• WEALTH PRESERVATION
POLAND
Family foundations
to beneficiaries. It’s important to note that a Polish foundation cannot dispose of property acquired with the sole intention of subsequent disposal.
pricing documentation and reporting obligations. However, transfer pricing needs to be borne in mind for other reasons, including the so-called hidden profits (distributions). If transactions between related parties are established on non-arm’s length conditions (e.g. in the case of intangible services, loans, or leases), a 15% flat CIT must be paid by the foundation on the difference to the market value. Non-tax benefits Family foundation vs founder’s liabilities A family foundation can serve many purposes, including safeguarding the private wealth of individuals in the event of economic failure. Limiting the family foundation’s liability for the founder’s obligations, can be an interesting wealth protection tool. As a general rule, a family foundation is liable for the founder’s liabilities only up to the value of the property contributed to it by the founder. Moreover, the condition for accepting the foundation’s liability for the founder’s obligations is that they existed before the foundation was established. As already mentioned, the establishment of a family foundation allows for the separation of private and business assets. Very often, Polish entrepreneurs are fully liable for the liabilities of their companies. This is primarily due to the form of business. Many entrepreneurs remain both shareholders and board members of limited liability companies, which can also expose them to liability. This means that most entrepreneurs can be liable for liabilities regardless of whether the
A few words about tax aspects The family foundation is subject to
corporate income tax, with specific rules governing taxation. As long as the family foundation generates income from the allowed business, it does not pay income tax. The tax point arises when the foundation transfers the benefits to the beneficiary. In such a case, the market value of the benefit is subject to a 15% flat tax (no costs are deductible). Benefits received by the founder and his immediate family are not subject to personal income tax. A 10% or 15% PIT rate applies to other beneficiaries. A Polish family foundation can be dissolved. Those entitled to the foundation’s assets are the founder or other persons he or she designates, or, in the event of his or her death, the heirs. And here, too, there will be an income tax of 15%, paid by the foundation. In this situation, however, the foundation is allowed to deduct from the CIT basis the hypothetical tax costs attributable to assets contributed to the foundation by the founder. If the family foundation engages in business activities not formally allowed, the income generated is subject to a 25% CIT rate. Don’t forget about transfer pricing By definition, a family foundation is based on relationships with related entities (or individuals). For this reason, there is a high probability that transactions made between the foundation and, for example, beneficiaries will be subject to transfer
Magdalena Dymkowska has specialised in transfer pricing since 2009, and received individual distinctions as one of the best tax experts in the field of transfer pricing in World Transfer Pricing 2023 and 2024. Magdalena is head of Working Group no.7 with the TP Forum in Poland. She is involved in projects related to designing intra-group settlement models (including those based on the profit split method) and defending them during tax audits, preparing transfer pricing policies and filing applications for Advance Pricing Agreements.
Magdalena Dymkowska Partner Magdalena Marciniak Partner MDDP Michalik Dłuska Dziedzic i Partnerzy
ABC of the Polish Family Foundation
the beneficiaries, and ensuring the fulfilment of benefits. The key advantages of a family foundation for the founder include securing the financial well-being of family members, separating business and family affairs, consolidating and safeguarding assets, facilitating effective management and growth of assets, and enabling strategic succession planning over multiple generations. Founder and beneficiaries The founder can be an individual who has full legal capacity, which means, among other things, the right to alienate their property. The founder is expected to provide the family foundation with a minimum initial capital of EUR 25,000. The circle of beneficiaries of a family foundation and the scope of their rights should be determined by the founder. The beneficiary can be: a natural person or a non-governmental organisation engaged in public benefit activities. The beneficiary can also be the founder. Business activity of a family foundation — is it possible? A foundation can operate a business, be an active entity, and generate income. However, not every conceivable activity is eligible for CIT exemption, which is limited to activities specified in the approved list. A foundation may generate income from renting or providing property, joining companies or partnerships, participating in investment funds, investing in foreign companies, or investing in financial markets. A foundation may also grant loans, but only to companies in which it holds shares or
A family foundation is an interesting solution for managing private wealth and succession planning, allowing tax-free wealth management and freely structured inheritance. General goals The family foundation serves the purpose of accumulating property, managing it in the best interests of
+48 501 108 261 magdalena.dymkowska@mddp.pl irglobal.com/advisor/magdalena-dymkowska
P olish regulations are considered some of the most challenging. Swift adaptation to these dynamically changing regulations is inherently complex and, as a result, costly. Polish regulations impose numerous obligations on taxpayers, threatening substantial penalties for non-compliance. For instance, in the case of the annual information on transactions with related entities, failure to submit this form may trigger a fine of up to EUR 8 million. For these reasons, Polish investors are actively seeking long-term solutions to secure their wealth, while staying within the confines of available legal and tax solutions. In recent years, there have been notable advancements in income tax regulations, introducing various measures designed to promote investment. One such solution is the family foundation. It is a novelty in our country. Countries like Liechtenstein, Switzerland, Austria, Malta, and Monaco already permit taxpayers to establish family foundations. Both in Poland and in foreign legal regimes, the primary purpose of a private foundation is typically not to engage in business but rather to focus on the safekeeping of assets, wealth management and providing benefits – whether in kind or in cash – to the designated beneficiaries.
assets are personal or company assets. For this reason, the establishment of a family foundation should be considered not only by those planning succession, but also by those running a higher-risk business. Conclusions Despite family foundations being in force for less than a year, we have witnessed the registration of over 300, and the interest continues to grow. This is understandable, as a foundation allows investors to secure your family business against unplanned division/hereditary succession and provides financial security for the next generation.
Magdalena Marciniak is a leading expert in Poland according to the “Women in Tax” ranking, International Tax Review (2024, 2023). A recognised expert in transfer pricing, she leads MDDP’s team of more than 50 people – one of the biggest and most acclaimed transfer pricing teams in the Polish market. She oversees projects on documenting transaction flows in corporate groups and valuing goods and services transactions among related entities.
About us...
www.mddp.pl/en
MDDP is the leading independent Polish tax advisory firm, with a presence in the market since 2004. Our team consists of nearly 200 experts in VAT, income taxes, transfer pricing, international taxes, domestic taxes, tax and court proceedings, and customs and excise duties. We carry out innovative, groundbreaking tax cases and projects in Poland. We actively contribute to consultations of draft legislation; we are experts for the
European Commission, business organisations, and trade associations. Our experts have written several books and articles in professional publications. Our transfer pricing team was founded in the same year as MDDP itself. Since then, the team has grown to more than 50 transfer pricing specialists who are ready to answer questions and resolve issues, ensuring a personal approach to each client’s needs.
+48 665 746 360 magdalena.marciniak@mddp.pl irglobal.com/advisor/magdalena-marciniak
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