6 February 2025

Family foundation as a tax solution – benefits

A family foundation is becoming an increasingly popular tool in wealth management, especially among people who want to ensure long-term financial stability and effective control over the succession process in family businesses.

A family foundation allows not only the management of accumulated wealth but also the avoidance of fragmentation in the event of inheritance. To establish a family foundation, you must have an initial capital of PLN 100,000. Then, you must meet the conditions we wrote about in the previous article.

Tax benefits of a family foundation

Establishing a family foundation is associated with several tax benefits:

• Protection of assets against fragmentation (the founder can ensure that the assets will not be divided between many people, which could lead to a loss of value and disintegration of the accumulated resources)
• A family foundation provides flexibility in choosing beneficiaries—they can be individuals or non-governmental organizations conducting public benefit activities.
• Transferring assets to a foundation does not involve the need for taxation.
• A family foundation does not have to pay income tax on business activities unless it pays benefits to its beneficiaries or in the event of its liquidation. In such a case, the income tax rate is 15%.

As a rule, the payment of funds to the beneficiary is taxed at 15% CIT on the amount of funds paid out. The foundation as a legal person is exempt from CIT. As for PIT, it covers benefits for beneficiaries, at 15% PIT. It is worth noting that this tax is payable at the time of payment of funds to the beneficiary. An exception to the rule is the exemption from PIT when the beneficiaries are close family members of the founder. Beneficiaries of a family foundation are also exempt from inheritance and gift tax.

Family foundation and liquidation

In the event of liquidation of a this foundation, the founder and their closest beneficiaries can count on an exemption from income tax (PIT) on the benefits received. This is a significant simplification, which means that the dissolution of a foundation does not involve high tax burdens for family members. For other beneficiaries, the liquidation of a foundation involves taxation at the level of 10% or 15%, depending on the situation, which is still a favorable solution compared to standard tax rates.

Obligation to report tax schemes

At the end of July 2023, the obligation to report domestic tax schemes was restored. In practice, this means that taxpayers must report such schemes within 30 days of their creation. In connection with this, the question arises whether family foundations established under the Family Foundations Act of May 2023 will be subject to the reporting obligation. There are still doubts about the detailed rules for this reporting, so it is worth keeping up to date with the new regulations.