The branch of a foreign company and the Hungarian fióktelep: legal capacity and standing, the founder's liability, registration and taxation

This article compares the legal status of the organizational unit (branch) of a foreign legal person's business under Slovak law and the branch of a foreign undertaking (fióktelep) under Hungarian Act No CXXXII/1997 on the Hungarian branches and commercial representations of undertakings seated abroad (the "Fkt."). It analyses legal capacity and standing in proceedings, the scope of the founder's liability, representation, registration proceedings, dissolution of the branch and its tax regime, including the application of the double-taxation treaty.

1. Legal nature of the branch and the fióktelep

Under § 7(1) of the Slovak Commercial Code (ObchZ), a branch is an organizational unit of a business. A foreign person does business in the Slovak Republic if it has a business or a branch thereof located here (§ 21(3) ObchZ).

The Fkt. defines the fióktelep as an organizational unit of a foreign undertaking without legal personality, which has economic autonomy (gazdálkodási önállóság) and is entered in the commercial register (cégjegyzék) (§ 2(b) Fkt.).

Both legal orders thus proceed from the unity of the foreign founder's legal personality: the branch is not a separate legal person, and legal acts made in its name bind the foreign person. The Fkt. expressly extends this principle to employment relationships too – employees of the fióktelep are in an employment relationship with the foreign undertaking (§ 18(2) Fkt.).

2. Legal capacity and standing in proceedings

A fundamental departure of Hungarian law is that the fióktelep, despite the absence of legal personality, has legal capacity (jogképes). Under its business name it may, for the benefit of the foreign undertaking, acquire assets, conclude contracts, sue and be sued (§ 3(1a) Fkt.).

The Slovak branch has no legal capacity. Under § 61 of the Slovak Civil Dispute Procedure Code (CSP), standing in proceedings belongs to a person who has legal capacity or to whom the law grants it. No law grants it to the branch, and therefore the party to a dispute is always the foreign legal person.

3. The founder's liability for the branch's obligations

Both regimes lead to the founder's unlimited liability with all its assets; the legislative technique, however, differs. The Fkt. contains an express and detailed rule:

• the foreign undertaking must continuously provide the assets needed for the fióktelep's activity and for payment of its debts (§ 11(1) Fkt.),
• for debts arising from the fióktelep's activity the foreign undertaking is liable together with the fióktelep jointly, severally and without limitation (egyetemlegesen és korlátlanul), and proceedings against them may be brought before a Hungarian court too (§ 11(2) Fkt.),
• in enforcement proceedings all assets of the foreign undertaking located in Hungary may be reached (§ 11(5) Fkt.).

The Commercial Code contains no special liability provision. Its absence follows from the branch's lack of personality: the debtor for obligations arising from its activity is directly the foreign legal person.

4. Representation of the branch and personnel requirements

Under Slovak law, the head of the branch entered in the commercial register acts for the business and is authorized to perform all legal acts concerning that branch (§ 13(5) ObchZ).

Under the Fkt., the fióktelep is represented by a person employed in it or seconded to it, or a person in a permanent mandate relationship with a domicile in Hungary (§ 6(2) Fkt.). This requirement does not apply to undertakings seated in an EEA state (§ 38/B(2) Fkt.); the managing director of a Slovak s. r. o. can thus run the fióktelep from Slovakia.

Both regimes also contain disqualification rules. A person finally sentenced to imprisonment cannot represent the fióktelep until the effects of the conviction are lifted (§ 10(3) Fkt.). Under Slovak law, a disqualification decision also applies to the head of a foreign person's branch (§ 13a(1) ObchZ).

5. Registration proceedings

In both states, entry in the register has a constitutive effect in relation to the authorization to do business (§ 21(4)(b) ObchZ; § 4(1) Fkt.). The procedural conditions of entry, however, differ substantially:

If the Hungarian registration court rejects the application, the fióktelep must cease activity without delay; for obligations assumed before entry the foreign undertaking is liable without limitation (§ 4(2) Fkt.).

Both regimes ensure transparency of the founder's finances towards creditors. In Slovakia the foreign person's financial statements are filed in the collection of documents of the commercial register (§ 35(1)(a) of Act No 29/2026 Coll.). The Hungarian fióktelep must submit the foreign undertaking's statements for filing and publication within 60 days of their approval (§ 12(2) Fkt.).

6. Dissolution of the branch and insolvency of the founder

In Slovakia, the foreign person's authorization to do business ends by deletion of the branch from the commercial register (§ 21(5)(b) ObchZ); the application is filed by the foreign legal person (§ 46(13) of Act No 29/2026 Coll.).

The Hungarian regime is more formalized. The deletion application must be filed within 60 days of the founder's decision, and the fióktelep must, in the Cégközlöny (the official gazette of the commercial register), invite creditors to register their claims within 30 days (§ 23(2) Fkt.). For a founder from the EU no further deletion conditions are required, but the creditor notice remains mandatory (§ 23(3) Fkt.).

The commencement of insolvency proceedings against the foreign founder must be notified by the fióktelep to the registration court within eight days and published in the Cégközlöny (§ 19(1) Fkt.).

7. Direct taxes: permanent establishment and the double-taxation treaty

The branch constitutes a permanent establishment of the foreign person in both states. The Income Tax Act lists a branch expressly among examples of a permanent establishment (§ 16(2) ZDP). Hungary taxes a foreign undertaking with a fióktelep as a külföldi vállalkozó with limited tax liability (§ 2(4)(a) and § 3(2) of Act No LXXXI/1996).

The allocation of taxing rights is determined by the treaty between the Slovak Republic and the Republic of Hungary for the avoidance of double taxation (Notification No 80/1996 Coll., the "ZZDZ"). A branch's profit is subject to tax in the state of its activity and is determined as if it were an independent enterprise (Art. 7(1) and (2) ZZDZ); § 17(7) ZDP contains the same principle.

The method of avoiding double taxation in the founder's state of residence differs:

• Slovakia – credit method: the profit of the Hungarian fióktelep is included in the Slovak company's tax base and the Hungarian tax is credited up to the proportionate part of the Slovak tax (Art. 23(1) ZZDZ).
• Hungary – exemption method: the profit of the Slovak branch of a Hungarian company is exempt from tax (Art. 23(2)(a) ZZDZ).

Income-tax registration in Slovakia usually takes place automatically on the basis of data taken from the commercial register (§ 49a(1) ZDP). In Hungary, the fióktelep's tax number (adószám) is entered in the cégjegyzék (§ 24(1)(i) Ctv.).

8. Value added tax in Slovakia

A foreign person that has exclusively a fixed establishment in the territory becomes a VAT payer upon the first taxable supply, regardless of turnover, except for a foreign person's small enterprise under § 68f(2) ZDPH (§ 4(1)(i) ZDPH). The registration application must be filed within five working days (§ 4(2)(d) ZDPH).

The law does not expressly regulate whether the establishment's participation in the particular supply is a condition. Moreover, the concept of a fixed establishment under the VAT Act does not coincide with the concept of a permanent establishment under the Income Tax Act. Before the first invoicing we therefore recommend assessment by a tax adviser. Hungarian VAT is outside the scope of this article.

9. Accounting

A foreign legal person doing business in Slovakia is a separate accounting entity (§ 1(1)(a) point 2 and (2) of the Accounting Act) and keeps double-entry accounting (§ 9(1) of the Accounting Act). The rules of the Hungarian accounting act for entrepreneurs apply mutatis mutandis to the fióktelep (§ 7/A of Act No C/2000); assets permanently provided by the founder are reported as the fióktelep's jegyzett tőke (registered capital) (§ 35(6) of Act No C/2000).

10. Conclusion

The branch and the fióktelep are functionally comparable institutions that allow market entry without incorporating a subsidiary, but without separating the founder's asset liability. The key differences lie in the fióktelep's standing in proceedings, the mandatory legal representation and more formalized dissolution in Hungary, and the asymmetry of the double-taxation methods. When structuring cross-border business we particularly recommend:

• in proceedings before a Slovak court, designate the foreign legal person as the party, not the branch,
• secure Hungarian legal representation for the fióktelep's registration proceedings,
• ensure the founder's financial statements are filed in the register in both states,
• for a Slovak s. r. o. with a Hungarian fióktelep, reckon with a possible tax top-up in Slovakia,
• assess whether a VAT registration obligation arises in Slovakia before the first taxable supply.