family foundation Image by Freepik The family foundation is a new legal person, introduced by the Act, which entered into force 22 May 2023 The establishment of a family foundation should be considered at different levels.
First, look at it as a tool to facilitate the planning of succession. This entity will allow the property to be managed in a planned way, securing the funder's assets for future generations. The Funder shall be able to plan the management of the assets, which will allow the operation and payment of benefits to beneficiaries in a sustainable manner. The establishment of a family foundation will allow the company to operate, collect and multiply assets over generations and avoid fragmentation.
The introduction of the Family Foundation Act was a response to the needs of Polish entrepreneurs, who run so-called family businesses and would like their heirs to develop family business in the future, rather than to use inherited property – shares – for consumer purposes.
Family foundations have long existed in many countries around the world. The largest in the world is the Bill & Melinda Gates Foundation. Other major foundations include Wallenberg family foundations (controlled by Ericsson, SAAB, Electrolux), David & Lucile Packard Foundation, Hans Wilsdorf Foundation (owner of ROLEX), Wallmart, L’Oréal and others.
Until now Polish entrepreneurs have been able to benefit only from foreign regulations.
The purpose of the purpose of the family foundation is to protect the property of the funder and to provide benefits to beneficiaries. Fund beneficiaries will most often be members of the funder's family. In addition, the beneficiary may also be the founder himself. The family foundation will be able to finance beneficiaries, e.g. education, medical expenses, lending, etc. In addition, the foundation will be able to repay the beneficiaries' obligations (e.g. paying alimony for the funder).
In view of the above, the family foundation is ideal for those who want to preserve the accumulated family assets, which will be protected against fragmentation and missed decisions of the heirs, while at the same time ensuring that they benefit from the funder's assets.
By including the relevant provisions in the Statute, the Foundation may have an impact on the functioning of the family foundation and its management even after death. The actions taken by the funder will allow the property of the foundation to be held rationally and allow not only for its behavior, but also for the future generations.
In addition, the family foundation can also act as a transaction vehicle. In accordance with the provisions of the Act, it may carry out economic activities, inter alia, in relation to access to commercial companies, investment funds, cooperatives and entities of a similar nature, established either in the country or abroad, as well as participation in those companies, funds, cooperatives and entities, and the acquisition and disposal of securities, derivatives and similar rights.
The family foundation also attracts interest among entrepreneurs who want to avoid being held liable by personal assets for obligations arising from their business activity and therefore want to separate personal assets from the property of the enterprise.
If the property is transferred to a family foundation, it will be separated from the entrepreneur's personal property, which will protect him from the risks associated with the conduct of business activities and possible business failures of the actions taken.
Only marginally should it be mentioned that the family foundation will be jointly and severally liable to the funder for his civil liability and tax arrears arising before the foundation was established, but only to the amount of property contributed to it. However, he will no longer answer for the obligations of the funder created after its establishment.
In addition, the family foundation benefits from tax preferences. As a legal person, it is a taxpayer of CIT, but benefits from an individual corporate income tax exemption (Article 6(1)(25) CIT Act) . It may carry out economic activities, but only in the scope indicated in the Act:
- the disposal of property, unless it has been acquired solely for further disposal;
- leasing, leasing or making available property for use on another basis;
- access to, and participation in, commercial companies, investment funds, cooperatives and entities of a similar nature established in the country or abroad;
- the acquisition and disposal of securities, derivatives and similar rights;
- lending: capital companies in which the family foundation holds shares or shares, personal companies in which the family foundation participates as a partner, beneficiaries;
- the marketing of foreign means of payment belonging to the Foundation for the purpose of making payments related to the activities of the family foundation;
production of non-industrially processed plant and animal products, with the exception of processed plant and animal products obtained in the framework of the special agricultural production departments carried out and products subject to excise duty, in so far as the quantity of plant or animal products derived from their own cultivation, rearing or rearing used in the production of the product at least represents 50% the product;
forest management.
The income obtained from these activities will be exempted from CIT.
However, it should be borne in mind that the exemption from CIT is not total and that not all tax events will benefit from this exemption. The CIT exemption does not apply to revenue tax on buildings. However, until the family foundation pays benefits to beneficiaries, there will be no CIT tax. The payment of dividends from companies in which the family foundation will hold shares will also not result in a tax liability on its side. Only when the benefits are paid to or wound up will CIT be taxed at 15%.
As it follows from the above, the establishment of a family foundation is beneficial in terms of both business and succession planning, but it needs to be used very carefully and the decision to establish it should be considered very carefully.