There is no doubt that the family foundation will soon become one of the crucial strategies for assets protection and succession planning. After years of waiting, the Sejm adopted the Act on Polish family foundations and it will come into force on May 22 this year. We already know what the taxation of a family foundation will look like. This article will explain what taxes a family foundation will have to pay.
Table of Contents
- Taxation of a family foundation – optimistic scenario
- Taxation of a family foundation – pessimistic scenario
- Taxation of a family foundation – CIT
- Taxation of a family foundation – PIT
- Inheritance and gift tax
- Exemption from the capital gains tax
- Family foundation and taxes – summary
Taxation of a family foundation – optimistic scenario
Adequate preparation of the corporate structure can lower the tax from a rate exceeding 26% (CIT + PIT) to 9% CIT value in an LLC. This concerns small taxpayers. If funds are paid out to a beneficiary, the foundation will additionally pay 15% CIT on their amount. The tax is payable only in the event of making a payment to the beneficiary.
Taxation of a family foundation – pessimistic scenario
A taxpayer will pay CIT in the amount of 19 %. The transfer of funds to the family foundation is tax-free. Yet, when the funds are paid out to the private assets of a beneficiary, the foundation must pay CIT at the rate of 15% of these funds. Additionally, if the beneficiary is an individual who doesn’t qualify as a close person to the funder, it is also necessary to pay PIT at the 15% rate.
Taxation of a family foundation – CIT
The family foundation is an entity exempt from CIT. Nonetheless, it is obliged to pay the tax when it makes a payment in favour of the beneficiary. In such a scenario the CIT amounts to 15% of the tax base.
Taxation of a family foundation – PIT
As a rule, benefits received by beneficiaries of the family foundation will be subject to personal income tax. But, the acquisition of benefits by the funder or his closest relatives is an exception. Both the funder and his relatives will be exempt from PIT on benefits or property left at their disposal after the dissolution of the family foundation. The group of the closest relatives who will benefit from this exemption is extensive. It includes:
- sons-in-law and daughters-in-law,
- father-in-law and mother-in-law of the funder.
It’s worth knowing that the family foundation can perform the funder’s maintenance obligation. In this situation, the person entitled to maintenance also benefits from the PIT exemption.
Beneficiaries who don’t belong to the group of closest relatives must be prepared to pay PIT. Its value will amount to 15% of the tax base.
Inheritance and gift tax
Beneficiaries of the foundation are exempt from inheritance and gift tax. Yet, the foundation may also transfer funds to third parties who are not beneficiaries. In such a situation, the third party will have to pay inheritance and gift tax. At the same time, the third party will not be subject to the obligation to pay personal income tax.
Exemption from the capital gains tax
The exemption from income tax on capital gains will also apply to the family foundation. Moreover, it will cover dividends and interest received from companies in which it holds shares or stocks.
Family foundation and taxes – summary
The taxation of Polish family foundation is based on rules similar to those of the Estonian CIT. The obligation to pay CIT occurs only in the case of paying funds to beneficiaries. The CIT rate will always be 15% and will be due on the paid out funds paid. Beneficiaries will be able to either use the full PIT exemption or pay PIT at the rate of 15%. You can find detailed information below.
|15% CIT / 0% PIT||15% CIT / 15% PIT|
|For payments to the funder’s estate and beneficiaries from the “zero group” (closest relatives of the funder). Namely: a spouse, descendant, ascendant, stepchild, siblings, stepfather and stepmother.||In the case of payments made to the estates of persons other than the funder himself or beneficiaries from the “zero group”.|
If you find this article interesting and want to know more about the topic, read our article: “Family Foundation in Poland“. Do you want to consult your individual case? Experts from our law firm are at your disposal. Contact us today and make an appointment.