Family foundations – planned changes in taxation
A draft amendment to the CIT Act (No. 293) concerning changes in
the taxation of family foundations has been submitted for public consultation. The aim of the amendment is, in particular, to
limit optimisation using family foundations.
Below we present the most important changes covered by the draft act.
Key changes
1. Disposal of property – new 36-month grace period
What will change? The draft introduces a restriction on the exemption from taxation of the sale of
property by a family foundation in order to prevent the use of foundations for quick,
tax-neutral sales of assets. Income from the sale of property contributed free of charge
or acquired from a related entity by a family foundation
will be subject to 19% CIT if it occurs within 36 months.
How to calculate the deadline? The 36-month period will be counted from the end of the calendar year in which
the assets were contributed or acquired. This means that the grace period may be almost 4 years.
The new rule will apply to assets contributed, transferred or
acquired after 31 August 2025.
The planned amendment to the regulations will be significant in the case of planned
sales of shares or stocks previously contributed to family foundations.
2. Property rental – exclusion of tax exemption for income from
short-term rental
- What will be subject to CIT? Income from short-term rental, accommodation services
(PKWiU 55) and commercial rental of buildings or residential premises. - What will remain exempt from CIT? Only long-term rental for residential purposes,
carried out directly by a foundation. - Who bears the burden of proof? The foundation, which will have to prove the residential
nature of the rental in order to benefit from the exemption.
3. Taxation of income from participation in the profits of tax-transparent entities
The
Proposed changes will result in the taxation of income “from participation in a company
that is not a legal person or in a fund, cooperative or entity referred to in Article 5
(1)(3) of the Family Foundation Act (foreign tax-transparent entity)
conducting business activity, if they are not subject to income tax
or benefit from an exemption from such tax on their total
income, regardless of the source of that income.”
What is the new rule? The foundation’s income from participation in companies that are not legal persons
(e.g. partnerships), funds or cooperatives will be subject to CIT if
these entities:
- are tax transparent (not subject to corporation tax),
or
- benefit from corporation tax exemption.
Risk to income from investment funds: It is noteworthy that this catalogue also includes
‘funds’ and uses the criterion of “exemption from taxation on total
income”. Does this mean that a family foundation’s income from investment funds will no longer be
exempt from taxation? This issue is likely to be discussed in
further legislative work.
4. Application of CFC and exit tax regulations to family foundations
The draft assumes that family foundations will be subject to the regulations on controlled foreign companies
(CFC) if they hold shares in such companies. This refers to foreign entities
controlled by a Polish taxpayer (PIT or CIT). In principle, income
earned by a taxpayer from participation in a CFC is taxable in Poland at a rate of 19%
PIT or CIT. This is to align the level of taxation with that applicable in
our country.
Foundations are also required to apply Article 24f of the CIT Act, which concerns tax on income from
unrealised gains (the so-called ‘exit tax’). Exit tax may be levied in the event of
the transfer of the founder’s assets to a family foundation and a subsequent change in the founder’s
tax residence.
5. Extension of the catalogue of so-called ‘hidden profits’
The draft expands the catalogue of so-called ‘hidden profits’ subject to CIT, i.e. benefits
from family foundations to beneficiaries, founders or related entities, which
constitute an economic benefit equivalent to a standard payment. This mechanism is
similar to the solution known from Estonian CIT.
What will change? Hidden profits will also include “the value of redeemed,
time-barred or written off as uncollectible receivables from a loan granted by
a family foundation to a beneficiary, founder or natural person who is an entity
related to the beneficiary, founder or family foundation”.
In addition, the addition to Article 24q(1a)(5) and (6) extends the list of persons whose
loans may be considered hidden profits to include the founder and persons related to him or her, and not – as
previously – only beneficiaries.
The planned date of entry into force of the amendment to the Act is 1 January 2026.
Please contact us to discuss how the proposed changes will affect your family foundation.
We will help you prepare an adjustment plan in key areas such as
short-term leases, the 36-month grace period for the sale of property, CFC and exit tax rules,
participation in transparent entities and the settlement of hidden profits.