ARTICLE
17 November 1997

Retained Earnings

K
KPMG

Contributor

Poland Accounting and Audit
The Ministry of Finance has formulated a more unified approach to the question of retained earnings.

Essentially, where a limited liability company (Sp. z o.o.) passes a legally effective share-holders' resolution (i.e. such a possibility is clearly entered in the Company's Articles of Association), it is possible for the Company to retain its profits rather than paying them out to the shareholders as dividends.

In the Ministry's opinion, the tax consequences of this are as follows:

i) no corporate tax liability;

ii) no withholding tax on the value of retained dividends for the shareholders.

It must be understood that this applies only where there is a clear provision for this in the Company's Notarial Deed.

It should be noted that where earnings have been retained without any legal basis, the Supreme Administrative Court and the Ministry of Finance do not agree on the tax consequences. The NSA has concluded that the profits due for distribution, even though they are retained, are liable to 20% withholding tax. The Ministry of Finance recognises their liability to the withholding tax at the moment they are paid to the shareholders.

Tax laws and practise are constantly being revised and, whilst every effort is made to ensure that the information in this tax newsletter is accurate and timely, no decision should be taken on the basis of the information herein without first consulting with KPMG Polska.

Should you have any questions in relation to the above issues, please contact:

Oliver Sinton
KPMG Polska
LIM Center - Marriott Hotel - IX floor
Al. Jerozolimskie 65/79
00-697 Warsaw, Poland
Tel: +48 (22) 630 7236
Fax: +48 (22) 630 6355

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