic (37.2%), followed by Calvinist (11.6%), Lutheran (2.2%), Greek Catholic (1.8%) and other religions (1.9%).

Additional Information for Business

According to Forbes’ 2019 Best Countries for Business, Hungary is the 40th best country in the world for conducting business.

The 2019 Index of Economic Freedom rates Hungary 64th globally and states, “Systemic economic challenges include pervasive corruption, labor shortages driven by demographic declines and migration, widespread poverty in rural areas, vulnerabilities to changes in demand for exports, and a heavy reliance on imports of Russian energy.”

World Bank’s “Doing Business” rankings rate Hungary 52nd for ease of doing business in the world.

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