22 February 2024

Family foundation – taxation and advantages for beneficiaries

A family foundation allows founders, especially owners of medium and large family businesses, to focus on long-term planning and protecting their assets. It serves as a mechanism to protect assets of relatives from potential business, legal and tax uncertainties, with the help of an inter-generational succession mechanism.

Family foundation as a holding platform

The essence of a foundation is the mechanism of succession. According to the definition of civil law, succession is the accession of the successor to all the rights and obligations of the actual beneficiary of the foundation. In practice, it involves the transfer of financial assets in an unchanged form to heirs, most often relatives. The assets of a family foundation can take the form of shares in companies, contributed to the foundation by family members. In this way, it functions as a holding platform, allowing capital to be pooled within a single legal entity.

How to establish?

A family foundation can be established by one or more individuals or legal entities. Often, due to the nature of this legal form, these foundations are established by members of one family. This makes the migration of assets an approach that ensures the integrity of family assets.

First of all, the founder is required to contribute property to the foundation to cover the initial fund. The value of this property must be by the guidelines outlined in the statute and must not be less than 100,000 PLN. This is a key step in the process of establishing to ensure adequate capital to start operations. Property can be considered as:

• real estate, 
• cash, 
• securities, 
• shares, stocks, or partner’s rights in commercial companies.

A foundation is required to allocate its profit for a given fiscal year to cover any future losses if the values of assets resulting from the approved financial statements are lower than the liabilities. 

For assets other than cash, the value is determined as of the date of contribution, by tax rules. If the property is in foreign currency, it is converted into zlotys according to the average exchange rate announced by the National Bank of Poland on the last business day preceding the day of contribution. This precise determination of value is aimed at fair and clear management of the family foundation’s property by the applicable tax laws.

The law does not provide restrictions in the domain of choice of the name of the family foundation. It can be any, with the additional designation “Family Foundation.”

The establishment of such a foundation requires:

• declaration of the establishment of a family foundation in either a deed or a will (in the form of a notarial deed);
• establishment of the statute;
• preparation of an inventory of property;
• establishment of the bodies of the family foundation required by the law or the statute;
• payment of the founding fund before entry in the register of family foundations in the case of establishment of a family foundation by deed of incorporation, or payment of the founding fund within two years from the date of entry in the register of family foundations in the case of establishment of a family foundation by will;
• entry in the register.

Taxation

As a rule, the disbursement of funds to a beneficiary is taxed at 15% CIT on the amount of funds disbursed. The Foundation as a legal entity is exempt from CIT. As far as PIT is concerned, benefits to beneficiaries are covered, at 15% PIT.

It is worth noting that this tax is payable at the time of disbursement of funds to the beneficiary. An exception to the rule is the exemption from PIT when the beneficiaries are relatives of the founder’s family. Beneficiaries of a family foundation are also exempt from inheritance and gift tax.

Family foundation – advantages

A family foundation is currently the most effective legal form in Poland for preventing the dissipation of family assets. In addition, it makes it possible to support charitable, educational, scientific or cultural goals, providing an important pillar for social initiatives.

It is also an effective tool that enables beneficiaries to effectively manage the operations of companies that have been brought together under the wing of a family foundation, adopting a holding company-style management model. This, in turn, facilitates a coordinated approach to the management of capital and promotes harmonious development related to business operations.

Finally, a family foundation is the easiest way to carry out inter-generational succession, offering a stable and organized way to transfer assets and family values to the next generation.