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Subsidiary, branch office, commercial representative – European standards
Our accession to the EU brought about the disappearance of borders and free movement of companies. It is legally possible to operate a company anywhere in the EU from England through Cyprus to Malta. However, this freedom was not followed by a full law harmonisation within the EU, therefore a special framework had to be established within which cross-border enterprises can function. It involves a very special, country specific company law environment, taxation laws and bookkeeping requirements. Admiral-Count Ltd undertakes the accountancy and tax consultancy of several European enterprises’ Hungarian branch offices/subsidiaries. Our Certified International Tax Expert wrote her thesis on branch offices.
Foreign enterprises pursuing business activities in Hungary can be formed and registered in accordance with Act IV of 2006 on Business Associations, and can be set up in one of the following forms:
- business association (whereby business shares are bought in an existing company and partnership is established)
- subsidiary, branch office or commercial representative office
- private entrepreneurship
- cross-border association (which is the recent trend)
Subsidiary
A subsidiary is a company that is partly or completely owned by another company that holds a controlling interest in the subsidiary company. If a parent company owns a foreign subsidiary, the company under which the subsidiary is incorporated must follow the laws of the country where the subsidiary operates, and the parent company still carries the foreign subsidiary's financials on its books (consolidated financial statements). For the purposes of liability, taxation and regulation, subsidiaries are distinct legal entities.
Branch office
According to the definition of “branch office” as per point b) in Section 2 of Act LXXXII of 1997 on the Hungarian Branch Offices and Commercial Representative Offices of Companies Registered Abroad (Branch Office Act), a branch office is an organizational unit without legal personality of a foreign enterprise. It is entitled to do business independently and is registered in the domestic corporate registry as the branch office of a foreign enterprise, which is a specific company form.
Commercial representative
A commercial representative office can be defined as an organisational unit of the foreign enterprise not pursuing business activities and registered in the Hungarian company register, which carries on tasks related to the preparation and mediation of contracts and keeping up contacts with business partners. In other words, while a subsidiary has a legal personality, a commercial representative office does not and is not entitled to pursue independent business activities.
Our cross-boundary clients:
Germany
Slovakia
Belgium
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