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Family foundation as tool for protecting and developing family businesses in Poland?

It seems that in the first half of 2023 year, the regulations on family foundations will come into force. The provisions adopted by the Sejm on December 14, 2022 are waiting for a vote in the Senate.

The main objective of the Family Foundation Act (hereinafter referred to as “the Act”) is to enable Polish family businesses to protect the assets from the family business by collecting, properly managing, drawing benefits from and succession of a such assets. As the originators of the idea of a family foundation indicate, it is to act as a “family treasury” and is to be a means to achieve the goal of maintaining the operation of a family business for generations, while securing the financial needs of its beneficiaries, i.e. ensuring the means of subsistence – as a rule – for members of the founder’s immediate family. It should be emphasized here that a family foundation is not to be an instrument for conducting a business activity, with the reservation that it will exceptionally be able to conduct activities consisting in property turnover, provided that certain conditions are met.

Simplifying, it is about creating regulations that will allow a family foundation to contribute assets worth at least PLN 100,000, e.g. plots of land (this stage will be tax-free), so that the foundation manages these assets in the interest of the beneficiaries and provides benefits to the beneficiaries.

Of course, the adoption of at least tax-neutral solutions will be crucial for the success of this project. And so, as a rule, taxation of a family foundation and its beneficiaries is to take into account family relationships with the founder, which means that establishing a family foundation and transferring assets to it will not be taxed, but the family foundation will be subject to 15% CIT. Nevertheless, CIT dues will be collected only at the time of transferring the funds to the beneficiaries, subject to the impossibility of deducting tax-deductible costs and depreciation. Beneficiaries who are natural persons (PIT taxpayers) will be exempt from tax if they are the founder and his/her spouse, ascendant, descendant, sibling, stepson/stepdaughter, stepfather or stepmother. Other beneficiaries who are natural persons will pay 15% PIT dues. Beneficiaries who are non-governmental organizations will pay CIT on the existing terms, however, they will be able to take advantage of the applicable subject-exemption.

It should be added that in order to ensure the functioning of a family foundation, it will also be necessary to establish flexible rules for legitim. The above will result in the amendment to the Civil Code and the introduction of regulations on legitim, e.g. the right to waive it, spread it into installments, postpone its payment dates, and even reduce it in justified cases. It is worth pointing out here that if the beneficiary of a family foundation is entitled to legitim, they will be able to receive only one of these benefits.

I will follow the topic development with great interest to check whether the Polish legal system will successfully introduce the solution of a family foundation, which is already known in many European countries and in the world, and whether Polish family businesses will be willing to use it.

Monika Chojnacka
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