What is family foundation?
The family foundation is a legal person established for the purposes of property accumulation and management in the interest of the beneficiaries and of providing the benefits to the beneficiaries.
Establishment of a family foundation:
Only a natural person having full legal capacity, who submitted a statement of establishment of the family foundation in the founding act or a will. The family foundation may be established by more than one founder. The family foundation established in a will may have only one founder. The rights and obligations of the founder are unalienable.
Scope of business activity that a family foundation may undertake:
The family foundation may conduct a business activity in the meaning of Article 3 of the Entrepreneurs Law (Journal of Laws of 2023, item 221), only and exclusively in the scope of:
- disposal of property, unless not acquired solely for the purpose of further disposal;
- rental, lease or transferring the property for use on a different legal basis;
- joining the commercial companies, investment funds, cooperatives or entities of similar nature, having their seat in the country or abroad, as well as participation in these companies, funds, cooperatives and entities;
- acquisition and disposal of securities, derivatives and rights of similar nature;
- granting loans:
- to the capital companies, in which the family foundation holds shares or assets,
- to the partnerships, in which the family foundation participates as a partner,
- to the beneficiaries;
- trading in foreign means of payment belonging to the family foundation in order to make payments related to the operation of the family foundation;
- production of plant and animal products processed otherwise than by industrial processing, excluding processed plant and animal products obtained from special sectors of agricultural production and products subject to excise tax, provided that the quantity of plant or animal products from own cultivation, farming or breeding, used for making of a given product constitutes at least 50% of this product;
- forest management.
Assets of a family foundation:
The founder contributes to the family foundation the property covering the founding capital of a value specified in the statute, however in any case of at least PLN 100,000. Anytime this Act refers to the value of property contributed to the family foundation or the property to the family foundation, it means the market value of assets of the contributed property in any other form than cash, established as of the date of contribution of property, pursuant to the provisions of the Act of 15 February 1992 on the corporate income tax (Journal of Laws of 2022, item 2587, 2640 and 2745 and of 2023, item 185). The value of property contributed to the family foundation in the form of foreign currency is converted into PLN according to the average exchange rate of this currency announced by the National Bank of Poland on the last working day preceding the date of property contribution. The family foundation may not reimburse the property for covering the founding capital to the founder in total or in part, unless the Act states otherwise. The founding act and will, is drawn up in a form of a notarial deed. A foundation may be established by a citizen of another country who does not have Polish citizenship.
Beneficiaries of the family foundation:
The beneficiary may be; a natural person, a non-governmental organisation, referred to in Article 3(2) of the Act of 24 April 2003 on the public benefit activity and voluntary work (Journal of Laws of 2022, item 1327, 1265 and 1812), conducting a public benefit activity, may support this public benefit activity in the meaning of Article 3(1) of this act who/which, according to the statute, may receive a benefit from the family foundation or property following the dissolution of the family foundation. The beneficiary may be the founder.
The founder may reserve that the assets assigned to a minor beneficiary for benefits provided by the family foundation are not covered by the management performed by the parents. If the founder appointed no manager, the management is performed by the custodian appointed by the custody court.
Benefits for beneficiaries:
Providing the benefit to the beneficiary of family foundation cannot jeopardise solvency of the family foundation to its creditors being not the beneficiaries of family foundation and depends each time from the current financial condition of the family foundation. If the provision of benefit is suspended, the time period for its provision is suspended until the financial condition of the family foundation improves. Solvency means a capacity of the family foundation to fulfil its due and payable cash liabilities and any delay in fulfilling thereof does not exceed three months.
If satisfying the beneficiaries in full amount is impossible due to the liabilities towards third persons, the management board shall abridge the benefits to not to injure any of the beneficiaries. The time period for providing the benefits applicable to the remaining amount is suspended until the financial condition of the family foundation improves.
Taxation of family foundations:
Taxation of family foundations has been regulated in the Act by amendments made to individual tax acts. The key amendments concern issues related to income tax payable by:
- legal persons; and
- Individuals.
The establishment of a foundation and the transfer of its assets is tax-free. At the same time, within the scope of the economic activity permitted by the Act, a family foundation will benefit from a subjective exemption from corporate income tax. As a result, the family foundation will not pay tax on capital gains obtained (for example, on dividends received, on income from the sale of shares or on the redemption thereof), or on interest on loans granted to related companies or beneficiaries.
Income tax on:
- assets, including cash, tangible goods or rights, transferred onto the beneficiary or transferred to the beneficiary for use by the family foundation or a family foundation in organisation, pursuant to the status and the list of beneficiaries.
- property in connection with the dissolution of the family foundation transferred or made available by a family foundation directly or indirectly,
- benefits in the form of hidden profits
– amounts to 15% of the taxable base.
The benefits in the form of hidden profits shall mean:
- interest, commissions, remuneration and other fees on any type of loan granted to the family foundation by the beneficiary, the founder or an entity related to the beneficiary, the founder or the family foundation;
- donations or other gratuitous or partially gratuitous benefits, provided, directly or indirectly, to the beneficiary, the founder, an entity related to the beneficiary, the founder or the family foundation;
- benefits to the beneficiary, the funder or an entity related to the beneficiary, the funder or the family foundation for:
- consultancy, accounting, market research, legal services, advertising, management and control services, data processing, employee recruitment and staffing services, guarantees and warranties and benefits of a similar nature,
- fees and charges of any kind for the use of, or the right to use,
- the difference between the market value of the transaction between the family foundation and the beneficiary, the founder, an entity related to the beneficiary, the founder or the family foundation;
- a loan granted by a family foundation to a beneficiary in that part which was repayable in a given tax year and was not repaid by the deadline for filing the return,
- a loan granted by a family foundation to a beneficiary for a period of at least 10 years, or for a period of less than 10 years if the final term of the agreement was at least 10 years.
This tax is a flat-rate tax. The said principle and rate of taxation will apply taking into account double taxation treaties to which the Republic of Poland is a party. The Act provides for a mechanism allowing the exemption of received benefits from personal income tax in certain cases.
Beneficiaries of the family foundation belonging to the immediate family of the founders, the so-called zero group (spouse, children and further descendants, parents and further ascendants, stepchildren, siblings, stepfather and stepmother) and the founders themselves, receiving benefits from the foundation, will benefit from a personal income tax exemption (the so-called “zero” tax group).
Analogous legal solutions in Europe:
Family foundations, in a similar formula as adopted in Poland, have existed for many years in Western European countries, including Malta, Austria, Liechtenstein, the Netherlands, Germany, Switzerland Sweden. In common law countries (Great Britain, Ireland, but also, for example, Cyprus), the institution of a trust has a similar function.
Our services
As an experienced team of tax advisors, tax experts and lawyers who deal with family foundation, we can help you in the following matters:
- legal and tax advice at every stage of creating a family foundation,
- registration of a family foundation in the registry court, supervision of the registration procedure,
- advice on conducting business activities by the foundation,
- preparation of the statute, inventory of assets,
- selection of the optimal structure of the family foundation’s assets,
- payment of benefits,
- foundation accounting and reports,
- participation in notarial activities,
- analysis regarding tax planning,
- legal analysis regarding new investments,