Family Foundation

A family foundation is an entity with legal personality with its registered office in Poland. It can only be established by one or more individuals, who establishes the foundation by drawing up a foundation deed or a will and testament providing for the establishment of the foundation before a notary public.

The main purpose of such a foundation is for private assets to benefit designated individuals (including the immediate family) and for this to continue for generations.

Family foundations can be established by enterprises. The Family Foundation Act does not prohibit a family foundation from acquiring a sole tradership, but as a family foundation cannot carrying out business activities, the foundation will not be able to continue to operate the business in the same way. This means that a sole trader will have to convert their business into a company if they still want to conduct business during their lifetime, or will have to sell the sole tradership in order to contribute the funds from the sale to the foundation.

Unlike a commercial company, there are no shareholders in a family foundation.

In principle, a family foundation, despite being a legal entity, is exempt from CIT. However, a family foundation will pay tax in the following situations:

1. A family foundation pays tax when it transfers benefits to the beneficiaries. On the other hand, it will not pay tax if it has no beneficiaries at all (such a situation is at least temporarily possible) or when the benefits are not paid. A tax of 15 per cent will be due upon the value of the benefit (whether cash or in kind) being transferred or made available by the family foundation directly or indirectly.

2. A tax of 15 per cent is also due on the value of the assets in connection with the dissolution of a family foundation.

3. A family foundation may carry out business activities, but only to a certain extent, in which case it will benefit from the entity exemption. The regulations provide for eight exceptional cases in which a family foundation may carry out business activities, these include:

• the disposal of assets, provided that the assets have not been acquired solely for the purpose of their further sale;
• leasing, renting or making assets available for use on another basis;
• joining commercial companies, investment funds, cooperatives and entities of a similar nature;
• acquiring and selling securities, derivatives and rights of a similar nature; and
• granting loans to companies in which the foundation is a shareholder, or to beneficiaries.

On the other hand, if the family foundation carries out activities broader than those under the Family Foundation Act, it will pay income tax of 25%.

4. The family foundation pays what is known as the tax on revenue from buildings. This tax amounts to 0.035% of the tax base for each month and is paid on the value of real property exceeding PLN 10,000,000. The tax on revenue from buildings contradicts the assumptions underlying the Family Foundation Act and means that the contribution of real property to a family foundation should include tax costs.

The beneficiaries of the foundation are exempt from inheritance and gift tax, as with inheritance, as long as they belong to the founder’s immediate family circle. This refers to the spouse, descendants, ascendants, stepchildren, siblings, stepfather and stepmother.

Beneficiaries who are not relatives of the founder will pay tax on the value of the benefits they receive. This will be a tax on income from other sources, at a rate of 15 per cent. As this will be a flat tax, the income will not be reduced by expenses. Beneficiaries unknot related to the founder (e.g. a friend from outside the family) will not be able to take advantage of the exemptions concerning the inheritance and gift tax.