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Hungarian law: Changes in the conditions of registered seat services

Decree no. 7/2017 (VI.1.) of the Hungarian Minister of Justice on registered seat services (the „Decree”) entered into effect on 1 July 2017 and was amended on 19 July 2017 by Decree no. 9/2017 (VII.18.), imposing new challenges for most registered seat service providers in Hungary. The new Decree prescribes that – beyond the exceptions entering into effect with the amendment from 19 July – only such real estate can be the subject of the contract, namely can serve as the registered seat of the company availing itself of the registered seat service, which is exclusively owned by the mandatory registered seat service provider or in respect of which the right of use of the mandatory had been registered in the land registry. Thus, those recognised, internationally operating registered seat service provider companies, whose shares in certain cases are listed in the stock exchange, who also provide similar services abroad and who rent office buildings for registered seat services, cannot fulfil the new legal requirements with “only” their lease relationship. Furthermore, the right of use determined by the Decree that is registered in the land registry cannot be a solution, because in line with the provisions of the Hungarian Civil Code such right of use cannot be transferred and the exercise of this right may not be assigned to others, so even the characteristics of the right of use would be a barrier to provision of registered seat services. The amendment that has entered into effect on 19 July 2017 slightly “eases” the above, mostly unrealisable conditions: if the mandatory registered seat service provider cannot fulfil the conditions set forth in Article 1 paragraph (4) of the Decree, it can only provide registered seat services, if the owner of the real estate has given its prior written consent to the registered seat service and any of the following conditions is fulfilled: a) the parties are affiliated companies in line with the Act on Accounting or undertakings with major participating interest or other companies linked by virtue of participating interest; or b) the mandatory is registered in the companies registry among the company’s data as the company’s delivery agent; or c) beyond the registered seat service a permanent accounting mandate relationship also exists between the parties. Registered seat services fulfil real market demands and are well known in every country having a developed enterprise culture. Those enterprises – mostly having foreign ownership interest and ownership structure – make themselves avail of registered seat services, which do not necessarily need physical office to operate in Hungary. In the past years several such amendments and new legal provisions were passed that made more difficult or regarding certain parties expressly prohibited the provision in Hungary of registered seat services. As from the 1 March 2012, law offices were excluded from the sphere of registered seat service providers; and from January 2017 the provisions of the Act on the Rules of Taxation have also changed: making avail oneself of registered seat services shall be burdened by an obligation to notify the Tax Authority. In addition, the taxpayer might be considered as a “risky taxpayer” if it was imposed by a default fine because of hindering the tax administration proceeding by using registered seat services (and this decision became final and binding) in the subject year or in the preceding three years. However, as from July 2017 registered seat service providers have to meet even more rigorous requirements and this might make the professional operation of registered seat services in Hungary impossible. Whilst the new Decree introduces several new provisions in respect of the operation of registered seat service providers (e.g. prescribes obligatory written contract form, restricts definite term contracts only for the companies founded for a definite period of time, contains regulations for file management and the takeover of consignments and the notification of the principal, etc.), it also bounds the provision of registered seat services to the above serious, in certain cases unfulfillable legal conditions. Any legal relationship existing at the time of the entry into effect of the Decree must be amended in line with the conditions prescribed by the Decree at latest by 30 June 2018 (should the contract not be terminated by that date), and if no written contract has been concluded, then the contract shall be laid down in writing by this date. [This article does not constitute legal advice of any kind; it was made solely for information purposes.] Budapest, 19 July 2017 ___________________________________________________________________ For more information, contact: dr. Réka KATONA , LL.M. Ügyvéd, európai és nemzetközi üzleti mesterjogász Attorney-at-law, European and International Business Lawyer Squarra & Partners Ügyvédi Iroda / Law Office H-1016 Budapest, Avar u. 8. t: +36 1 474 2080 f: +36 1 474 2081 e: katona@squarra.hu www.squarra.hu

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