How can we help You?
- Checking whether a family foundation is a good solution for a given entrepreneu
- Preparation of a calculation of the effective tax rate of a business structure with a Polish family foundation
- Planning the process of establishing a family foundation and integrating it into the company structure
- Carry out necessary/recommended business changes/transformations prior to the establishment of the foundation in Poland
- Preparation of incorporation documents, including the foundation's statutes
- Registration of the family foundation and assistance with the contribution of assets to the foundation
- Ongoing legal and tax services for the Polish family foundation
Do you have questions? Contact us
First meeting at no cost
Robert Wienskowski
Tax advisor
robert.wienskowski@gws.net.pl
tel.+48 605 216 150
Galia Ginelli
Legal adviser
galia.ginelli@gws.net.pl
tel.+48 502 330 105
Piotr Sobczak
Tax advisor
Polish family foundation - frequently asked questions
What are the key benefits of having a family foundation?
- Tax-free reinvestment of income possible
Any income of the Family Foundation from so-called permitted activities is tax-free and can be reinvested in full. The income from such reinvestment will continue to be tax-free.
- Favourable taxation of distributions and other benefits for funders and beneficiaries
Only distributions intended for the consumption of the owners are taxed. The total taxation of the income can be as low as 13.04% (estate gain) or 20.87% (company gain).
- Protection of assets from execution
The founder’s debts incurred after the establishment of the foundation cannot be enforced against the foundation’s assets (with minor exceptions). This also applies to the founder’s tax arrears incurred after the foundation was established. This means that the assets of the Family Foundation remain relatively safe even if the founder is in financial difficulties.
- Preventing fragmentation of family assets
Ability to bring all assets into one entity (the Family Foundation) – the business as a whole remains in the family (e.g. shares in operating companies, real estate, companies, etc.) The founder has a say in what happens to the assets after his or her death. A will does not allow these objectives to be realized.
- Business succession planning
With the Family Foundation, the founder can plan who will take over the business after him and how it will be managed after his death. This prevents conflicts between heirs.
What is a Polish family foundation
A Polish family foundation is both a family and a business project, as it can serve purposes from both areas, in particular to
- securing assets from execution
- financial security for funders and beneficiaries
- creation of a family holding company – concentration of valuable family assets in a single entity (real estate, shares, etc.)
- tax-free reinvestment of income, including from operating companies, in the long term
- the generation of so-called passive income, particularly from real estate
- preventing fragmentation of valuable family assets and defining rules for their future functioning
- business succession, especially when children are still minors or not interested in taking over the business
- prevent conflicts between heirs, including over the preservation of family assets.
In formal terms, a family foundation
- is a legal entity established for the purpose of collecting property, managing it in the interests of the beneficiaries and providing benefits to the beneficiariesó
- is registered in the register of family foundations (kept by the District Court in Piotrków Trybunalski)
- possesses its own property, separate from the founder’s property: the assets contributed to the family foundation remain its assets until the end of the foundation’s activity
- runs a limited business activity
- has a NIP and REGON
- is a CIT taxpayer
- may be subject to VAT (if it carries out taxable activities)
- keeps full books of account
How does a family foundation differ from a limited company?
What a Polish family foundation can do?
A family foundation can only carry out business activities in the following areas
- disposing of property, insofar as the property has not been acquired for the sole purpose of further disposal
- hiring, leasing or otherwise making the property available for use
- joining and participating in commercial companies, investment funds, cooperatives and entities of a similar nature, established either domestically or abroad
- acquisition and disposal of securities, derivatives and rights of a similar nature
- the granting of loans
- to capital companies in which the family foundation holds shares or stocks
- to partnerships of which the family foundation is a shareholder
- to beneficiaries of
- trading in foreign currency belonging to the family foundation for the purpose of making payments related to the activities of the family foundation
- the production of non-industrially processed plant and animal products, with the exception of processed plant and animal products obtained within the framework of the conducted special departments of agricultural production and products subject to excise duty, provided that the quantity of plant or animal products originating from own cultivation, breeding or rearing, used for the production of a given product constitutes at least 50% of this product (exclusively in connection with the conducted agricultural holding)
- forestry (only in connection with the agricultural holding).
NOTE: Activities carried out by a family foundation and activities carried out by an operating company (in which the foundation has a shareholding) are two different things For example, a family foundation cannot directly carry out a development activity, but it can be a shareholder in a development company.
How to set up a Polish family foundation?
STAGE I – Preparation and adoption of the founding documents
- declaration of the establishment of the family foundation in the foundation deed or in the will (notarial deed
- establishment of the family foundation in the organisation
- establishment of the constitution of the foundation (notarial deed)
- the drawing up of an inventory of the assets (i.e. the property rights contributed by the founder or the founders with a precise indication of the contributor, the type and value of each of the contributed assets and their value
- establishment of the bodies of the family foundation (board of foundationees, supervisory board and assembly of beneficiaries, although the supervisory board does not always have to be established
STAGE II – Contribution of the founding fund (min. PLN 100,000):
- before being entered in the register of family foundations in the case of establishing a family foundation in a memorandum of association, or
- within two years from the date of entry of the family foundation in the register of family foundations in the case of establishing a family foundation in a will.
STAGE III – Submission of an application for registration in the register of family foundations
- there is no deadline for filing an application for entry in the register, however, for tax reasons, the application must be filed within 6 months from the date of establishment of the family foundation in the organisation (19% CIT taxation of the foundation’s income)
STAGE IV – Entry into the register of family foundations
- establishment of a family foundation (acquisition of legal personality by the foundation)
What can be contributed to a Polish family foundation?
- The minimum foundation capital is PLN 100,000
- The founder may endow the foundation with property as defined by the Civil Code (assets only), i.e:
- cash, also in foreign currency (foreign currency shall be converted into PLN according to the average exchange rate of foreign currencies announced by the National Bank of Poland on the last business day preceding the day of contribution of such funds);
- rights in rem – e.g. ownership of movables (e.g. a yacht, a work of art), real estate, including agricultural real estate, a farm, perpetual usufruct, a share in co-ownership, an enterprise or an organised part thereof;
- bond rights – e.g. shares or stocks in capital companies, all the rights and obligations of a shareholder of a partnership, receivables of a shareholder from another entity, securities;
- property rights in intangible assets – industrial and intellectual property rights, i.e. the right of protection for a trademark, the right of protection for a utility model, a patent for an invention, the right from registration of an industrial design, the right from registration of a geographical indication, the right from registration of a topography of an integrated circuit.
- Contribution of marital property requires the consent of the spouse
- A family foundation cannot return to the founder the property contributed to cover the initial fund!
- Valuation rules: the market value of the asset in question determined as at the date of its contribution of property, in accordance with the rules of the CIT Act
Is the initial fund of a family foundation divided into shares?
There are no shareholders in the foundation structure, as in the case of commercial companies, e.g. in a limited liability company. Consequently, the foundation’s founding fund is not divided into shares, and the possible participation of individual beneficiaries in the foundation’s profit does not result from the shareholding structure, but is defined in the foundation’s statutes. As it is the founder who decides on the wording of the statutes, in practice he also decides what benefits the beneficiaries of the foundation will be entitled to.
The statutes also determine the persons entitled to receive property in connection with the dissolution of a family foundation. If the family foundation is dissolved during the founder’s lifetime, the founder is the only person entitled to receive property in connection with the dissolution of the family foundation, unless the statute provides otherwise, in particular it specifies the beneficiaries entitled to the property
- is a CIT taxpayer
- may be subject to VAT (if it carries out taxable activities)
- keeps full books
Are assets contributed to a family foundation safe?
A family foundation is liable with its assets for:
- liabilities incurred in the course of its business activities,
- tax liabilities related to the business activities carried out (e.g. property tax, CIT on payments to beneficiaries, VAT),
- tax arrears of the founder incurred before the establishment of the family foundation (up to the value of the assets contributed by the founder to the family foundation),
- the founder’s civil law liabilities incurred prior to the establishment of the foundation, including maintenance obligations,
- the founder’s maintenance obligations incurred after the establishment of the foundation (in the event that enforcement of the founder’s maintenance obligations incurred after the establishment of the family foundation proves ineffective).
It must be borne in mind that a family foundation carries out business activities on the same basis as any other business entity. Consequently, if the family foundation becomes insolvent, the court will be able to declare it bankrupt which, of course, leads to the forced sale of its assets in order to satisfy creditors. Therefore, in accordance with the provisions of the Family Foundation Act, the foundation may carry out business activities within a limited material scope. The idea is that it should be a safe activity with low economic risk.
The key point, however, is that the family foundation is not liable for obligations of the founder(s) other than maintenance and those which arose prior to the establishment of the foundation (one cannot escape from current creditors by transferring assets to the foundation). Creditors of the founder(s) whose claims arose after the establishment of the foundation will not be able to satisfy themselves from the foundation’s assets. This rule also applies to the founders’ tax arrears arising after the establishment of the foundation, which the tax authorities cannot enforce from the foundation’s assets. This means that the assets of a family foundation remain relatively safe even if the founder has financial problems.
A separate issue is the possibility of applying a so-called pauliacal complaint against a family foundation (question: can the transfer of components to a family foundation be challenged by means of a so-called pauliacal complaint?).
How does the board of a family foundation operate?
The board of directors of a family foundation is the key body responsible for managing its affairs, representing the foundation and achieving the objectives set out in the statutes. Its tasks also include ensuring the liquidity of the family foundation, maintaining and updating the list of beneficiaries and informing them of their entitlements.
The board must consist of at least one natural person who has full legal capacity. In the case of a multi-member board, all members are responsible for managing the affairs of the foundation, unless the statutes provide otherwise. There is no obstacle to the founder or beneficiary being a member of the board at the same time.
The rules on the composition of the board are set out in the statutes and can be flexibly adjusted by the founder. The founder may retain the right to appoint and remove board members during his or her lifetime and, after his or her death, the members are appointed in accordance with the statutes, usually by a board of trustees or a meeting of beneficiaries.
Does a supervisory board have to be established in a family foundation?
A supervisory board in a family foundation is optional unless the number of beneficiaries exceeds 25, in which case it becomes mandatory. Its main task is to supervise the board, and the foundation’s statutes may further extend its powers, e.g. require the board’s written approval of certain actions of the board. If the board performs a legal act without the prior written consent of the supervisory board such act is valid, although it may render the board members liable.
The supervisory board may have one or more members. The members of the board are appointed by the founder and, after his death, by the assembly of beneficiaries. The founder may also set other rules in the foundation’s statutes.
Who can be a beneficiary of a family foundation?
- A beneficiary is a person who, according to the statutes, may receive a benefit from the family foundation or property in connection with the solution of the family foundation. It can be:
- the founder
- an individual (including a minor or an incapacitated person)
- a non-profit organisation
- The founder decides who will be the beneficiary: it can be one person, a group of persons, related or not. The beneficiaries can be listed by name, but also as a group of persons meeting a criterion set by the funder (e.g. descendants of the founder’s son).
- The beneficiary is included in the list of beneficiaries
What benefits can the beneficiary receive?
- The founder decides which benefits the foundation’s beneficiaries will be entitled to
- The catalogue of benefits is open, in particular the benefit can be:
- giving the beneficiary money (also in foreign currency), things (e.g. works of art) or rights (e.g. shares in a company)
- covering the beneficiary’s subsistence or education costs, where subsistence costs may also mean medical costs
- making an item of property (e.g. a car) or real estate (e.g. a flat) available for use.
- The benefit may be provided on condition or subject to a time limit.
- The benefit may be reduced if it is not possible to satisfy the beneficiaries in full
How is the contribution of property to a family foundation in Poland taxed?
- When contributing cash or other assets, such as shares, interests, fixed assets, e.g. in the form of real estate, there is no PIT taxation at the level of the founder (contributor) or CIT taxation at the level of the family foundation.
- When contributing cash or assets to a foundation, there is no PCC taxation
- The contribution of property may be subject to VAT (gratuitous supply of goods), e.g. when VAT was deducted on the acquisition or production of the property.
Can the contribution of property to a Polish family foundation have negative tax consequences?
- Caution should be exercised when contributing VAT-deductible assets that are not VAT-exempt, as there may be situations where VAT is charged on the contributed assets to the family foundation.
- The contribution of assets that enjoy a VAT exemption may entail the obligation to make an adjustment to the VAT deducted (VAT refund).3) Care should be taken whether the contribution of a business or organized part of business ( ZCP) to the foundation is really necessary.
- Historical deductible costs may be lost when contributing a business or ZCP.
How is a Polish family foundation taxed (CIT)?
- The current income of the foundation is exempt from CIT. This is a subject-object exemption, i.e. a family foundation is exempt, but only the activities allowed for foundations in the legislation are exempt.
- Taxation of distributions to beneficiaries:
Which benefits are subject to 15 % CIT?
The following are subject to corporate income tax at the rate of 15% given or made available by a family foundation directly or indirectly:
– benefits to beneficiaries from the so-called ‘zero group’ (immediate family);
– property issued in connection with the solution of a family foundation;
– benefits in the form of hidden profits.
The catalogue of benefits in the form of hidden profits in a family foundation is set out in detail in the provisions of the CIT Act. These include, for example, benefits to the beneficiary, the founder or an entity related to the beneficiary, the founder or the family foundation for consulting services, accounting services, market research, legal services, advertising services, management and control services, data processing, employee recruitment and acquisition services, guarantees and warranties and benefits of a similar nature.
There will also be a hidden profit in some of the loans made by the foundation to its beneficiaries’ families.
The category of hidden profits will also include interest on a loan granted to the family foundation by the beneficiary, the founder or an entity related to them.
Example of a benefit in the form of hidden profits.
A family foundation pays remuneration to a beneficiary for providing accounting services. Does such a benefit qualify as a disguised profit in a family foundation?
The payment of remuneration to the beneficiary for the provision of accounting services constitutes a hidden profit in a family foundation, which means that it is subject to CIT at a rate of 15%.
In what situations will the foundation in Poland pay 19 per cent CIT?
Different taxation rules apply when the family foundation derives income from a lease agreement, rental agreement (or any other agreement of a similar nature), the object of which are assets transferred under such agreement for the use of the beneficiary, the founder or a related entity. In such a situation, the family foundation does not benefit from an entity exemption, and therefore settles the tax in accordance with general rules, and the tax base is the income, i.e. revenue less tax-deductible costs. At the same time, the CIT rate will always be 19 per cent, (the provision on the CIT rate of 9 per cent does not apply to family foundations).
However, it should be added that the 15% corporate income tax that the family foundation pays on the benefits paid to the beneficiaries (see the question What benefits are taxed with 15% CIT?) can be reduced by the amount of the aforementioned tax paid by the family foundation on rental or lease income calculated at a rate of 19%.
Example:
The Kowalski family foundation, to which a business premises in Poznań was contributed, leased it to company X sp. z o.o. for the purpose of carrying out service activities there (marketing and accounting). Company X is linked to the foundation by the person of the founder (in which he holds 60 per cent of the shares). The foundation invoices the rent to company X. The rental income is taxed at a 19% CIT rate. If the income from this rental amounted to PLN 100 000 in the tax year, the 19% CIT will amount to PLN 19 000.
The Kowalski family foundation has other untaxed sources of income besides the lease and paid out PLN 200,000 net to its beneficiaries in the tax year, resulting in a gross disbursement of PLN 230,000 and CIT tax on that benefit of PLN 30,000. The Foundation can reduce this tax by the tax paid on the rent:
PLN 30,000 (CIT tax on the benefit paid before the reduction) – PLN 19,000. (CIT tax on the lease) = PLN 11,000 (CIT tax on the benefits paid)
Total CIT tax to be paid: PLN 30,000 = PLN 19,000 (CIT tax on rent to a related party) + PLN 11,000 (CIT tax on benefits paid).
In what situations will the foundation in Poland pay 25% CIT?
To the extent that the family foundation carries out business activities that go beyond those specified in the provisions of the Family Foundation Act, the foundation must pay CIT at a rate of 25%.
The taxable base is income, i.e. revenue less tax-deductible expenses; it is therefore, in contrast to the lump sum tax at the rate of 15%, determined according to the general rules.
In addition, it should be borne in mind that, despite the above taxation at the ‘CIT sanctioning’ rate, the payment by the family foundation of a benefit to its beneficiary realised from already taxed income will be additionally taxed at the 15% rate (on account of the benefit payment).
Example:
A family foundation is in the business of buying and selling shares on a stock exchange and trading cryptocurrencies. Does the income received by the family foundation from this activity benefit from the exemption from corporate income tax?
In principle, a family foundation may only carry out business activities within the scope set out in Article 5 of the Family Foundation Act. Conducting the business of buying and selling shares on the stock exchange and cryptocurrencies goes beyond the statutory activities of a family foundation, which means that this income is subject to CIT at a rate of 25%.
How is the beneficiary of a Polish family foundation taxed (PIT)?
The beneficiary of a family foundation is taxed at a PIT rate depending on which kinship group he or she belongs to in relation to the founders:
- 0% PIT rate is applied to persons of zero kinship group with respect to the founders, that is: spouse, descendants, ascendants, stepchildren, siblings, stepfather and stepmother
- A 10% PIT rate is applied to persons in the first and second kinship group to the founders, i.e.: son-in-law, daughter-in-law, parents-in-law, descendants and spouses of stepchildren, spouses of siblings and siblings-in-law, spouses of siblings-in-law, spouses of other descendants
- A rate of 15% is applied to the remaining persons (further kinship or no kinship).
In what situations will a foundation be a VAT payer in Poland?
- A foundation may be a VAT payer like any other entity carrying out business activity to the extent that it is subject to VAT, of course, if it carries out such activity
Individual interpretation of 28.07.2023 (0114-KDIP4-3.4012.272.2023.3.DS):
‘Therefore, in the situation of performing activities falling within the definitions of supply of goods or provision of services – within the meaning of Article 5 of the VAT Act – including the disposal of property, when the Foundation will perform these activities continuously for profit, regardless of the purpose or result of these activities, it will be considered a taxpayer conducting business activity within the meaning of Article 15 sections 1 and 2 of the VAT Act.’
- There are no specific VAT regulations for a family foundation, so all the provisions regarding registration, keeping VAT registers, paying output VAT and deductibility of input VAT from purchase invoices also apply to a family foundation.
Will the contribution of commercial or other real estate, e.g. flats, to a Polish family foundation be subject to VAT?
The provisions of the Value Added Tax (VAT) Act have not been modified with regard to the contribution of property to a family foundation. Therefore, the general taxation rules apply, which are complex and multivariate with regard to this type of activity. Their correct interpretation and application may be crucial to the viability of setting up a family foundation.
There may be a certain ‘trap’ in the gratuitous contribution to a family foundation of real estate which was used in the business activity of the founder, on the purchase or manufacture of which there was a right to deduct VAT, but no VAT exemption can be applied to this activity. Such an activity is subject to VAT under the VAT legislation, but the family foundation will not be able to deduct the tax. In this case, VAT will be an additional cost of the foundation’s establishment.
If the contribution of the property may be subject to VAT exemption, the potential additional cost may be less or non-existent as it will result from an adjustment of the input VAT. The amount of the adjustment will depend on the period that has elapsed since the property was purchased.
In contrast, if the real estate is contributed by the founder, an individual who is not a VAT payer, such a contribution will be outside the scope of VAT.
It is important to note, however, that in some situations it may be possible to make a tax-free contribution of flats leased in business activity to a foundation if the conditions for treating these flats as an enterprise or an organised part thereof are met.
The Director of National Fiscal Information has acknowledged that in such a case the contribution of the flats as an enterprise will not be subject to VAT ( Letter dated 15 April 2024, Director of National Fiscal Information 0114-KDIP4-1.4012.98.2024.2.DP). In such cases, individual tax rulings should be obtained in each case in order to protect oneself against a possible change in the approach of the tax authorities to the issue of taxation of the assets contributed to the family foundation.
What is the effective tax treatment when the Polish family foundation has rental income?
What is the effective tax treatment when a Polish family foundation holds shares in a company?
What are the disadvantages of a Polish family foundation?
- Any form of withdrawal of property (or other assets) from the foundation involves taxation:
- if the beneficiary receives an asset (e.g. real estate) as a benefit from the foundation, then such a benefit will be taxed like any other benefit from the foundation with 15% CIT;
- if the beneficiary receives an asset (e.g. real estate) as a result of the dissolution of the foundation, then CIT will be 15% on the difference between the market value of the real estate (at the time of its transfer to the beneficiary) and the tax cost of the real estate contributed by the founder (the value not previously deductible in any form, which would have been accepted by the founder as such cost if the real estate had been sold by the founder immediately before its contribution to the family foundation).
- A family foundation – in principle – is exempt from CIT, which means that it is not required to calculate advance tax payments and make an annual tax calculation in connection with its ongoing activities. Thus – in principle – it may also not recognise in its tax returns the costs incurred to generate income;
- A family foundation may carry out business activities to a narrow extent (so-called permitted activities). The foundation’s income from so-called non-permitted activities is taxed at a restrictive rate of 25 per cent (non-permitted activities are in particular so-called speculative sales);
- Real estate income is not exempt from taxation if the property is rented for the use of the beneficiary or a person (company) related to the beneficiary. Such income is taxed at a rate of 19%;
- A family foundation must keep full accounts and is audited at least once every four years;