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Company Due Diligence in Hungary

Company Due Diligence in Hungary

Due diligence on a Hungarian company

Business owners who want to engage in commercial relationships with other Hungarian companies can consider company due diligence procedure. This analysis will allow them to know the company they are working with and avoid any unnecessary business risks.

The team of experts from our law firm in Hungary can collect information about a Hungarian company and prepare a comprehensive due diligence report. The data collected during this procedure can serve for much more than creating stable business relations, it can also be the basis of a successful merger and acquisition procedure in Hungary.

Types of due diligence in Hungary

Company due diligence in Hungary is a vital but lengthy process; the buyer conducts this process to confirm the accuracy of the seller’s claim. As this process might be complicated for you, because it takes place in various sectors, including financial, taxes, assets, and many more, so you can get in touch with our experienced lawyers for their legal assistance. They can run company due diligence in Hungary to protect you from any possible risks. Please find below the detail of the different types of due diligence that you can carry out before purchasing anything:

1. Environmental due diligence in Hungary

If a company violates significant rules, the local authorities may sue that company for a penalty. This may include shutting down the company operationally. So, if you are planning to purchase a company in Hungary, it is necessary to carry out environmental audits. Our lawyers in Hungary can perform environmental due diligence for you, and they will review the following:

  • copies of all notices and correspondence from the local regulatory agencies and the state;
  • list of environmental permits and licenses;
  • validity of permits and licenses;
  • examine if the company’s disposal method is in accordance with the current rules and regulations;
  • check if the company has any continuing indemnification obligations or contingent environmental liabilities.

All these factors will be checked by our lawyers when they will run company due diligence in Hungary. Hungary accepts dual nationality. It allows its inhabitants to simultaneously possess two nationalities, one of which is Hungarian. You must confirm whether dual citizenship is permitted in your country of residence because certain nations do not permit it. You must decide between having Hungarian citizenship and other citizenship if the nation you have lived in up to now does not permit dual citizenship.

2. Legal due diligence in Hungary

Legal due diligence related to a property is also significant. It includes the examination of the following elements:

  • Articles of Association, and Copy of Memorandum;
  • licensing agreements;
  • copy of the guarantees to which the company is a party (if any);
  • copies of bank financing agreements and loan agreements;
  • copy of share certificates issued to the key management personnel;
  • all material contracts, including limited liability company, operating agreements, partnership agreements, or any joint venture;
  • minutes of all meetings of the shareholders for the last three years.

All these documents will be examined and reviewed by our attorneys in Hungary to rectify any chance of fraud in the buying process.  One of the cheapest places to live in Europe is Hungary. Although its low cost of living attracts many, its 27% VAT rate is greater than that of any other EU member state. In Hungary, there is also the issue of convoluted income taxes for foreign residents, which can make the immigration process more difficult. But you can get in touch with our immigration lawyers if you are interested in relocation to Hungary.

3. Taxes due diligence in Hungary

If you are purchasing any entity, you are required to run a company due diligence in Hungary. Because any tax liabilities on that company will cause difficulty for your operations, it is suggested to examine and rectify such problems beforehand. For the due diligence of Hungarian companies, you can trust our skilled local lawyers. They will highlight the issues by verifying any reviewing the following:

  • documentation related to the net operating loss (NOL);
  • documentation related to any unused credit carryforwards of deductions or tax credits;
  • any extraordinary correspondence with tax agencies;
  • data related to past or pending tax audits;
  • copies of all tax returns, including income tax, sales tax, withholding tax, for the previous three or five years;

These steps will eradicate any tax liabilities if the company has any. 

4. Financial due diligence in Hungary

Financial due diligence for a company is necessary to check whether the financials showcased in the confidential information memorandum (CIM) are accurate or not. The objectives of this process are to provide thorough understanding of all the financials of the company including audited financial statements for the last three years, recent unaudited financial statements, company’s projections and the basis of such projections, schedule of inventory, capital expenditure plan, debtors and the creditors, etc. In addition, while performing financial due diligence on Hungarian companies, our lawyers will also analyze:

  • major customer accounts;
  • fixed and variable cost;
  • profit margins.

In addition to this analysis, they will also examine the internal control procedures, the company’s order book, and sales pipeline to create more accurate projections. Finally, if you need any other type of company due diligence in Hungary related to administrative, human resources, or intellectual property, you can interact with our lawyers.

The benefits of performing a due diligence procedure in Hungary

The company due diligence procedure is performed in Hungary in order to collect information about a company, such as:

  • the financial status of a company;
  • its history;
  • its strategy;
  • information about relevant company members;
  • its policy;
  • any other information that might be relevant in the event of a merger and acquisition procedure.

The information collected by the specialists at our Hungarian law firm will give you complete insight into that company and will help prevent potential negative effects of tax and accounting risks. The due diligence process also involves a company audit. 

All the information gathered during the due diligence phase will provide a complete image of the company’s legal situation so that the foreign investor in Hungary can avoid potential business risks.

The due diligence investigation in Hungary

The due diligence process in Hungary will involve certain activities like:

  • examining the accounting and tax records of the company;
  • insight into the corporate legal system of the respective business entity;
  • the internal and external relationships of the company;
  • financial audit.

Our law firm in Hungary can prepare a due diligence audit process for any type of company in Hungary. Our services are tailored to your needs and according to the information that is relevant to your specific business sector.

Foreign direct investment in Hungary

The foreign direct investment (FDI) outward stock in Hungary has constantly increased in the past three years. This is because the foreign countries and individuals are investing in the different sectors of this Hungary. So, it is crucial to prevail the importance of company due diligence in Hungary. This logical step can bring more investments in this country by firming the beliefs of investors in the eradication of risks. Please find below the Hungary outward stock in billions of U.S. dollars from 2018 to 2020:

  • in 2018, the FDI of Hungary was 28.6;
  • in 2019, the figure raised to 31.5;
  • in 2020, the FDI in Hungary was 37.1.

For more information about company due diligence in Hungary please contact our Hungarian law firm. Our local lawyers will be able to provide you with additional information.