The Government Legislation Center is currently working on a bill on family foundations. The basic facilitation related to the operation of family foundations is to avoid classic inheritance proceedings. Inheritance acquisition confirmation and inheritance division often take years. However, according to the bill the founder will transfer his/her property to the foundation. The latter will manage it after the founder’s death, distributing it to the foundation’s beneficiaries (heirs or other close relatives).
The purpose of family foundations is to secure the assets of the founder – an entrepreneur – to transfer them to beneficiaries. The model of a family foundation is to ensure a smooth assumption of management over the founder’s business after his/her death. At the same time, it provides some facilitation and tax benefits that are not present in the framework of a “classical” succession based on a statute or a will.
The function of the family foundation will be to accumulate, manage and protect the founder’s assets per his or her will as expressed in the statute. It will also have the responsibility of providing resources for designated beneficiaries, particularly relatives of the founder and public benefit organizations. The family foundation will function through a board of directors and be subject to the internal supervision of a board of protectors. The minimum amount of assets allocated by the founder to the family foundation is 100,000 PLN.
Tax settlement becomes an important issue in this case. The assets contributed to the foundation by the founder will not be the income within the meaning of the Corporate Income Tax Law (CIT). In turn, the income of the beneficiaries will not be taxed with the personal income tax but with the tax on inheritance and donations. To the remaining extent, the foundation’s income will be subject to CIT. Despite the family foundation’s prohibition to engage in business activities, the foundation will be able to generate passive income from its assets. For example, income from rental or lease of property, income from copyrights, patents, and licenses, so it is worth taking this into account as well.
According to the project, there is a possibility to pay out the assets also to the founder himself/herself – during his/her lifetime – as a beneficiary of the foundation. It also becomes possible to staff the foundation’s bodies exclusively with family members, whereas the original version of the regulations required the involvement of professional entities.
The current timetable provides for the legislation to enter into force at the beginning of 2022. It is difficult to predict how popular it will be. Certainly, the reduced waiting time and ease of formality encourage people to take advantage of the foundation option. However, only after all the changes to the Family Foundations Act are known will it be possible to verify their potential usefulness.
Do you want to be up-to-date? Subscribe to our newsletter!