Legal information on Social Entrepreneurship ... in Hungary

Social enterprises in Hungary emerged the last 10 years in Hungary. Social enterprises exist in the nongovernmental sector as foundations, non-profit companies, social cooperatives, cooperatives.
In Hungary there is no universal definition of social enterprise.

Social cooperatives

In the last 5-6 years, social cooperatives started to operate in Hungary, as a result of the support provided by the National Employment Non–profit Public Company (OFA). Social cooperatives offer their underprivileged members employment and other solutions improving their social conditions.

There are two acts regulating the establishment of social co-operatives as organizational form: Law X./2006 and the government regulation about social co-operatives 141/2006 ( VI.29).

In Hungary the national law and other related regulations (law on accounting, law on taxation, etc.) considers the basic type of social cooperatives to be for-profit enterprise.

The Hungarian by-law (141/2006. VI. 29.) on social cooperatives considers employment generating coops as an important policy tool in the direction of activating wide strata of undereducated people in deprived areas. Social coops cannot have investor members, only contributing members in person. As opposed to mainstream coops, they are acknowledged as having community-interest status entitling them to tax-deductible donations. There are many social coops in the country, but they could not in a single case reach a sustainable business model. Thus, the current legislation and practice can be deemed as worthy for starting them as competence incubators, but unsatisfactory to pushing them over the threshold of an institutional status.

The social cooperative's aim is to find employment for its members. Employment can also include work serving public interest. Unemployed persons and students can be members, as long as they personally contribute to the cooperative's activities and comply with conditions contained in various employment-related laws.

Cooperatives (general)

Art. 12 of the Hungarian Constitution makes explicit mention of cooperatives: ―The state supports cooperatives based on voluntary association.

The Hungarian Act (2006. LXIX) on the European Cooperative is the strict translation of the EU Regulation (Council Regulation No 1435/2003 on the Statute for a European Cooperative Society) without alteration or adaptation.

Bylaw (124/2006. V.19.) on the disbursement from the cooperative's mutual fund. This
bylaw allows to the tune of 6,5 percent to put profits tax-free into the distinguished sort of reserve fund. Together with the very limited tax sheltered status of members‟ loans
these two features are currently the only tax advantages coops are offered in this country.

Relevant Laws regulating Social Economy in Hungary

  • Act IV of 2006 on Business Associations.
  • Act IV of 1959 on the Civil Code of the Republic of Hungary.
  • Act CLXXV of 2011 on Association rights, non-profit status, as well as operation and support of civil society organisations.
  • Act CLXXXI of 2011 on NGOs' legal registration and the related procedures.
  • Act III of 1993 on social administration and social services.
  • Governmental regulation no. 112 of 2006 on authorization and supporting of the social employment.
  • Ministerial Decree no. 3 of 2006 on professional requirements as well as personal and material conditions for the employment within social institution furthermore professional tasks and operational conditions of the social institutions.
  • Act LXXXI of 1996 on corporate tax and dividend.
  • Act C of 2000 on accounting.
  • Act CXVII of 1995 on Personal Income Tax.
  • Governmental regulation no. 177 of 2005 on state aids for the employment of peoples with disabilities.
  • Governmental regulation no. 176 of 2005 on accreditation of the employer for employment of peoples with disabilities furthermore on control of the accredited employers.
  • Act CLVI of 2011 on legislative amendments in tax laws and all related other laws (START, START EXRA, START BONUS).
  • Act IV of 1991 on promoting the employment and unemployment benefits.