Founding a factory

Founding a factory

It is important to be familiar with the personnel and material requirements for founding a factory, as well as with the necessary administrative procedures. In this article we present the essential steps, the main aspects and requirements of a factory’s establishment in Hungary.

Establishment of a company
The first step of founding a factory is to establish a company; the most common legal forms are limited liability company (“Kft.”) or a private limited company by shares (“Zrt.”), as the founders are not liable with their private assets. The capital at a limited liability company has to be at least HUF 3,000,000 (approximately 7.499 EUR), and at a private limited company by shares has to be at least HUF 5,000,000 (approximately 12.500 EUR). The company has to have a company name, a seat, a managing director, has to choose its business activities and has to engage an accountant. The establishment of a company does not take much time, as the regional Company Registry Court registrates the newly found company within 15 working days, and in the case of simplified company procedures, the court decides on the registration of the new company within 1 working day - said dr. Dominika Veress, an expert at act legal Hungary.

Choosing the suitable factory site
When choosing the factory’s site, it is important that the property has to be in a zoned industrial area. After the ideal industrial property is chosen, the property can be purchased or leased depending on the planned term of the industrial activity and on the conditions set by the owner.

When a foreign company purchases a property, it has to first request a permit for the purchase, and the administrative deadline for the authorities to issue the permit is 45 days. Because of this, we recommend to first establish a Hungarian company, so the real estate can be purchased by the Hungarian company, and in this case the permit is not required.

When purchasing the property, a sale and purchase agreement has to be concluded and the agreement has to be sent to the Land Registry, which has 60 days to issue an order in connection with the owner change. The 4% of the property’s value (ordinary the purchase price) has to be paid as a fee to the Tax Authority (“NAV”) when purchasing the real estate.

When leasing the property, the most important aspects are the rental price, the regulation about indexation, penalty, termination (especially the termination with immediate affect), the cost bearing if a renovation is necessary and the prolongation option.

If the property does not have the proper classification for a factory, a zoning clearance or a reclassification procedure shall be initiated before the local Municipality. The exact requirements are depending of the region of the factory, as the regional municipalities may have further requirements about these procedures.

What kind of permits do I need?
If new construction takes place, then a building permit may be acquired - the construction must begin within 4 years upon acquiring the permit, and from the construction’s commencement date the construction has to be finished withing 6 years. Even if the previous owner or lessee acquired the operational permit, the new owner or lessee has to acquire a new operational permit in order to commence the business activity. As the operation of factory may have a disturbing sound or odour impact on nearby residents, and the operation may produce harmful emissions, an environmental permit has to be acquired. Because the operation a factory can be dangerous, a fire safety and occupational safety permits have to be acquired as well.


How shall I start the operation? - Material
It is important to ensure the infrastructure of the factory, as access to electricity, water, gas, sewage and internet by concluding contracts with these suppliers, and transportation routes has to be developed as well.

If the factory has the necessary infrastructure, the machinery and production lines have to be installed. After the installation, a technical inspection, compliance certification and safety checks may be required.

How shall I start the operation? - Personal
Employment agreements has to be concluded with the fellow employees, the necessary employer notification must be handed over to them, and the necessary employer policy must also be prepared - said Dr. Dominika Veress. When hiring employees, it is important to decide on the wages and whether they are entitled to any benefits in addition to their wages. Currently the minimum wage in Hungary is gross HUF 290,800 (approximately 724 EUR). The annual base holiday is 20 days, and an employee is entitled to more holidays with higher age (maximum 30 days) or having children (maximum 7 days). In some cases, like overtime, working between 22:00 and 6:00, working on Sundays, wage supplements have to be paid, but the wage supplements can be also included in the salary as a flat rate.

The health and safety laws are applicable, for example the adequate protection is needed when the employees are exposed to high sound levels, or when they work with dangerous machinery, and safety trainings need to be held for the employees.

Further administrative tasks
The company has to be registered as an employer at the Tax Authority and if a new employee is hired, the company has to register the employment of the new employee at the Tax Authority, and tax reports about the company’s business activity has to be submitted as well within deadline. The company has to accept yearly its annual financial report, which has to be sent to the Ministry of Justice, and the financial report will be publicly available.

It is also important to conclude business insurance for the property, the machinery, and to conclude an employer’s liability insurance, which covers the claims arising from work accidents.

To sum it all up, the main important steps of a factory’s establishment is to establish a company, acquire a property by purchasing or leasing it, acquire the necessary permits, ensure the infrastructure and machinery, hire the ideal employees, follow labour law requirements and carry out the necessary administrative tasks. Act legal Hungary has the expertise and dedication to assist a company through these steps, provide legal advice and prepare the necessary legal documents with a client-oriented mindset.