Latvia vs Hungary: Which Country for Your Company

Updated 2026 · Written by the Société Lettonie team, Riga

Latvia vs Hungary, company formation comparison

Hungary advertises a 9% corporate tax rate, the lowest nominal rate in the entire European Union. A striking figure that built its reputation. But for an entrepreneur forming a Latvian SIA intending to reinvest, the comparison depends entirely on what you do with your profits each year.

9% flat vs 0%/20% deferred: again, a matter of strategy

Hungary's 9% applies every year on profit, whether distributed or kept in the company. It's a fixed, simple, predictable rate. Latvia's 0% only concerns reinvested profits: as soon as you reinvest a significant share of your profits to grow your business, Latvia becomes structurally more advantageous despite a nominal 20% rate on distribution.

Conversely, if you distribute nearly all your profits every year with no reinvestment, Hungary's 9% (plus a local turnover tax, HIPA, up to 2%) can come out cheaper than Latvia's 20% on distribution.

The numbers-based comparison, point by point

Criteria	Latvia (SIA)	Hungary (Kft)
CIT	0% reinvested / 20% distributed	9% flat (+ local HIPA tax up to 2%)
Minimum capital	€1 / €2,800	~€7,500 (3,000,000 HUF)
VAT	21%	27% (highest in the EU)
Formation time	2 to 5 days	1 to 2 weeks
EU / Eurozone / Schengen	Yes / Yes / Yes	Yes / No (HUF) / Yes
OECD member	Yes	Yes
Typical annual costs	€1,500 – 3,000	€1,500 – 3,500

Verdict

Hungary is more interesting if you systematically distribute everything every year. Latvia remains better if you reinvest part of your profits, and avoids the pitfall of a 27% VAT for any local B2C activity.

Advantages of Latvia and Hungary

Advantages of Latvia

0% tax as long as profits stay in the company
Lower VAT (21% vs 27%)
Eurozone, no currency risk
Much more developed international support ecosystem

Advantages of Hungary

Lowest nominal CIT rate in the European Union
Fixed rate, simple to anticipate with no deferral mechanism
Moderate minimum capital
Well-established industrial and logistics economy in Central Europe

Who Latvia is the best choice for

If you reinvest a significant part of your profits to grow your business, or if you want to avoid the currency risk tied to the Hungarian forint by staying in the eurozone, Latvia wins clearly thanks to its deferred-taxation mechanism.

Who Hungary may suit better

Hungary becomes relevant if your business model involves distributing nearly all your profits every year, with no need for reinvestment, and your activity isn't local B2C-oriented (where the 27% VAT weighs on price competitiveness).

"9% is a nice number, but a flat rate paid every year on the entire profit isn't always more advantageous than a 0% that only applies to what you distribute. It all depends on your cash-flow strategy."

Frequently asked questions

Yes, 9% flat is the lowest nominal rate in the European Union. But it applies from the very first euro of profit, unlike Latvia's 0% which only concerns reinvested profits.

Because if you reinvest a significant share of your profits, Latvia's 0% becomes more advantageous than Hungary's 9% paid every year on the total profit. Hungary is only interesting if you systematically distribute everything.

It can be: at 27%, it's the highest VAT rate in the European Union, versus 21% in Latvia. For a local B2C activity in Hungary, this weighs on price competitiveness.

Yes, in addition to the 9% CIT, a local tax (HIPA) of up to 2% of turnover applies depending on the municipality, which brings the real effective rate closer to the headline 9%.