Globally active companies can set up a subsidiary, a branch or a permanent establishment abroad for their foreign economic activities. The decision regarding the optimal organizational structure has different tax consequences.

In particular, the taxation of the organizational form to be chosen moves into the focus of the entrepreneur, which can differ to a considerable extent.

In addition to pure foreign trade without a registered office abroad (direct business), there is always the option of establishing a permanent establishment for direct investment. In this article we draw your attention to which economic activities in Hungary may not be carried out through direct business, whereby at least a permanent establishment must be set up.

Permanent Establishment

After the growth of globalization in the world economy, the number of foreign companies operating in Hungary without establishing a branch increases significantly every year. This procedure is easier for a foreign company because, in contrast to the establishment of a branch, it does not require a company-court registration procedure.

A foreign company must reach a permanent establishment in Hungary in accordance with Section 4, Item 33 of the Corporate Income Tax Act (No. 81/1996) in the following cases:

  1. If he has an installation, equipment where business is carried out, including the place of management, representation, office;
  2. Carries out construction or assembly work that lasts more than 3 months;
  3. When developing or selling Hungarian real estate;
  4. If he carries out commercial agency activities for deliveries and services abroad;
  5. When services are provided by employees employed under labor contract or otherwise, if the activity exceeds 183 days per year;
  6. If the activity to be performed corresponds to the concept of permanent establishment in the double taxation agreement between Hungary and the country liable for the taxation of the investor.


The following activities are exceptions to the obligation to set up permanent establishments:

  1. a facility used solely for the storage or presentation of the goods or products of a foreign person;
  2. Storage of the goods or products of a foreign person solely for the purpose of storage, presentation or processing by another person;
  3. Maintaining a facility solely for the purpose of procuring goods or products and collecting information for a foreign person;
  4. the maintenance of a facility solely for the purpose of performing other preparatory or supplementary activities;
  5. Activities of an independent commercial agent, provided that this person acts in accordance with customary trade practice;

The exercise of an economic activity that is subject to a permanent establishment in Hungary must be reported to the tax office. Form 08T201 must be submitted electronically to the tax office. Tax office accepts the correctly issued registration application by issuing a VAT number to the foreign entrepreneur. This reporting requirement is subject to Section 17 (1) letter C of Act 92/2003 on the tax system. A foreign company that is required to have a permanent establishment in Hungary can appoint a financial representative to fulfill its domestic tax obligations.

According to the VAT Act, the appointment of a financial representative is mandatory if the taxpayer is resident in a third country.

If the taxpayer from a third country (also) does business in another Member State of the Community and registers a permanent establishment there, he is no longer considered to be resident in a third country, so the appointment of a financial representative is not an obligation, but an option. In this case, however, the taxpayer must prove at the time of registration that he not only has a tax number but also a permanent establishment in another Member State of the Community.

As experts in establishing company branches and subsidiary companies, as well as permanent establishment we are ready to work with you.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.