Polish family foundation 2024 (memo prepared by Polish tax and corporate lawyer)

Starting from 22 May 2023, it is possible to establish family foundations in Poland. Read the article prepared by a lawyer from the PLA.partners law firm – Maciej Pilarek, attorney specialised in structuring and taxation.

The new legal form is of particular interest to:

  • family business owners,
  • those planning to pass on investment assets to the next generation.

Given the tax exemption, a foundation can also prove to be an attractive investment vehicle. Contrary to its name, a family foundation is not just for families. Any individual can be the beneficiary of a foundation.

Features of a Polish family foundation

The Polish family foundation has much in common with its foreign counterparts:

Firstly, a family foundation can allow the founder to retain control of the assets while being prepared to hand over the governance of these assets to successors. Moreover, with a foundation you can transfer control over the assets and not necessarily the assets themselves. You can separate the group of people who will benefit from the accumulated wealth from the narrower group that manages that wealth.

Secondly, the foundation can serve as a dosage mechanism for how much and how individual beneficiaries benefit from the foundation’s assets.

Thirdly, the foundation offers tax exemption.

The family foundation, while attractive, is not a tool for everyone. In some cases, it can prove to be an expensive trap. In an extremely unfavourable scenario, its operation can consume a significant portion of accumulated wealth. However, the foundation is not the only succession planning tool. There have been and will continue to be other instruments available for securing family wealthinvesting it and passing it on to the next generation. Find out the details of the Polish family foundation and whether it will work for you.

Family foundation in Poland – a vehicle for asset management in the interests of beneficiaries

A family foundation is established by an individual, known as the founder. The founder may contribute assets alone or jointly with others. These assets can be e.g. real estate, money, shares in a company (for example, a family business). The contribution of assets to the foundation is tax-free.

The Foundation is established with beneficiaries in mind. The beneficiaries are designated by the founder. He or she sets the rules for keeping a list of beneficiaries. The foundation’s beneficiary can be any natural person, not only a family member. The founder himself can also become a beneficiary.

The foundation may transfer specific assets to the beneficiary, but may also limit itself to providing the beneficiary with the use of those assets, without transferring ownership. The foundation may also pay for the beneficiary’s living expenses or education. The founder may make the beneficiary’s entitlement to the benefit conditional (for example, related to the beneficiary’s education or performance). Entitlement may also depend on the arrival of a time limit, for example, on the reaching of a certain age. Interestingly, in the case of a minor beneficiary, the founder may stipulate that the assets accruing to the beneficiary will not be placed under the management of the parents, but only under the management of a guardian appointed by the court.

Protection against a „reserved portion” (zachowek)

The new law contains valuable changes concerning the institution of a reserved portion. As a reminder, a reserved portion is a right to which those heirs are entitled who receive less in their inheritance than they would have received had there not been a will unfavourable to them, or had there been no gifts during the testator’s lifetime which reduced the inheritance.

Firstly, the possibility to defer the payment of the reserved portion has been introduced. It will be possible to defer the payment of the reserved portion in instalments for up to ten years.

Secondly, the possibility of a reduction of the reserved portion has been introduced.

Thirdlyan explicit possibility for future heirs to waive the reserved portion has been introduced.

Fourthly, in those cases where it is not possible to count on an agreement with future statutory heirs on the issue of the reserved portion, the possibility of circumvention has been introduced. If assets are contributed by you to a family foundation earlier than ten years before your death, these assets will not be taken into account when calculating the reserved portion. This will avoid costly and unfair claims.

The day-to-day running of a Polish family foundation

Each Polish family foundation will have at least:

  • management,
  • assembly of beneficiaries.

The supervisory board is optional.

Board of the Polish family foundation

The board will consist of at least one natural person. The board of the foundation, as in companies, will manage its affairs and represent it externally, for example when signing contracts.

The foundation has no owner. There is no shareholders’ assembly in a foundation. Instead, the foundation has its beneficiaries. The selected beneficiaries form a beneficiary assembly.

Supervisory board of the Polish family foundation

As indicated above, the founder may appoint a supervisory board for the foundation. It should be composed of a minimum of one natural person. The supervisory board has a superior function over the board of directors. The founder may, for example, stipulate that the board will have to obtain the approval of the supervisory board to carry out certain activities.

Assembly of beneficiaries of the Polish family foundation

As indicated, the selected beneficiaries form an assembly of beneficiaries. This means that you can select only certain beneficiaries to participate in the assembly. The others will have no influence on the resolutions to be adopted. They will only have the right to use the foundation’s assets to the extent you indicate.

Examples of matters on which the beneficiaries’ assembly passes resolutions are the approval of the financial statements or the discharge of the members of the foundation’s bodies. These may also be other matters provided for by the founder in the statutes, such as the appointment of members of the foundation’s supervisory board.

Audit of a Polish family foundation. Audit report

Every Polish family foundation will be audited once every four years by a team of auditors. It will be composed of an independent auditor, tax advisor, lawyer or legal advisor. The result of the audit will be a report on, among other things, whether the foundation manages its assets properly.

How to set up a family foundation in Poland

The appropriate wording of the foundation’s statutes is crucial to ensure that the transfer of control over the foundation’s assets and the management of those assets actually takes place in the way the founder wishes. In our experience, in most cases the scenario of a Polish family foundation will involve two stages:

  1. the 'during the life of the founder’ stage, and
  2. The 'after his death’ stage.

The founder may accumulate most of the rights concerning the foundation. After his or her death, these rights will accrue to the beneficiary assembly or the board of trustees – according to the rules he or she determines.

Family foundation in Poland and taxes

As indicated, the foundation’s endowment of assets is tax-free. Moreover, a Polish family foundation is tax exempt. This means that the current income of the foundation is not taxed. However, the tax exemption has its limits. These are determined by the scope of the foundation’s permitted activities.

The Foundation may carry out business activities in the field of, inter alia:

  • the disposal of property (unless the property was acquired solely for the purpose of resale),
  • rental, lease,
  • participation in companies.

The Foundation may also engage in lending to its companies. In this respect, it will not pay tax on the interest.

When is tax paid in a Polish family foundation?

As already stated – as a general rule, no tax is paid in a foundation. When, therefore, can tax occur?

The first case in which tax may have to be paid is when the foundation receives income outside the catalogue of permitted activities. Such income will be taxed at the rate of 25%. The 25% tax rate is particularly worth bearing in mind if you plan to have the family foundation resell assets. In some cases, the foundation will pay tax at a rate of 19% instead of 25%.

The second case in which tax will have to be paid is when a benefit is paid to a beneficiary. In this case, the corporate income tax is 15% of the value of this benefit. It is paid by the foundation.

The third and final case in which tax may arise is the receipt of a benefit from the foundation by a person who is not a member of the founder’s family (from the so-called 'null group’). Such a person should pay personal income tax at the rate of 10 per cent (family outside the 'zero group’) or 15 per cent (non-family member). This tax is independent of the 15 per cent tax paid by the foundation.

Is solidarity surcharge, health contribution and Social Security paid on the family foundation?

Payments from the foundation do not involve the payment of solidarity levy, health contribution or social security contributions.

Some foundations tax free, others taxed three times?

As you can see, if income is earned outside the scope of the foundation’s permitted activities and then paid by the foundation to a person who is not a member of the founder’s family, there will be a threefold, very unfavourable taxation. Fortunately, in the event that the Polish family foundation is used fully for its intended purpose, the tax will amount to a maximum of 15 per cent.

For foundations that will serve as family investment vehicles, effective taxation will be very low, often close to zero in fact. Taxation will be only 15 per cent on the presumably small value of benefits made occasionally to family members. Indeed, there is no obligation on the foundation to pay out the majority of its income to beneficiaries on a regular basis.

Polish family foundation – most important information

As you can see from the examples above, a Polish family foundation can prove to be a very beneficial solution. It is worth knowing the ins and outs of family foundations to see if, in your case, it is worth taking advantage of the advantages that a family foundation offers.

How to set up a family foundation in Poland?

A foundation is created by filing a ’declaration of family foundation’ in the form of a notarial deed. You can also create a foundation in your will, although it seems that sorting out succession issues should take place as much as possible while you are still alive.

The foundation’s initial fund should be at least PLN 100,000. It does not have to be covered solely by cash.

The key documents of the family foundation are:

  • statute,
  • list of beneficiaries.

The most important activity when setting up a family foundation

In our view, the most important activity in setting up a family foundation is the proper planning of the new structure. The key to a good plan is not only to know how to structure the business, but above all to have an excellent knowledge of the client’s situation and possible future scenarios.

Members of our team have been involved in the construction of legal structures in business for many years. We use both Polish and foreign instruments for this purpose. We have extensive experience of the functioning of family foundations in Western European countries. We will translate these into the new institution of the Polish family foundation.

Find out more about a Polish family foundation

If you are thinking about securing your family assets, your family business, about passing control to the next generation, take a look at the materials we publish. Sign up for our newsletter.

Why not hesitate with succession planning?

Succession planning is an extremely important process that is worth starting early to ensure business continuity and to protect family assets. As part of succession planning, there are a number of tools that can be used effectively, such as a well-prepared will, company agreements or a Polish family foundation. Below are some of the reasons why you should take an interest in them:

  1. Business continuitysuccession planning helps to ensure a smooth transition in the management and running of the business. With properly prepared documents, such as wills and partnership agreements, it is possible to determine who will take control of the business when the current owner steps down. This minimises the risk of disruption to the business and protects the interests of both family and employees.
  2. Safeguarding family assets: succession planning allows the family assets to be optimally managed and safeguarded. By structuring an appropriate will, it is possible to determine which persons will inherit the assets and how the shares are to be divided. Company agreements or family polities are additional tools that enable you to control the assets and protect them from possible disputes or claims.
  3. Avoiding conflicts within the family: succession planning helps to prevent potential conflicts and disputes within the family. Properly structured wills or company agreements define precisely who has the right to inherit and what duties and responsibilities are to fall on individual family members. This minimises the risk of inheritance disputes and enables the family business to function harmoniously.
  4. Tax optimisation: succession planning offers opportunities for tax optimisation. Through the appropriate use of partnership agreements or a Polish family foundation, the tax burden on the transfer of assets and inheritance can be minimised. This enables you to manage your assets efficiently and make the most of available tax benefits and allowances.
  5. Long-term stability: succession planning aims to ensure the long-term stability of the business and family assets. Properly structured documents enable consistency in management, continuity in business strategy and the transfer of values and knowledge from one generation to the next. This builds a lasting foundation for future generations and protects the family’s interests for years to come.

The conclusion is clear – taking an early interest in succession planning and using a well-prepared will, company agreements or a Polish family foundation brings many benefits. This not only ensures business continuity and the protection of family assets, but also minimises the risk of conflicts within the family and enables tax optimisation. The long-term stability of the business and the sustainability of family interests are key aspects that can be achieved through proper succession planning. It is therefore advisable to consult a professional legal advisor who can help you develop a personalised succession plan and select the best tools, such as wills, company agreements or family polities, tailored to your family’s specific needs and goals.

What should not be forgotten when planning to hand over the business to relatives?

Handing over the running of a business to loved ones is an important step in the succession process that requires proper preparation and attention. Here are some points to keep in mind when preparing loved ones to take over the running of the business:

  1. Communication and education: it is important to communicate clearly and transparently your intentions and plans for handing over the business. Relatives should be aware that they will be involved in the running of the business and be properly informed of their roles and responsibilities. It is also necessary to provide adequate training and education so that relatives can acquire the necessary skills and knowledge needed to effectively manage the business.
  2. Define your goals and values: when handing over the company to loved ones, it is a good idea to pass on not only the power but also your values and business goals. Clarifying the company’s mission and what is important to you will help loved ones understand the direction they should take the company. This will also enable you to maintain consistency and continue the business philosophy on which the company was built.
  3. Succession planning: it is important to prepare a personalised succession plan that sets out the detailed stages and timing of the transfer of power. Legal, financial and operational aspects should be included in the plan. It is worth consulting a lawyer and a financier to ensure that the plan is complete and complies with current legislation.
  4. Support and mentoring: when handing over your business to loved ones, it is important to provide them with adequate support and mentoring. You can act as a mentor, providing guidance and sharing your experience. It is important to be available to your loved ones at difficult times and offer help to solve problems. This will help them gain confidence and trust in their abilities.
  5. Securing the future: handing over the running of your business to loved ones also involves properly securing their future. It is worth consulting financial and insurance experts to find the best solutions, such as life insurance policies or key-employee insurance. This will help protect the company and ensure its continuation even in the event of unforeseen situations.
  6. Preparation of legal documents: it is extremely important to draft the relevant legal documents, such as wills, partnership agreements or powers of attorney, which govern the transition of power and ownership. It is advisable to consult an experienced lawyer to ensure that the documents are comprehensive and in accordance with applicable law.
  7. Continuation of business relationships: where the company has ongoing business relationships with contractors, customers or suppliers, it is important to inform them of the succession plans. Ensure that appropriate contracts and agreements are in place to guarantee the continuation of these relationships after the transfer of the company.

Handing over the running of a business to loved ones is a process that takes time, planning and commitment. Remember to provide adequate support, education and mentoring to enable loved ones to manage the business effectively. Succession planning and the preparation of appropriate legal documents are key elements to ensure a smooth transition of power and protect the interests of both the business and loved ones. Therefore, it is worth investing time and effort in properly preparing your loved ones to take over the running of the business and continue its success into the future.

Planning to set up a Polish family foudnation?

Contact me. I will be glad to answer your questions and help you. Click here or just send me a direct e-mail.

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