Poland: Family foundation – a new concept in Polish law

last updated on 7 March 2023 | reading time approx. 3 minutes

A new concept – family foundation – will soon be added to the Polish legal system. The Polish President signed an act that will enter into force three months of its promulgation.

What is family foundation?

Family foundation is introduced in Poland to minimise the risk of unsuccessful succession and to ensure the continuation of business operations of an enterprise. The transfer of assets to the family foundation is to protect the assets from being distributed, to enable them to be multiplied and to derive benefits that can be used to cover the costs of living of persons designated by the founder.

The family foundation will be an entity with legal personality established in Poland. The founder can be a natural person (natural persons) who has (have) full legal capacity. To establish the family foundation, it is necessary that a notary draws up a constitutional document or a will including a statement on the establishment of a family foundation.

Next, it is necessary to prepare the statutes, transfer the selected assets to the family foundation, and have it entered into the register of family foundations. The above provisions comply largely with the regulatory provisions for commercial law companies, which makes it possible to use the doctrine developed under the Code of Commercial Companies.

A beneficiary of the family foundation may be a natural person (including the founder) and a public benefit organisation. The group of beneficiaries should be determined in the constitutional document.

Governing bodies of the family foundation

The governing bodies of the family foundation in Poland are: the management board, the supervisory board and the meeting of beneficiaries.

The management board manages the affairs of the family foundation and represents it. In addition, it is responsible for taking actions to ensure the foundation’s financial liquidity and solvency, creating, keeping, and updating the list of beneficiaries and informing the beneficiaries about their benefits.

The supervisory board supervises the management board. The rights of the supervisory board may be extended in the statutes by a provision allowing the management board to take certain actions only with the supervisory board's prior approval.

The meeting of beneficiaries consists of beneficiaries entitled to participate in the meeting according to the statutes. It adopts the most important resolutions regarding the activity of the foundation.

Business activity pursed by the family foundation

The family foundation in Poland will be allowed to pursue business activity only in the following areas:

sell assets unless they have been acquired for resale only
lease or rent assets or provide them for use on another basis
join commercial companies, investment funds, co-operatives and similar entities established in Poland or abroad and participate in such commercial companies, investment funds, co-operatives and similar entities
acquire and sell securities, derivative instruments and rights of similar nature
grant loans to:

incorporated companies in which the family foundation holds shares
partnerships in which the family foundation participates as a partner

beneficiaries

trade in foreign currencies belonging to the family foundation to make payments connected with the family foundation's business activity
produce plant and animal products processed in a manner other than industrially, except for processed plant and animal products made as part of pursued special agricultural production segments and products subject to excise duty, if the number of plant or animal products produced as part of own crop or animal production used for the production of a given product constitutes at least 50 percent of that product
forestry

If the foundation's activity goes beyond the above scope, it will be subject to CIT of 25 percent of the taxable base, which is to prevent abuse.

Taxation of family foundation

Transfer of funds between the founder and the family foundation in Poland will be tax-neutral. Income from business activity within the above-mentioned scope will be CIT exempt. The foundation will be generally also exempt from CIT on capital gains (paid dividends). Tax will not be payable until funds are paid to beneficiaries. The tax rate will be 15 percent. The benefits obtained by beneficiaries of a family foundation who are the closest family members will be PIT exempt. A preferential PIT rate of 15 percent will apply to benefits granted to other persons.

The family foundation will not be exempt from tax on income from buildings, which means that its buildings with the initial value exceeding in total 10 million zloty will be taxed at a rate of 0.035 percent monthly.