Changes at the Polish family foundation
The Polish family foundation is a legal institution that was introduced into our legal system in 2023. Its main objective is to manage family assets in an orderly manner, ensuring protection and intergenerational succession. The family foundation allows the ownership of assets to be transferred to a separate legal personality, eliminating the risk of their fragmentation or loss as a result of inheritance conflicts. It is primarily aimed at family entrepreneurs and wealthy individuals who wish to safeguard assets against unforeseen contingencies.
Advantages and attractiveness of a family foundation
A family foundation is an attractive asset management tool. Thanks to tax neutrality internally, the foundation does not currently pay income tax on profits derived from the management of wealth, e.g. its investment. The exceptions are activities prohibited by law, which are taxed at 25 per cent. This structure allows the assets to be multiplied efficiently.
One of the main purposes of foundations is to be able to pay benefits to beneficiaries. This allows the benefits of the assets to be transferred, e.g. to the next of kin, without having to divide the ownership of the assets. The founder defines in the statutes the terms and conditions of such distributions. This allows the foundation’s modus operandi to be tailored to the needs of the family. For example, the foundation can provide a stable income to family members or support them in meeting special needs. In this way, the institution not only safeguards the interests of the family, but also allows values and traditions to continue in the long term.
The benefits paid to beneficiaries are taxed preferentially. In the case of immediate relatives, a tax of 15 per cent (CIT) is paid by the foundation. Further relatives must additionally pay PIT at a rate of 10% or 15%.
Beneficiaries can receive various forms of support, e.g. regular cash payments or the possibility to use property. However, it is important that the foundation’s assets are used in accordance with the law and its statutes. Otherwise, additional tax burdens may be imposed. A family foundation also facilitates long-term succession planning by eliminating the need to distribute assets at each generational change.
Family foundations in other countries – the Polish response to market needs
Family foundations have been operating for years in countries such as Germany, Austria and Liechtenstein. They are a proven tool for wealth management and intergenerational succession. The Polish family foundation was to be a response to these foreign solutions, adapted to the local legal and tax realities. Its introduction was intended to strengthen Poland’s competitiveness as a place conducive to the development of family entrepreneurship.
A family foundation ‘for generations’ and the changes introduced
The idea of the family foundation was to create a permanent and stable solution that could serve families for many generations. Unfortunately, shortly after its introduction, proposals for legislative changes emerged that raised some concerns about the stability of this institution.
Proposed legislative changes
The most important changes that have been proposed include the introduction of:
- The taxation of the sale of assets by a family foundation
The introduction of a 19% income tax on the sale of assets contributed to the foundation by the founder, beneficiary or related parties if the sale takes place before the expiry of 15 years from the acquisition of the assets by the foundation.After this period, the sale of the assets will be exempt from taxation. - Extension of the solidarity surcharge tax base
Benefits paid to beneficiaries of family foundations will be included in their income, which may result in their being subject to a 4% solidarity levy if the total income of the beneficiary exceeds 1 million PLN per year. - Taxation of income from economic activities
The income of family foundations from shares in tax transparent entities will be treated in the same way as income from other forms of business activity, which implies the necessity to pay income tax. - Restrictions on the economic activity of family foundations
Clarification of the provisions on the scope of business activities that a family foundation can carry out.
Introduce a sanction mechanism – a foundation carrying out activities beyond the permitted scope may be dissolved by the court. - Reporting obligations
Increase the reporting obligations of family foundations to increase the transparency of their operations and to better monitor financial flows. - CFC obligations and taxation
Introduce reporting of income earned by foreign controlled entities (CFCs) of foundations to be taxed in Poland.
Assessment of the proposed changes
The direction of the proposed changes raises serious concerns, especially as they are being considered shortly after the introduction of the family foundation into the Polish legal system. Such rapid modifications may undermine trust in the stability of the law, which is crucial for the decision to use this institution. Moreover, these changes significantly reduce the attractiveness of the family foundation as a tool for effective wealth management and succession planning. Proposals to tax the sale of assets, to extend the scope of solidarity levy and to subject income from tax transparent entities to an additional tax may discourage potential funders. As a result, the Polish family foundation may become less competitive compared to foreign solutions that enjoy greater legal stability and regulatory predictability. Popular family foundations in Germany, Austria or Liechtenstein offer more favourable conditions to family entrepreneurs, which may lead to an outflow of capital abroad.
Consultation and the future of the family foundation
At present, the proposed changes are subject to consultation and their final form remains uncertain. The introduction of the changes in their current form may affect the decisions of those planning to use this tool. The changes aim to balance the objectives of family foundations as a wealth succession vehicle with the public interest, particularly in the context of tax avoidance. Nevertheless, if they come into force, they will result in a significant decrease in the attractiveness of the family foundation compared to its current form, but it can still be a good way to secure and multiply wealth.
The family foundation is a solution that can bring many benefits in terms of wealth protection and management. However, in order for the Polish family foundation to be able to fulfil these tasks, it is necessary for its institutions to be stable and secure. The legislative changes proposed so quickly, within a year of its introduction, are now undermining confidence in it and its sustainability ‘for generations’.