FAMILY FOUNDATION - POLAND'S ANSWER TO A TRUST FUND

A family foundation has been gaining popularity in Poland for the past two years as away to protect wealth and ensure smooth succession. Recognizing the challenges of succession, lawmakers introduced this legal structure to help Polish citizens prevent the dispersion of assets during inheritance. It serves as a safeguard for both wealth and future generations.

Who can establish a Family Foundation?

A family foundation can only be established by an individual with full legal capacity (one person or more). Additionally, the founder must contribute a minimum initialcapital of 100,000 PLN.

Purpose – Wealth Growth

The foundation is not only a means of securing assets but also a tool for wealth accumulation and income generation. It can primarily engage in property rental and securities trading.

Tax Benefits

Operating a family foundation comes with preferential tax treatment. The foundation, as a legal entity, pays 15% CIT (corporate income tax) only when funds are distributed to beneficiaries. Moreover, close family members – according to the Inheritance and Donation Tax Act – are exempt from PIT (personal income tax) on received funds.

Operating a family foundation comes with favorable tax burdens. First and foremost, the legal entity of a foundation is subject to a 15% corporate income tax (CIT) only at the moment of fund disbursement to beneficiaries. As a rule, the foundation is subject to CIT; however, it is generally exempt under Article 24b of the Corporate Income Tax Act.

Moreover, individuals classified as immediate family members, according to the Inheritance and Donation Tax Act, are not required to pay personal income tax (PIT). However, the CIT exemption does not apply in three specific situations: as sets transferred in connection with the dissolution of the family foundation, benefits in the form of hidden profits, payments made to beneficiaries.

In these cases, the income tax rate is 15%. It is also worth mentioning that CIT exemption will not apply to revenues from renting real estate with an initial value exceeding PLN 10 million — still a relatively high threshold that can be beneficial.

Another category of activities subjects to CIT is "non-statutory" operations. In such cases, the CIT rate will be as high as 25%. However, from an individual perspective, this may still be more favorable than previous tax burdens. Non-statutory activities primarily include: selling assets, joining commercial companies, buying and selling securities, granting loans to related entities.

Another tax obligation is PIT. The rules governing its rate are relatively straight forward. The Inheritance and Donation Tax Act applies, where: the "zero" group is taxed at 0%, groups I and II are taxed at 10%, other individuals are taxed at 15%.

How it works?

The functioning of a Family Foundation introduces a new way of managing assets in Poland. The founder has full discretion in determining who the beneficiaries will be, the size of their entitlements, and who will take over decision-making after the founder’s passing. This level of flexibility in post-mortem asset management was previously unheard-of in Polish law.

Conclusion

A family foundation represents a major shift in the planning, management, and distribution of a founder’s wealth. It allows for capital growth, tax optimization, and long-term financial planning that can extend across multiple generations.