A family foundation Q&A?

Following many years of a lack of solutions to protect family assets and family businesses, on 6 February 2023, the President of the Republic of Poland signed the Act of 26 January 2023. on family foundations introducing a new entity, the family foundation, into the Polish legal order. As mentioned in a communiqué issued after the meeting of the Council of Ministers: “Thanks to the establishment of a family foundation, ownership of a company could be retained for generations. This will allow capital to be retained in Poland and increase the chances of strengthening the market position of Polish companies.”

This was inspired by the same solutions in many European countries, such as Austria and Liechtenstein. Succession is one of the challenges very often faced by entrepreneurs, and a family foundation will make it possible to create organisational structures that ensure business continuity and the protection of assets in a multi-generational perspective.

What necessary steps must be pursued to establish a family foundation?

First of all, the founder must declare the establishment of the family foundation before a notary public in a foundation deed or in a will. This is followed by drawing up the foundation’s articles of association containing the rules of its operation and transferring assets to the foundation fund, in the amount of at least PLN 100,000. It is also necessary to establish the foundation’s bodies. The final step in establishing a family foundation is its registration in the register of family foundations kept by the District Court in Piotrków Trybunalski.

Who can become a funder and who can become a beneficiary?

An individual with full legal capacity may become a founder. In the case of a foundation established before a notary public in the foundation act, several founders are possible. On the other hand, a natural person, including the founder, as well as a non-governmental organisation conducting public benefit activity, will become a foundation beneficiary.

Internal structure, that is the bodies of the family foundation.

Like other legal entities, family foundations will operate through a management board. The foundation will be subject to the internal supervision of the supervisory board. The beneficiaries, designated by the founder, will form a beneficiaries’ assembly, meeting on specific occasions.

Will a family foundation be able to conduct business?

Yes, but the scope of activities is strictly defined in Article 5 of the Family Foundation Act and includes:

• Disposal of property, provided that the property has not been acquired solely for the purpose of further disposal (this condition will not apply to shares, stocks and other securities, that is they could be acquired and disposed of by foundations);
• renting, leasing or making property available for use on another basis;
• joining and participating in commercial companies, investment funds, cooperatives and entities of a similar nature established either domestically or abroad;
• acquisition and disposal of securities, derivatives and rights of a similar nature;
• providing loans to the beneficiaries of the family foundation and its subsidiaries;
• circulation of foreign legal tender belonging to the family foundation to make payments related to the activites of the family foundation;
• production of plant and animal products (with some exceptions);
• forest management.

What are the benefits of setting up a family foundation in terms of tax law?

Family foundations will be exempt from corporate income tax (hereafter: CIT) to the extent of business allowed for them, that is the CIT exemption will apply to the gains from the daily business of the foundation.

When the funds are transferred to the beneficiaries, the family foundation will pay a CIT of 15%.

In a situation in which the beneficiary will be the founder or a person closely related to him/her (a ‘0’ beneficiary – according to the Law of 26 July 1991 on Personal Income Tax) it will be possible to apply exemption from personal income tax.

What changes does the new provision bring to the law of succession?

The law provides for a number of changes in the law of succession as regards the reserved portion of the estate. Among other things, it provides that the entitled person may waive the right to the reserved portion of the estate, to divide it into instalments, to defer its payment and, exceptionally, even to reduce its amount. Furthermore, the beneficiary will be entitled to claim a supplement to the reserved amount from the foundation’s fund and the benefit granted to him from the foundation will be included in the reserved amount.

Ewa Lejman-Widz, Attorney at Law, tax adviser

Anna Królikowska, Legal Assistant