Recent legal reforms enable Polish entrepreneurs to benefit from a Polish family foundation. Succession planning, however, is a much broader process than simply choosing the right legal form, such as a family foundation. SSW lawyers and tax advisers, together with experts from the Family Office and SSW Accounting, support clients at all stages of intergenerational business transitions. For more information, please click here: Succession planning, Family Office.
After over 30 years of free market economy in Poland, the intergenerational succession of assets has become an important challenge for many families and companies.
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.
|New to the Polish legal order, so very few have been established so far;
|Usually available in the foreign law for many years, so have a stable history;
|Higher risk of changes to regulations governing foundations;
|Lower risk of changes to legislation governing foundations;
|Relatively low operating costs (the founder/beneficiaries may be members of the foundation’s bodies);
|Higher operating costs (inter alia due to the involvement of a local foundation administrator);
|Full control of the foundation by the founder (if the founder sits on the management board);
|Limited possibility to control the functioning of the foundation if the management is entrusted to a local foundation administrator;
|Founder can control decision-making of the foundation (if the founder becomes a member of the board);
|Need to consult local foundation administrator on planned activities (if management is entrusted to an administrator);
|Monitoring the functioning of the foundation (compulsory audit every 4 years);
|No compulsory audit;
|The founder and the list of beneficiaries are visible in the register of family foundations;
|The founder and the list of beneficiaries confidential (no access by outsiders);
|Contribution of assets to the foundation is neutral in terms of taxes;
|Contribution of assets to the foundation may be taxed both in Poland (exit tax) and in the country of the foundation’s registered office;
|Not subject to CFC tax regime;
|May constitute a foreign controlled entity within the meaning of the tax legislation (CFC);
|Relatively transparent rules on taxation of foundations’ income and paid out benefits.
|Need to consider the country-specific tax system (e.g. income tax, withholding tax, inheritance/gift tax).
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.
How can we help?
- Preparing the family foundation’s constitution and supporting documentation (e.g. list of beneficiaries);
- Registering the family foundation;
- Providing legal and tax support regarding the transfer of assets to the family foundation;
- Providing day-to-day support for the foundation’s operations, including:
- Managing the family foundation, acting as a member of the management board;
- Supporting the administration of the foundation, fulfilling reporting and information obligations.