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Policies governing the operation of businesses in Hungary

Balogh Eszter — Tue, 05 Oct 2021 09:39:10 +0000

Having a multitude of policies is an integral part of the life of every business, along with constantly revising them and preparing new ones. The first of these policies, although it has a different name, is the articles of association. When founding a company, the owners lay down the basic rules defining the operation of the company in the articles of association: among other things, the tasks and powers of the main body of the business (members’ meeting, general meeting), the head of the business (managing directors, directors) and the supervisory board (if any).

The business may start working based on the articles of association, but the definition of the necessary rules and policies does not end here. Beyond the requirements relevant for all businesses, compiling additional policies is also mandatory in Hungary depending on the activity of the business.

General characteristics of policies

What all policies have in common is:

they have to be prepared or you have to have them prepared by an appropriate professional, by the deadlines specified in law, with the content defined by laws and regulations but taking account of the specific features of the business,
the appropriate executive body of the business has to approve them and put them into effect,
their content and requirements have to be made known to the persons concerned, namely, the employees to whom they apply,
the rules prescribed in them have to be applied,
it is best to check policy compliance, and in many cases, even an external party (auditor) or a state authority also checks them regularly,
in the event of any changes in the law or in the life of the business, the relevant change has to be incorporated in the policies.

Most important policies

All Hungarian businesses have to prepare their accounting policies which form the basis of the company’s bookkeeping, reporting, accounting settlements and valuations.

As for taxation, pricing principles and methods related to intragroup transactions should be determined in a transfer pricing policy, which can be the basis for the company’s transfer pricing documentation.

When managing the personal data of private individuals, be they employees or clients, or when using websites, newsletters, webstores or cameras, the business may need a data protection and processing policy prepared based on the GDPR. This policy contains the requirements of data protection and data processing, the sample communication to be provided to private individuals, and a sample of the consent of private individuals to data processing.

Employers must ensure safe working conditions for employees that are not hazardous to human health. The necessary requirements are included in the health and safety and fire safety policy of the business which define the rules of conduct for work, the health and safety procedures as well as any measures to take in the case of accidents or fire at the workplace.

If the employer provides fringe benefits (local public transport passes, SZÉP cards etc.) for its employees, a fringe benefit policy also has to be prepared in Hungary. In this policy, the employer defines who is entitled to fringe benefits, the types of benefit the employee can choose from, the allowance available for the employees and the forms and invoices, etc. needed to claim the benefits.

The policy for temporary foreign and domestic postings provides for the process of approving work-related travel, accountable costs arising during the travel, and daily allowances.

If the business provides a company car for an employee, its company car policy will record the conditions for the private and business use of the company car along with the accountable costs and any reimbursements payable.

Other policies

In addition to the above, of course, there may be other policies related to the operations of the business, either recommended or mandatory, required by law (codes of ethics, policies related to quality management systems such as ISO, HACCP), and it is worth gathering information about these when planning the activities of the business.

It can make life easier for all businesses if they have a complex business adviser to help them find their way among the multitude of policies required. The accounting, legal, tax and payroll specialists at WTS Klient Hungary have significant knowledge and experience in their respective fields, and in constant consultation with each other, they are ready to assist you in preparing any of the policies summarised in this article.

Accounting aspects during transition of accounting to a foreign currency

Szeles Szabolcs — Mon, 19 Jun 2017 11:00:09 +0000

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As we highlighted when discussing the strategic aspects of a transition of accounting to a foreign currency, there are a number of issues to consider before a company decides to change the currency used for bookkeeping purposes.

If the needs of the owners and management dovetail with the opportunities provided by law, and the decision is made in principle to change the bookkeeping currency to a foreign currency, several key accounting issues should be considered thoroughly before starting the transition.

When can the transition of accounting to a foreign currency be made?

Act C of 2000 on Accounting permits any business entity to prepare their annual financial statements in USD or in EUR if they record such a decision in their accounting policies prior to the first day of the financial year, and specify the US dollar or the euro as the currency according to their articles of association. It is important to note that the earliest this decision can be changed is for the 5th financial year after the decision is made.

According to the Accounting Act, changing to a foreign currency is only possible on the balance sheet date of the financial year. The company has to prepare regular annual financial statements as of the balance sheet date for the transition in the currency used before the transition, then a separate opening balance sheet needs to be prepared as of the transition date in the currency specified in the articles of association.

When should we start preparing for the transition?

Given that entities can only change the bookkeeping currency on the balance sheet date of the financial year, the decision in principal has to be made at least 3-4 months beforehand because the actual preparations have to start several months in advance to have time for assessing the suitability of the ERP system and for the necessary IT developments.

Is our ERP system suitable for the transition or are further IT developments required?

In many cases, a transition of accounting to a foreign currency means a change of ERP system because the current one is not fit for purpose, and this only extends the preparation time even more. If the transition to a foreign currency is made using existing software, the system needs to be able to handle the following new scenarios:

Liabilities to employees and tax payment liabilities will occur in a foreign currency after the transition, and so the system needs to be able to account their realised and unrealised exchange rate differences. Our experience shows that the biggest challenge for companies changing to accounting in a foreign currency is accounting value added tax as well as the exchange rate differences of financial settlements and year-end

Data is converted during the data migration, but before this happens, the data for conversion is normally reviewed since the whole conversion process can falter if invoices are not converted in an optimal manner.

What are the accounting tasks?

Since one of the transition requirements is updating accounting policies, it is best to start the preparations with this. First, the transition of accounting to a foreign currency needs to be stated in the accounting policies.

Then, the HUF thresholds in the accounting policies need to be converted. The thresholds defined in HUF according to certain provisions of the Accounting Act need to be managed based on the currency exchange rate defined by the National Bank of Hungary (MNB) for the given date.

Preparing and auditing an opening balance sheet in the foreign currency

Based on the financial statements prepared for the balance sheet date, an opening balance sheet must be compiled in the currency defined in the certificate of incorporation. This entails the following valuation tasks:

The company decides on the exchange rate for registered capital, and indicates the new amount of registered capital defined in the foreign currency in the new articles of association.

All other balance sheet items shall be revalued using the MNB exchange rate.

Receivables, liquid assets and liabilities denominated in a foreign currency need to be reported at their original FX amount; the aggregate translation difference must be accounted against retained earnings in the case of a loss, and against the capital reserve in the case of a profit.

The opening balance sheet in the foreign currency must be compiled within 5 months, and filed together with the financial statements certified by an auditor. The books need to be opened in the foreign currency based on the opening balance sheet on the date following the transition.

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Strategic aspects of accounting in a foreign currency

Legal aspects of changing to accounting in a foreign currency

Tax implications of changing to a foreign currency

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