The Polish family foundation is often described as a „tax-neutral” vehicle. That is an oversimplification – and one that can be costly. In reality, the family foundation operates within an elaborate system of exemptions and exceptions, with several traps that are easy to overlook at the planning stage.
In this article, we explain how much tax you will actually pay at each stage of a family foundation’s life – from the initial contribution of assets, through ongoing income, to distributions to beneficiaries.
Contributing Assets to the Foundation – Zero Tax, But Only If Done Correctly
Contributing assets to a family foundation is tax-neutral. The founder pays neither personal income tax (PIT) nor corporate income tax (CIT) on transferred assets, and the foundation does not recognise taxable income from received property. This is one of the institution’s greatest advantages.
The trap: Tax neutrality applies exclusively to assets contributed by the founder or close relatives (tax groups I and II). Property contributed by other persons – such as external investors or more distant relatives – may be treated as a gift and taxed under general rules.
Practical note: Before transferring assets to the foundation, verify whether a tax liability may arise on the foundation’s side as the recipient of the gift. This is particularly relevant where the founder is a company rather than an individual.
Ongoing Foundation Income – 0%, 15% or 25% CIT
This is the heart of the family foundation’s tax regime. The general rule is straightforward: the foundation benefits from a CIT exemption on income derived from permitted activities. But the devil, as always, is in the details.
CIT exemption (0% rate) covers:
- Rental and lease income from real property (including long-term leases)
- Dividends and profits from domestic and foreign companies (with limitations)
- Interest on loans granted to subsidiary companies
- Proceeds from the sale of shares and equity interests (where not „trading” in nature)
- Income from bank deposits and government bonds.
15% CIT (punitive, but not criminal) applies to:
- Activities falling outside the statutory catalogue of permitted activities
- Services rendered by the foundation to third parties (other than beneficiaries).
25% CIT (penal rate) is triggered where:
- The foundation conducts operational business activity (trading, manufacturing, services)
- Short-term rental income – authorities continue to challenge this before the courts (see our previous article)
- Disguised distributions to the founder not structured as formal distributions.
Practical note: Tax authorities are increasingly challenging transactions between the foundation and companies connected to the founder, alleging abuse of law. Transfer pricing documentation may prove necessary even where no formal obligation exists.
Distributions to Beneficiaries – Different Treatment Depending on Relationship with the Founder
When the foundation makes payments to beneficiaries, a tax liability arises on their side – not on the foundation’s side.
Zero PIT rate (full exemption) for:
- The founder and their spouse
- The founder’s children, grandchildren and great-grandchildren
- The founder’s parents and grandparents
- The founder’s siblings
15% PIT for all other beneficiaries (e.g. more distant relatives, unrelated persons).
Important rule: The foundation withholds 15% CIT on the value of distributions made – beneficiaries entitled to an exemption may then offset or recover this tax. This mechanism requires careful documentation of all payments.
Winding Up the Foundation – The Moment Few Think About at the Start
Dissolving a family foundation triggers tax. Assets distributed to beneficiaries upon liquidation are subject to PIT on the beneficiaries’ side – at the same rates as regular distributions (0% or 15%). The foundation itself will pay 15% CIT on the property distributed.
The trap: Where assets have significantly appreciated in value since contribution (e.g. real estate, startup equity), the tax base on liquidation is calculated on the basis of market value, not historical cost. This can generate a substantial tax burden even within an ostensibly simple structure.
The Most Common Tax Mistakes When Establishing a Family Foundation
Based on our analysis of individual tax rulings and court judgments, we identify the most frequent errors:
Mistake 1: Contributing receivables without prior tax analysis
Authorities are increasingly arguing that repayment of a receivable contributed to the foundation constitutes „business activity”. Courts are currently defending taxpayers, but the interpretive risk is real.
Mistake 2: Commingling the founder’s personal assets with foundation assets
While the regulations do not expressly prohibit transactions between the founder and the foundation, every such transaction is scrutinised by the authorities. We recommend full transparency and arm’s-length documentation.
Mistake 3: A statute that does not match the planned activities
The statute defines the foundation’s permitted activities. Provisions that are too broad or too narrow may result in 25% CIT being applied to activities that were intended to benefit from the exemption.
Conclusion
A family foundation can be highly tax-efficient – but it requires precise structural planning before the foundation is established. The key questions are: where does the property come from, what will the foundation do with the assets, and who will be the beneficiaries?
If you would like to verify whether your family foundation structure is tax-optimal, we invite you to consult with the CGO Legal team.
Michał Gawlak
attorney-at-law
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Family Foundation and Liabilities – How to Protect Assets from Creditors
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In this article, we explain how asset protection works in a family foundation and what its limitations are [Read more…]
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