Companies that adopt the calendar year for their financial year have recently fulfilled their tax return and reporting obligations for the previous financial year. The owners have learned about the company’s equity and the results of its operations for the entire year, and with this information, they can even decide to terminate their activities. We would like to provide them with a practical guide. Since the voluntary liquidation procedure is not a routine task from either an accounting or a tax perspective, it requires serious consideration.

In what cases can companies decide to initiate a voluntary liquidation?

The voluntary liquidation procedure can be initiated for several reasons, provided that the company is not insolvent. Typically, changed market conditions, cost optimisation in the case of companies with an international background, or changes in legislation prompt owners to terminate their companies through voluntary liquidation.

Voluntary liquidation cannot be decided, and voluntary liquidation that has already begun cannot be completed if the court, prosecutor’s office, or investigating authority conducting criminal proceedings notifies the company or the commercial court that criminal proceedings may be brought against the company.

Voluntary liquidation in Hungary is one of the possible forms of termination without a legal successor, the accounting tasks of which are set out in Hungarian Government Decree 72/2006. (IV. 3.), but in matters not regulated by the government decree, the provisions of the Hungarian Act on Accounting shall continue to apply.

Planning the voluntary liquidation

During the voluntary liquidation procedure, the company will have several tax and accounting obligations that differ in terms of timing and content from those fulfilled during standard operations. It is advisable to consider these before deciding on voluntary liquidation and to plan the tasks and obligations to be performed.

8 aspects to consider before deciding on voluntary liquidation

1. One of the most important questions is whether the owner wishes to terminate the company through standard voluntary liquidation or so-called simplified voluntary liquidation. The latter option is available to companies that are not subject to an audit and can complete the voluntary liquidation within 150 days.

2. The resolution must specify the start date of the voluntary liquidation and, in the case of standard voluntary liquidation, the liquidator. From the start date of the voluntary liquidation, the managing director’s mandate ceases and from then on, the liquidator represents the company.

3. In the case of simplified voluntary liquidation, it is not necessary to appoint a liquidator, as the senior executive of the company performs this role.

4. It is advisable to set the start date of the voluntary liquidation as the first day of the financial year, so that the company does not have to prepare an additional accounting close due to the start of the voluntary liquidation, and the financial statements can be the financial statements ending the activity as well. If the start date of the voluntary liquidation is not the first day of the usual financial year, the financial year of the voluntary liquidation is 12 calendar months from the start date of the voluntary liquidation.

5. Simplified voluntary liquidation may involve less and faster administration and, in some cases, even lower costs, as it is not necessary to have a lawyer prepare the legal documents to be submitted to the Hungarian Court of Registration.

6. Before starting the voluntary liquidation procedure, it is advisable to review the company’s books in detail. The composition of assets and liabilities and the amount of outstanding receivables and liabilities must be examined. This is necessary because during voluntary liquidation, the company must settle all receivables and liabilities it has towards third parties.

7. During voluntary liquidation, it is advisable to submit a request for a reduction in tax advances payable to the Hungarian tax authority and local authorities if, based on calculations, the planned tax will be less than the tax advances payable. This will also reduce the amount of any subsequent overpayment.

8. If the voluntary liquidation is also subject to an audit obligation, it is advisable to consult with the auditor before starting the procedure in order to comply with the deadlines.

Stages of the voluntary liquidation procedure

1. Commencement of voluntary liquidation

Within 30 days of the start of the procedure, the company must prepare a final financial statement with the day preceding the start of the procedure as the balance sheet date, which must also be audited in the case of a company subject to audit. In addition, the preparation and approval of the resolution accepting the financial statement must also be planned within the 30-day deadline.

In addition to the financial statement, the liquidator is also responsible for preparing the final tax returns (VAT, corporate tax, contributions, and local business tax) and data reporting:

• notification to the local authority within 15 days of the start date of the voluntary liquidation,
• in the case of simplified voluntary liquidation, notification to the Hungarian tax authority using form T201T, which must also be completed within 15 days. (In the case of standard voluntary liquidation, lawyers fulfill this notification obligation to the Hungarian Court of Registration.)

2. Tasks to be performed during the voluntary liquidation period

Creditors may submit their lender demands within 40 days of the announcement of the commencement of voluntary liquidation, which the liquidator shall record in a register and forward to the Hungarian Court of Registration. If there is a discrepancy between the receivables reported and the values shown in the company’s books, the liquidator must prepare a corrected opening balance sheet for the voluntary liquidation as of the start date.

Tasks of the liquidator

• termination of the company’s activities
• collecting receivables
• satisfying creditor claims
• terminating existing contracts
• terminating employment contacts
• ensuring the preservation of tax and accounting documents and records for the period prescribed by law, including for the period following the voluntary liquidation
• selling assets, if necessary
• distribution of remaining assets among the owners

This period lasts from the start date of the voluntary liquidation until its completion, during which time the company must comply with the tax and contribution returns that are customary in the standard course of business.

3. Completion of the voluntary liquidation procedure

Standard voluntary liquidation may take up to three years. During this period, the company must complete standard year-end closings for each financial year. (In the case of simplified voluntary liquidation, this may take up to 150 days.) If standard voluntary liquidation is not completed within three years, involuntary deregistration will be conducted.

A decision by the owner is sufficient to complete the voluntary liquidation; no separate members’ resolution is required.

The company is subject to a reporting obligation also towards the local authority, which must be fulfilled within 15 days of the closing date of the voluntary liquidation.

Upon completion of the voluntary liquidation procedure, the liquidator is required to ensure that the following documents are prepared:

• final tax returns
• financial statement concluding the voluntary liquidation
• proposal for the distribution of remaining assets
• resolution of the members’ meeting

In the case of standard voluntary liquidation, the above documents must be submitted simultaneously within 60 days of the closing date of the voluntary liquidation.

Companies opting for simplified voluntary liquidation have a total of 150 days to complete the voluntary liquidation and submit the above documents, which must be prepared based on predefined document templates. These are available on the website of the Hungarian government website (available in Hungarian).

Tax authority must also be involved

In the case of simplified voluntary liquidation, an additional task is to provide the tax office with information on the closing date of the voluntary liquidation on the T201T form. If the simplified voluntary liquidation is completed with the decision to continue the company’s operations, this must also be reported on this form.

If the company is unable to complete the simplified voluntary liquidation within 150 days, it must switch to standard voluntary liquidation under the general rules.

During the voluntary liquidation procedure, it is important to complete all tax returns and data reporting by the deadline, as failure to do so may result in the Hungarian tax authority imposing a penalty on the liquidator.

After the above obligations have been fulfilled, the Hungarian tax authority has the option of initiating a retrospective tax audit. The company can only be dissolved if the tax authority issues a certificate to the Hungarian Court of Registration stating that it has no debts or open tax cases. The Hungarian tax authority has a maximum of 90 days to issue this certificate in the case of standard voluntary liquidation and 30 days in the case of simplified voluntary liquidation.

After the certificate has been issued, the company registry court will delete the company from the company register. After deregistration, the company’s bank accounts can be closed and, at the same time, the assets specified in the asset distribution proposal can be paid out to the owners.

Voluntary liquidation is the closure of a company’s activities without a legal successor, which involves complex accounting and tax tasks. The owners can choose between a standard or simplified procedure, taking into account obligations, deadlines and costs. The voluntary liquidation procedure requires planning, precision, and adherence to deadlines, so it is definitely worth involving an expert. The accounting professionals at WTS Klient Hungary are at your disposal!

This article provides general information and does not constitute advice.