February 2023

New Solution for Succession Planning: Family Foundation

A new law has just been published and will come into force on 21 May 2023. Its tax implications are widespread as it provides new solutions for succession planning.

General Concept

  1. The ‘Family Foundation’ will be a succession planning instrument dedicated to entrepreneurs running family businesses;
  2. From a legal perspective, a family foundation will be a separate legal entity;
  3. A family foundation will be established to accumulate and manage property for the interest of the beneficiaries;
  4. It will provide benefits to beneficiaries;
  5. A family foundation may conduct a business activity within a limited scope (incl. disposing and leasing of property, investing in commercial companies and investment funds, investing in securities and derivatives, and granting loans to a limited group of borrowers);
  6. The founder(s) may only be a natural person, who contributes assets valued at PLN 100 thousand (or more);
  7. The beneficiaries may be natural persons (including founders themselves) or NGOs.

Tax Implications

  1. The establishment and the transfer of assets to a foundation will not be subject to taxation;
  2. A foundation’s income from its business activity will be exempt from corporate income tax (CIT) as long as it is conducted within the scope specified by the new provisions;
  3. If the business operations of a foundation go beyond the permitted scope, the foundation’s income (generated from such operations) will be subject to a 25% CIT rate (‘penalty’ rate);
  4. A family foundation will pay 15% CIT when it transfers benefits to the founder or beneficiaries;
  5. Benefits received by the beneficiaries will be:
    1. exempt from personal income tax (PIT) as well as inheritance and donations tax, in case the beneficiaries belong to the closest family of the founder (so-called ‘zero tax group’);
    2. subject to 15% PIT in case of other beneficiaries;
  6. The distribution of assets upon the liquidation (dissolution) of the foundation will be subject to 15% CIT with the right to recognise tax-deductible costs (inc. historical tax value of assets contributed to the foundation);
  7. Transfer of funds from the family foundation will not be subject to inheritance and donations tax.

For more details, please contact Piotr Prokocki.