Can I put my own money in my Hungarian company?

You can use your personal money to provide the share capital of your Hungarian company. Once that is done, however, your own money and the company’s money are separate, and you cannot make transfers freely or without proper documentation.

Providing the share capital

The minimum share capital for a limited liability company (LLC, or “KFT” in Hungarian) is HUF 3,000,000 in Hungary. As the owner of the company, you are required to provide this sum to your company, in one form or another. You do not have to make the deposit as soon as your company is set up, but you will still be required to provide the share capital at some point.

When you decide to deposit the share capital, that can come from your personal bank account, and even from abroad. However, the act of the deposit must be properly documented, and upon request, you must be able to provide proof that you have acquired the sum by legal means (e.g. savings accumulated over time, inheritance, profits paid out as dividend from another business you operate, etc.).

Separate legal entities

You and the company you own and operate in Hungary are two separate legal entities. As a result, the money your company has is separate from your own money. Any transactions between the two must have a proper reason and must be properly documented.

Some standard cases when you can again put your own money in your Hungarian company are providing a shareholder loan, making an additional contribution to the share capital, or increasing the share capital. However, all of these are available under specific circumstances, and have their own specific rules. In each case, you must be able to demonstrate that the money was obtained through legal means to avoid suspicions of money laundering.

Shareholder loan

A shareholder loan is exactly what the name suggests: a loan that you as a shareholder can provide to your Hungarian company. As a result, your Hungarian company is expected to pay it back with interests.

You can normally provide a shareholder loan when the company is not performing well and you need additional cash to solve cash-flow issues, or when the company wants to invest in a development project. The shareholder loan is supposed to be a temporary measure, and the company is supposed to pay back the loan as soon as it is profitable again.

If you are planning to provide a shareholder loan to your company, make sure to discuss it with your Hungarian accountant well in advance, so you will be aware of the costs, and they can provide the appropriate documentation. Most importantly, the company will have to pay you an interest, and you as the lender will have to pay income tax after the interest you receive.

If you decide to forgive the loan, that also incurs costs. On the one hand, you will be required to pay an 18% gift tax. On the other hand, the company has to register the sum as an income and pay taxes on it accordingly. The waived loan might also be used to increase the share capital or to cover an additional contribution to the share capital, which both have administrative as well as financial effects.

Additional capital contribution

When the company is generating a loss, the assembly may decide that they need an additional contribution to the share capital, which basically means to top up the capital of the business to the amount specified in the articles of association. (If you are the sole owner, the decision still needs to be documented.) The contribution can be covered by the owner’s own money, either directly, or by forgiving an existing shareholder loan.

Again, both procedures have their distinct set of rules and costs, so consult your accountant, or even a financial advisor in advance.

Share capital increase

When your Hungarian company is preparing for a new project that will significantly boost its operation, a share capital increase might be due in order to cover the investment and to increase credibility toward partners.

Again, the assembly should decide on the share capital increase and its accepted methods. You can use your personal funds to perform the share capital increase, or you can count an existing shareholder loan towards it. Of course, profits not paid out as dividends may also be used for this purpose. In either case, the processes must be appropriately documented, alongside the reasons and the origin of the funds.

Conclusion

As you can see, the question in the title doesn’t have a simple answer. One the one hand, no, you cannot just put your own personal money in your Hungarian company without a just cause. On the other hand, yes, if you have a valid reason, you can put your personal money in your Hungarian company as an owner. This, however, must always be documented.

There are various procedures available based why you want to use your own money in the operation of your Hungarian company. Each has its own set of rules and costs. To make sure you choose the one that best supports your business while it still remains compliant with Hungarian regulations, consult your accountant well in advance, or ask for special advisory from a legal or tax specialist.

Ask for help from the best

The Helpers Finance team focuses on supporting foreign businesspeople operating a small or medium-sized company in Hungary. Not only do we provide precise and compliant accounting and reporting, but we are also doing our best to make Hungarian business setup and operation as worry-free as possible.

Whether you are interested in accounting or advisory, we are here to help.

Was this article useful? Follow us on Facebook and never miss an update.

The post Can I put my own money in my Hungarian company? appeared first on Helpers Finance.