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Legal reserve fund

A company, based on Slovak commercial law, is obliged to create a legal reserve fund. The rules for creation of legal reserve fund are different for Limited Liability Companies and for Join stock companies.

Limited Liability Company The company has to create a legal reserve fund based on the articles of incorporation of the company. If the company does not create a legal reserve fund upon incorporation (not mandatory upon incorporation), it has the obligation to create a legal reserve fund amounting to 5% of the annual profit. Such creation has to be performed annually until the legal reserve fund reaches 10% of the share capital. However the statutes of the company may, require further additions to the legal fund.

Join stock company The company has to create a legal reserve fund in the amount equal to 10% of the share capital (mandatory upon incorporation). Additionally, this fund has to be created annually in the amount equal to 10% of the annual profit until the legal reserve fund reaches 20% of the share capital. However the statutes of the company may require further additions to the legal fund.

The legal reserve fund is not distributable to shareholders by way of dividends. As for other business forms, the legal reserve fund exists solely to cover possible future losses.

Preparation and submission of individual financial statements

Financial statements must contain the balance sheet, income statement and notes to the financial statements (including the statement of changes in equity and cash flow statement). The balance sheet and income statement, which accompany the tax return, must be prepared on special forms, and the notes must contain information as specified by the Ministry of Finance.

All companies meeting any two of three size criteria for two consecutive accounting periods (whose total assets and/or turnover exceed EUR 166 million and/or whose average number of employees exceeds 2,000), all banks, insurance companies and certain other companies have to prepare individual financial statements in accordance with EU-IFRS. Additionally, certain companies, such as listed companies and security traders can select to prepare individual financial statements in accordance with EU-IFRS. There are two ways of determining the statutory tax base from IFRS financial statements

based on the method designed by the Ministry of Finance stated in the decree of the Ministry of Finance; or based on the profit/loss reported according to the Slovak accounting regulations (to use this method the company is obliged to keep records also according to the Slovak accounting regulations).

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©2010 KPMG Slovensko spol. s r.o. , a Slovak limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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