For many years it has been clear for Polish entrepreneurs that there is no simple legal answer to their strong need to secure their family assets, and above all their family businesses, for future succession. Due to the lack of appropriate instruments in the Polish legal system, many national entrepreneurs were forced to use the legal institutions of other jurisdictions. This solution was highly uncomfortable because of the differences in legal regimes and foreign legal requirements that did not entirely meet the needs of domestic entrepreneurs.
Finally, by virtue of the Act on Family Foundation of 26 January 2023 that entered into force on 22 May 2023, the family foundation was introduced into the Polish legal order. According to the Ministry of Economic Development and Technology of the Republic of Poland, by the end of 2023, around 300 family foundations were registered, along with over 3,000 succession administrators offering their professional assistance in managing family foundations’ affairs. It only further proves that a family foundation has been a long-awaited legal vehicle for succession planning as well as for accumulating and securing family wealth.
In view of the popularity of the Polish family foundation, it is worth summarizing the most important features of this institution. The purpose of a family foundation is to accumulate property, manage it in the interests of beneficiaries, and provide benefits for beneficiaries. A ‘benefit’ means assets, including cash, tangible goods or rights, transferred to the beneficiary or made available to the beneficiary for use by a family foundation or a family foundation in organization, in accordance with the statutes and list of beneficiaries. The founder of a family foundation can only be an individual (natural person) with full capacity to take legal action who makes a declaration on the establishment of a family foundation in either a deed of incorporation or a will. The founder must also provide a contribution to the family foundation to cover the initial fund with a value no smaller than PLN 100,000 (around USD 25,000). Upon signing of the deed of incorporation or announcement of the will, a family foundation in organization is created. The family foundation in organization acquires legal personality and becomes a family foundation upon registration in the register of family foundations.
The family foundation’s governing bodies are the management board, the beneficiaries’ meeting and the supervisory board. The main task of the management board is to run the family foundation’s affairs and represent it (act on its behalf), whereas the beneficiaries’ meeting is the ultimate decision-making body. The supervisory board is mandatory if the number of beneficiaries exceeds 25, and its key purpose is the supervision of the management board. Hence, the structure applied in the Polish family foundation is familiar to the Polish legal system, as it is similar to that of a Polish limited liability company, which is one of the most common companies in Poland.
When it comes to the scope of operation of a family foundation, it has the right to conduct business activities, but to a limited extent. By way of example, a family foundation can sell, lease or rent real property; participate in companies, investment funds and cooperatives; buy and sell securities, derivatives and other rights of a similar nature. It needs to be stressed that conducting business activities exceeding the permitted scope may trigger adverse consequences for the family foundation, like taxation of income from such activities at a corporate income tax (CIT) rate of 25%.
One of the main reasons for the popularity of the Polish family foundation is tax driven. Apart from few exemptions (including the above-mentioned case where a family foundation exceeds the permitted scope of business activity or where a family foundation transfers benefits to beneficiaries) family foundations are basically CIT-free. In addition, the closest family members of the founder belonging to “group zero” (spouse, descendants, ascendants, stepchildren, siblings, stepfather, and stepmother) are generally exempt from the personal income tax, as well as the inheritance and donation tax with respect to assets contributed to the family foundation by the founder.
But despite the numerous advantages, the family foundation is not without its faults. For example, there is no generally accessible digital register of family foundations, which means that obtaining information about a family foundation may take up to several weeks. In addition, there is only one court in Poland that deals with matters concerning family foundations, which may lead to case overload and very long document-processing time.
To sum up, currently there are around 830,000 family businesses in Poland, thus, it is fair to say that 300 Polish family foundations is just the beginning, and its importance as a new legal instrument will certainly grow over time. On the other hand, a well-known practice in other countries is to employ family foundations in complex transactions and corporate restructurings for the purpose of tax optimization. At this point such utilization of the Polish family foundation seems to be questionable because of the general anti-avoidance rule laid down in Polish tax law. However, it is yet to be seen how the Polish lawmaker and courts will impact the functioning of family foundations in practice – and not only from tax perspective – in the near future.
By Krzysztof Banaszek, Senior Associate, Noerr
