Family foundation – Tax aspects of foundation distributions to beneficiaries

Taxation of the family foundation’s income will, in principle, occur only at the stage of payment of benefits to beneficiaries. In this case, the tax base will be:

  • income in the amount of the value of the benefit transferred by the family foundation directly or indirectly to the beneficiary or funder, or
  • income corresponding to the value of the transferred property in connection with the dissolution of this legal entity.

At the same time, it is particularly important that in the event of the dissolution of a family foundation, the income corresponding to the value of the designated property shall be reduced by the tax value of the property contributed by the founder or founders understood as the value not deductible for tax purposes, which would have been accepted by the founder as such a cost if the asset had been disposed of by him for a consideration immediately prior to its contribution to the family foundation.

The CIT rate will be 15% of the tax base. Also of particular importance is the obligation of the family foundation itself to pay tax on the redistribution of funds to the exclusion of the beneficiaries or the founder.

On the other hand, the payment and performance of benefits (both monetary and non-monetary) to persons from the so-called “zero tax group” within the meaning of the Inheritance and Donation Tax Act (i.e., the Foundation’s beneficiaries) will be exempt from PIT and will not be subject to solidarity levy – in this case, the benefits paid will be subject only to 15% CIT at the Foundation level.

On the other hand, in the case of other beneficiaries not belonging to the “zero tax group”, the value of the benefits paid will be subject to CIT at 15% (at the foundation level) and a flat rate PIT at 15% of the income received from the foundation (at the beneficiaries’ level).

It should be emphasized that the transfer of assets and benefits to the founder or beneficiaries has been excluded from inheritance and gift taxation. However, if a third party who is not the beneficiary or the founder obtains the foundation’s assets then such acquisition will be subject to inheritance and gift tax under the rules set for persons classified in tax group III of this law.