Family foundation in Poland

The long-awaited establishment of family foundations in Poland represents a significant step forward in the country's legal and financial environment. As of May 22nd, 2023, the legislation governing the activities of family foundations went into force, paving the door for new asset management and succession planning opportunities.

Establishing a Polish family foundation provides a unique opportunity for families and individuals to safeguard their financial legacy while also streamlining the transfer of money across generations.

In this article, we look at the most essential components of a family foundation's activities in Poland, emphasizing the benefits and procedural complexities of this advantageous optimization vehicle.

Why should you consider creating a family foundation in Poland?

In Poland, family foundation is a previously unknown method of succession under Polish law. It turns out that it also represents a type of tax optimization. The Act's assumptions provide for no PIT taxes on payments paid to recipients. The guidelines also provide for deferred CIT on the foundation's "allowed revenue". This mostly applies to dividends and other capital gains.

Proper corporate structure preparation will allow tax rates to be reduced from over 26% for small taxpayers (CIT + PIT) to 9% CIT in a limited liability company (small taxpayer) and 15% CIT in a Polish family foundation (where tax is due at the time of payment to the beneficiary).

Registration of the family foundation in Poland

Submitting a declaration of will on the establishment of the Polish Family Foundation. The founder must submit it to a notary public. The foundation deed will be in notarial form. This allows a founder or group of founders to create a family foundation in Poland.

By reason of a valid will. The founder's will may include a declaration about the foundation's founding. Because of the peculiarity of the will, foundations established in this manner will have just one founder.

A Polish family foundation in organization will begin to exist after submitting a statement of foundation establishment or opening a will. A family foundation will be allowed to manage its assets independently until it receives an entry in the register. It will be able to acquire rights, incur liabilities, sue, and be sued.

When the Polish family foundation is registered, it acquires legal personality. The District Court of Piotrków Trybunalski will maintain an open record of Polish family foundations.

Statute of a family foundation in Poland

The statute of a family foundation in Poland shall have a form of a notarial deed. It shall determine:

• objectives of the family foundation in Poland,
• its founding capital,
• assets at the time of creation,
• principles of operation of the foundation’s bodies
• the scope of rights of the foundation’s beneficiaries.

The statute may also specify guidelines for investing the assets of a family foundation in Poland.

Bodies of the family foundation in Poland

The bodies of the family foundation in Poland are:

• management board
• the meeting of the beneficiaries, and
• the council of protectors.

The appointment of a council of protectors is optional. However, it is obligatory if the number of beneficiaries of the foundation exceeds twenty-five people.

The seat of the foundation may be located only on the territory of the Republic of Poland. One can establish a family foundation for a definite or indefinite period.

Minimum capital of a family foundation in Poland

An important issue is that the founder will have to contribute the founding capital to the Polish family foundation. Its minimum value is 100 000 PLN. It includes property that the founder intends to allocate to pursue the foundation’s goals. It can include money, securities, as well as other rights.

There is a possibility to make donations to the foundation. There are no restrictions on who will be able to make a donation. Thanks to this, various entities can support the foundation’s capital. This will contribute to achieving the goals set by the founder.

Foundation's scope of activity

The family foundation in Poland is able to conduct business activity to a limited extent. The foundation in particular is be able to:

• provide rental and lease services,
• join commercial companies, investment funds and participate in their activities,
• buy and sell stocks and bonds,
• collect interest on bank deposits,
• benefit from copyrights, licenses, patents.

Taxation of the family foundation in Poland

The family foundation in Poland is a corporate income taxpayer. When the foundation transfers benefits to the beneficiary, it will have to pay CIT. Its amount is 15% of the tax base.

As a rule, benefits obtained by beneficiaries of foundations will be subject to personal income tax. The exception is the acquisition of benefits by the founder and his immediate family.

The founder and relatives will be exempt from PIT on account of benefits received or property left at their disposal after the dissolution of the family foundation. The group of relatives benefiting from the exemption is extensive. It includes:

• spouses
• descendants
• ascendant
• stepchildren,
• sons-in-law and daughters-in-law,
• siblings
• stepfather, stepmother,
• in-laws of the founder.

It is worth knowing that a family foundation can fulfil the maintenance obligation that rests on the founder. In this situation, the person entitled to maintenance will also benefit from the exemption from personal income tax.

Beneficiaries from outside the family must take into account obligation to pay PIT. In case of the Polish family foundation, it amounts to 15% of the tax base.

It is worth knowing that beneficiaries of the foundation are exempt from the tax on inheritance and gifts. However, the foundation can transfer funds to third parties who are not beneficiaries indicated by the founder. In this situation, the third party will have to pay inheritance and gift tax. Yet, it will not be subject to the obligation to pay PIT.

The family foundation will also benefit from tax exemption on income from capital gains. This will also cover dividends and interest received from companies in which it holds shares.

Tax benefits of Polish family foundation

The Polish family foundation is subject to taxation on rules similar to those related to ?Estonian CIT. The obligation to pay CIT will occur only if the funds are paid to beneficiaries.

Therefore, the CIT rate will always be 15% and will be due on funds paid. Beneficiaries will be able to use the full PIT exemption. Alternatively, they will pay PIT at the rate of 15%. ?See the details presented below:

• 15% CIT / 0% PITWhen making payments to the estate of the founder and beneficiaries from the “zero group” in relation to the founder, i.e. spouse, descendant, ascendant, stepson, siblings, stepfather and stepmother
• 15% CIT / 15% PITIn the case of payment to the estate of persons other than the founder and beneficiaries from the “zero group”

Protection of the founder’s assets in the family foundation in Poland

Thanks to limiting the liability of a family foundation for the founder’s obligations, it can be an interesting tool for the protection of assets. A family foundation is liable for the founder’s obligations only up to the value of the property contributed to it by the founder.

The condition for accepting the liability of the foundation for the founder’s obligations is their existence before the formation of the entity. The only exception is maintenance payments. The moment of their creation is irrelevant to the possibility of pursuing enforcement against the foundation’s assets.