Tax consequences of liquidation of a family foundation in Poland

The Act of 26th January 2023 on Family Foundations regulates the liquidation of a family foundation. It specifies the circumstances of dissolving a family foundation and the liquidation procedure. It also defines obligations of liquidators. The liquidation of a family foundation entails also tax consequences. They are related to the distribution of the foundation’s assets. Therefore, provisions regulating the liquidation of a family foundation can be also found in other legal acts.

How does the process of liquidation of a family foundation go? What are the tax consequences of liquidating a family foundation? Find answers to these questions in the article below.

Table of Contents

• Liquidation of a family foundation – basic information
• Liquidation of a family foundation and corporate income tax (CIT)
• Liquidation of a family foundation and personal income tax (PIT)
• Summary

Liquidation of a family foundation – basic information

The dissolution and liquidation of a family foundation are regulated by Chapter 11 of the Family Foundation Act.

According to the regulations, a dissolution of a family foundation occurs if:

1. circumstances indicated in the statute occur. In particular: when the period for which the family foundation was established has expired, the purpose of the family foundation has been fulfilled, there is no possibility of further achieving the purpose of the family foundation, or its realization involves excessive difficulties that cannot be overcome without incurring disproportionately high costs.
2. it is managed in a manner contrary to its purpose or the interests of the beneficiaries.
3. if, for other valid reasons, it is pointless to continue the family foundation,
4. the bankruptcy proceedings of a family foundation conducting economic activities have been completed.
5. circumstances mentioned in Art. 105 of the Act of 26th January 2023 on Family Foundations occur.

The dissolution of a family foundation takes place after finishing the liquidation procedure. It happens at the moment when the entity is removed from the register of family foundations.

The liquidation of a family foundation is opened after:

• the decision of the registry court on the dissolution of the family foundation becomes final, or
• the management board’s or beneficiaries’ assembly’s resolution on the dissolution of the family foundation.

The liquidation is conducted under the name of the family foundation with the additional phrase “in liquidation”. During the process, the family foundation still keeps its legal personality.

A member of the management board becomes the liquidator of the foundation. Alternatively, the registry court may appoint another person as the liquidator. The court may choose more than one person for this function.

The liquidators announce the opening of the liquidation of the family foundation in the Court and Economic Monitor once. At the same time, they call on creditors to report their claims. They have one month from the date of the announcement to do that.

The liquidators are obliged to:

• conclude the current operations of the family foundation,
• collect receivables,
• fulfil the obligations of the family foundation.

They can only start new transactions if it is necessary to complete the ongoing matters.

Liquidation of a family foundation and corporate income tax (CIT)

The tax consequences of the liquidation of a family foundation under the CIT are regulated. The Act of 15 February 1992 on Corporate Income Tax identifies them.

According to Art. 24q of the CIT Act, taxation applies to property transferred or made available directly or indirectly by the family foundation in connection with its dissolution. In this case, the CIT rate of 15% of the tax base will apply.

The tax base is the income corresponding to the value of the benefit or property transferred or made available by the family foundation. In the dissolution of the foundation, the income is reduced by the tax value of the contributed property.

The tax is due by the 20th day of the month following the month in which the benefit or property was transferred or made available.

Liquidation of a family foundation and personal income tax (PIT)

For the PIT taxation of the liquidation of a family foundation, a solution identical to that for receiving benefits from a family foundation was introduced. The Personal Income Tax Act of 26 July 1991 provides relevant regulations.

According to the PIT Act, income received or made available in connection with the dissolution of a family foundation is considered income from other sources as referred to in Art. 10 sec. point. 9 of the PIT Act. Such income is subject to a 15% PIT tax rate. However, the legislator has provided an exemption from PIT for:

• the founder or
• persons who, in relation to the founder, are persons referred to in Art. 4a sec. 1 of the Act of 28 July 1983 on Inheritance and Gift tax. Namely, spouses, descendants, ascendants, stepchildren, siblings, stepfather and stepmother,

entitled to receive property in connection with the dissolution of a family foundation.

The exemption applies to the portion of income corresponding to the proportion specified in the Family Foundation Act, as of the date of obtaining the income.

Summary

Liquidation of a family foundation has tax consequences. They are important both for corporate income tax and personal income tax. The transfer of property in connection with the liquidation of a family foundation is subject to CIT. Its amount is 15% of the tax base. The tax base is determined by the value of the property of the dissolved family foundation reduced by the tax value of the contributed property. For PIT, income received from the transfer of property resulting from the dissolution of a foundation is subject to a 15% tax rate. Yet, the legislator provided an exemption from PIT. It concerns the founder and those who belong to the “zero tax group”. Namely, people entitled to receive property as a result of the liquidation of the family foundation.

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.