Ease of Doing Business Index Analysis: Hungary or Ukraine?

Hungary is a CEE country with comparatively small number of population (less than 10 million), whilst Ukraine has over 48 million people. However, the economy of the country is growing and showing huge potential for foreign businesses. Earlier we have provided a comparative analysis of Hungarian and Ukrainian IT outsourcing sectors, yet, today we are talking about general conditions for doing business in Hungary, both local and international.

Ease of Doing Business Index

Currently Hungary occupies the 42nd place in the World Bank global ranking for Doing Business Index. To show success in the given rating, a country has to show interest and intensive implementation of the required reforms helping to promote the business environment and state of the economy. One of the main features to be improved in Hungary was related to changes in labor legislation, e.g. local government adopted the law that set up the limits for working hours for retail shops.

The first step for starting a business in Hungary is hiring a lawyer, i.e. legal representative for a company; deed for establishing of a company and other documentary proving the company’s foundation. The average payment for a lawyer’s services may amount up to $1,000, yet, the involvement of notaries, attorneys, and other specialists may be optional for startups in case entrepreneurs prefer to go through the whole registering procedures by themselves. However, arranging all the necessary documents cannot be implemented without the legal representative, therefore, the presence of the specialist at a certain point of business establishment is a must. All in all, registering a business in Hungary will take 5 days, whilst in Ukraine, the time span amounts to 20 days.

Dealing with construction permit, getting electricity supply and registering property are other constituents of Doing Business Index. Owing to strict legislation and number of red tape procedures to get:

  • construction permit takes 179 days
  • electricity supply – 252 days
  • register the property – 16-17 days

Although the overall amount of procedures equals to 32 within 448 days. In Ukraine, the total number is 15 within 300 days. Therefore, Ukraine allows arranging construction issues within the shorter time span. Yet, our country has a worse reputation in terms of doing business attractiveness due to a high level of corrupted officials. Lack of sufficient reforms on fighting corruption significantly reduces the possibility of foreign businesses and investments entering the Ukrainian market.

Paying taxes. Personal Income Tax in Hungary amounts to 16%, Personal Social contributions – 18,5%. Employer’s Social Tax equals to 28,5%. For foreign subsidiaries getting at least 50% of their revenues in Hungary the taxes are up to 10% from their annual profit. Trading across borders. Exported goods and services pay no VAT. Yet, imported ones are subject to taxation depending on the type of a product.

Getting credit, protecting minority investors, and resolving insolvency. Credit bureaus and banks in Hungary provide business crediting and protect minor investors to the country on the highest level. According to the World Bank estimations, these indices are amidst the highest in Europe. As to the legal claims, the procedures usually last up to two years and may cost 15% from the company’s estate value.

Main legislative requirements

Hungarian legislation base is following the main EU requirements, and in terms of working schedule and rest, off-days is somehow similar to the Ukrainian:

  • Fixed-term contracts aren’t prohibited for permanent jobs
  • Fixed-term contracts shouldn’t last more than 60 months
  • Minimum monthly wages - $450
  • Incentives provided for employing
  • Max working week – 5 days
  • 15% of an hourly pay over the salary for night shifts, 50% premium for working weekly rest day
  • Overtime work payment – 50%+ to the salary from an hourly rate
  • Hungarian legislation envisages restrictions on night works but no restrictions on overtime work
  • 21,3 working days of the paid annual leave
  • Maximum probationary period – 3 months
  • Dismissals due to redundancy are allowed by the law

Hungary vs. Ukraine

One of the main differences between Hungary and Ukraine lies behind the mentality: corruption level in Ukraine is too high and scares potential investor away. Comparing the IT outsourcing markets the difference is noticeable – 105K in Ukraine and 150K in Hungary, though the population of Ukraine is way higher. If we consider IT outsourcing sectors, both Ukraine and Hungary are more software development-oriented not BPO.

As to the total registration period, in Ukraine it’s longer if you consider establishing a business from scratch (20 days), yet in Hungary obtaining all the permits for building, etc. overruns Ukrainian by over 3 months.

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