Legal aspects of changing to accounting in a foreign currency

Changing to accounting in a foreign currency is an excellent opportunity for companies to eliminate the majority of problems stemming from exchange-rate fluctuations. However, changing to accounting in a foreign currency requires careful preparation; we have to take the legal conditions into account, especially deadlines and the obligation to report to the Court of Registration.

Legislative background for changing to accounting in a foreign currency

The rules on changing to accounting in a foreign currency are primarily contained in Act C of 2000 on Accounting (accounting rules for switching currencies), Act V of 2006 on Public Company Information, Company Registration and Winding-up Proceedings (provisions pertaining to the registration of changes and the amendment of articles of association) and Act V of 2013 on the Hungarian Civil Code.

What is important from the aspect of company law?

Changing to accounting in a foreign currency is subject to two fundamental technical conditions. Firstly, the foreign-currency transition must be recorded in the accounting policies prior to the first day of the financial year, and secondly, the selected foreign currency also has to be indicated in the articles of association.

The resolution on the transition together with other relevant company documentation (first and foremost, the articles of association containing the amount of registered capital and the member contributions expressed in the foreign currency) are prepared by the company’s legal representative, and these documents along with the change request must be submitted to the competent Court of Registration within 30 days of the change (transition) taking effect.

The cut-off date for the foreign-currency transition, which should also designate the exchange rate for registered capital, can be defined in advance. So clearly, we can also set a date for which the daily currency exchange rates are not yet known. In such cases, the resolution must be worded in such a way that enables the legal representative to include, in the articles of association, the specific foreign-currency amount of the registered capital converted using the exchange rate published after the adoption of the resolution.

The resolution does not have to record a specific exchange rate, it only has to stipulate the date of the foreign currency transition, and the applicable exchange rate of the National Bank of Hungary will then be used by the company accordingly.

The resolution must call upon

  • the managing director to arrange the amendment of the company’s register of members, and its filing at the court of registration based on the registered capital and capital contributions – converted using the now known exchange rate – as listed in the consolidated articles of association.
In addition to preparing company documents, what else can we do from a legal perspective?

When changing to accounting in a foreign currency, first of all it is recommended to review contracts in terms of the currencies typically used in them. Furthermore, it must be considered how existing forint-denominated contracts can be amended, and how flexible business partners will be in that respect. For this very reason, it is advisable to discuss contract amendments with business partners in advance, and to prepare and draft related documents with the help of a lawyer if possible. As for new contracts, we need to ensure that the selected currency is defined for financial performance, while it is recommended to revise contract templates from this point of view as well.

Risks associated with failure to file special financial statements

Changing to a foreign currency is subject to compiling special financial statements, which must be filed electronically with the company information service by the end of the fifth month following the transition. If the company fails to meet this obligation it can expect a heavy penalty (up to HUF 500,000 – approx. EUR 1,600 – and if a repeated reminder is necessary, up to HUF 1 million – approx. EUR 3,200); in fact, if the repeated reminder is also unsuccessful, tax authorities can cancel the tax number of the company and initiate its deletion from the records at the Court of Registration (except if the company is under a forced deletion procedure). One relatively new rule is that if the company files and publishes the financial statements by the time the resolution on cancelling the tax number is issued, then the issuing of the resolution ordering the cancellation of the tax number no longer has any legal grounds. If the taxpayer makes good on its obligation after the resolution ordering the cancellation of the tax number is issued, but before it takes effect, or if the NAV becomes aware that the taxpayer has done so after the resolution is issued, then the resolution is revoked.

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