Family foundations

Polish vs. foreign family foundations

Although Poland’s new law on family foundations is a significant improvement, it may not be suitable for all entrepreneurs. In some cases, a foreign family foundation may be more suitable for succession purposes. Our experts have helped clients to establish family foundations in numerous jurisdictions, including Liechtenstein, Austria, Singapore and Malta.

How does a Polish family foundation work?

• Polish family foundations are based on the assumption that business and family are formally separated from each other;
• Family assets become the property of the foundation, which manages them in the interests of the beneficiaries. The foundation thus protects these assets from any possible negative effects of succession processes, such as where not all family members are interested in continuing the business;
• A family foundation is created on the basis of assets belonging to the founder(s), including shares;
• The value of these assets cannot be below PLN 100,000;
• The founder has a considerable degree of freedom in determining the principles of the foundation’s management, its operation and the purpose for which it is established.

Family foundation – tasks

• Collecting and managing assets donated by the founder and others;
• Providing resources to beneficiaries (e.g. the founder’s family members or the founder himelf/herself);
• Importantly, the transfer of funds by a family foundation to beneficiaries can be subject to a condition (e.g. graduation) or a deadline (e.g. when the beneficiaries reach a certain age).

Family foundation – benefits

• Possibility to carry out specified business activities;
• Exemption from income tax when the foundation generates income;
• CIT tax rate of 15% only when income is distributed or when the foundation is liquidated;
• Exemption from PIT and inheritance and gift tax in the case of distribution to the founder and his/her immediate family (the so-called group zero).

How to establish a Polish family foundation?

• The founder makes a declaration on establishing the foundation, before a notary public or in a will;
• The foundations constitution is drafted, specifying it principles of operation;
• Assets are transferred to the foundation fund;
• The foundation’s organs are established;
• The foundation is registered in the register of family foundations.

Who can become a founder or a beneficiary?

• Anyone (natural person) with full legal capacity may become a founder. There can be several founders; unless the foundation is created in a will, in which case, naturally, there can be only one founder;
• A beneficiary can be anyone (natural person) regardless of age or legal capacity, including a non-governmental organisations carrying out public benefit activities;
• The income and assets of a family foundation can be used to finance various things (e.g. cost of living, education or medical treatment of beneficiaries, or expenses for the statutory purposes of a non-governmental organisation carrying out public benefit activities).

A Polish family foundation may carry out business activities

• Disposing of its assets – provided that they have not been acquired solely for the purpose of further disposal;
• Hiring, leasing or otherwise making its assets available;
• Joining and participating in commercial companies, investment funds and cooperatives;
• Acquiring and disposing of securities, derivatives and rights of a similar nature;
• Granting loans to the foundation’s beneficiaries and to other persons and organisations affiliated with the foundation;
• Trading in foreign means of payment belonging to the foundation for the purpose of making payments related to its activities;
• The operation of an agricultural enterprise.

Tax advantages of a Polish family foundation

• Establishing a foundation and transferring its assets are tax-free;
• A foundation’s business activities are exempt from CIT, so foundations pay no income tax (e.g. on dividends or other capital gains received from companies in which the foundation is a shareholder), or on the disposal or redemption of shares. Any business activities falling outside the foundation’s permitted scope are subject to 25% CIT;
• CIT taxation generally only occurs at the stage of making payments to beneficiaries (possibly upon dissolution of the foundation). In this case, the foundation is obliged to pay 15% CIT;
• Beneficiaries belonging to the founder’s immediate family (the group zero) and the founder himself/herself benefit from a CIT exemption on the benefits they receive from the foundation. Other beneficiaries are obliged to pay 15% PIT;
• If a person is a founder or beneficiary of a Polish family foundation, this will preclude any company in which they own shares from benefitting from the Estonian CIT system;
• Accordingly, if the foundation itself acquire shares in a company, the company will not longer be able to apply the Estonian CIT system.