Three years of the family foundation in Poland. What do we already know about succession, taxes and practice?

The family foundation was meant to answer a problem Polish entrepreneurs had faced for years: how to pass on assets and control over a company in an orderly way, without the accidental fragmentation of shares, inheritance disputes and a loss of business continuity.

After its first years in operation, we can now speak not just of theory, but of practice. It is becoming clear in which situations the family foundation works well as an ownership tool, and where it requires particular caution – in the areas of taxation, accounting, forced heirship and permitted activity.

Why did Polish business need a family foundation?

The founding generation of many Polish private and family businesses is reaching the point where a succession decision becomes necessary. For years, domestic law offered no dedicated tool allowing a company to be kept in the same hands, family assets to be separated from operational risk, and generational transition to be planned predictably.

Some owners used foreign structures – Austrian, Liechtenstein or Swiss. These were, however, costly, required cooperation with advisers in other jurisdictions, and did not always fit the realities of Polish family business.

The Polish family foundation was meant to fill this gap: to provide a domestic, coherent legal framework for organising assets, ownership control and succession.

The family foundation is not just about taxes. It is a succession tool.

The most common mistake in discussions about the family foundation is reducing it to a tax vehicle. Yet its purpose begins much earlier – with questions only the owner can answer: who should control the company after they step back, who should benefit from the assets, how to protect the business from fragmented decision-making, and how to reconcile family goals with operational ones.

Only afterwards come decisions about the statute, beneficiaries, distribution rules, the foundation's governing bodies and its relationship with the operating company. Preparing the family and the management team is just as important as the documents.

Registering a family foundation — a success for the institution, a strain on the procedure

Interest in the family foundation has significantly exceeded initial expectations. The register of family foundations is kept by the Regional Court in Piotrków Trybunalski, and experience shows that with a high volume of applications, the waiting time for registration can become a significant element in planning the whole process.

In many cases, the waiting time for entry has become an important factor to plan for. Experience shows it must be factored in not only into the timetable, but also into discussions with banks, AML obligations, filings with the Central Register of Beneficial Owners (CRBR), and the registration documentation of companies being contributed to the foundation.

Accounting and taxation of a family foundation require a separate approach

A family foundation does not operate like an ordinary limited liability company. It is an entity with a specific legal structure and purpose – which affects the way books, asset records, payouts and benefits to beneficiaries are kept.

In practice this means the need for:

• preparing an individual accounting policy tailored to the foundation's profile;
• building a chart of accounts covering contributed assets, passive income and benefits;
• separating permitted activity from activity that may generate tax risk;
• analysing transactions with related parties from a transfer-pricing perspective;
• ongoing tax monitoring, particularly after significant asset events.

For this reason, the bookkeeping of a family foundation should be carried out with full awareness of its specific nature. It is worth considering a model that combines bookkeeping services for family foundations with ongoing tax and legal support.

Permitted activity and the risk of punitive taxation

A family foundation benefits from a preferential tax regime only within the bounds of its so-called permitted activity. Within the scope of activity falling within the statutory limits, a family foundation is generally exempt from CIT. Payment of a benefit to a beneficiary, and the transfer of assets in connection with the foundation's dissolution, are generally taxed at the level of the foundation at a rate of 15% of the tax base. Business activity going beyond the permitted scope may be taxed at a rate of 25%. The tax consequences of payouts to beneficiaries depend, among other things, on the beneficiary's relationship with the founder and the proportion of assets contributed by the founder.

These rates sound simple, but applying them requires careful analysis. In practice, risks arise where:

• the foundation engages in loans, leasing or asset trading beyond the permitted framework,
• transactions with beneficiaries or the founder are not conducted on market terms,
• so-called hidden profits arise, which may be classified as taxable benefits,
• operating activity is confused with asset management.

Particular caution is required regarding agricultural land and the restrictions arising from legislation on shaping the agricultural system. In such cases, a family foundation should be analysed from a regulatory perspective as well as a tax one.

The family foundation and forced heirship

A family foundation significantly changes the way succession is planned, but it does not automatically eliminate all inheritance claims. In practice it affects the settlement of forced-heirship claims through the moment assets are contributed, the nature of the benefits paid out by the foundation, and family relationships disclosed in the statute and payout rules.

Every situation requires individual analysis – of assets, family and succession. Attempting a one-size-fits-all approach to forced heirship based purely on the foundation's structure is one of the more common mistakes.

The family foundation has become a real ownership tool

Market practice shows that the family foundation is used both by owners of private companies and by individuals connected to large-scale businesses. It has stopped being a theoretical solution discussed only at conferences.

At the same time, it is clear that the family foundation is not an "off-the-shelf" product. It delivers value where it is built on a genuine ownership strategy – taking into account the group structure, plans for the operating company (including possible M&A transactions), and the family arrangement.

The Polish family foundation compared with foreign solutions

The Polish solution is worth viewing through the lens of foreign experience, but without automatically copying its conclusions.

Poland

A domestic legal framework, a shorter advisory chain, and the ability to organise succession within the same jurisdiction in which the family business operates.

Austria

A long tradition of private foundations, but higher setup and maintenance costs and different rules for taxing benefits.

Liechtenstein

Very flexible structures, historically often used for large fortunes, though today requiring particular diligence in compliance and AML.

Switzerland

A stable legal and banking environment, but foundation structures serve different purposes than the Polish family foundation and do not fully replace it as a succession tool.

For many Polish residents, the advantage of the domestic family foundation stems not only from its tax regime, but above all from the ability to organise succession and assets within the Polish legal order.

What might change in family foundation regulations?

The question of regulatory change remains open. Owners of family businesses should monitor the direction of change in the areas of taxation, permitted activity, registration and reporting obligations.

The stability of the law will be key to trust in this institution. Ownership decisions taken today should be designed to be resilient to real, though hard-to-predict-precisely, regulatory adjustments.

What should the owner of a family business do?

• Do not treat the family foundation purely as a tax tool.
• Start by clearly defining the goals of the owner, the family and the business.
• Analyse the structure of assets, companies, risks and family relationships.
• Check the tax, accounting and inheritance consequences of the planned solution.
• Design the statute, payout rules and governing bodies to fit the realities of the family and the business.
• Prepare an accounting and operational plan for the foundation's activity after it is set up.
• Monitor legislative changes and case law on an ongoing basis.

Considering a family foundation?

A family foundation can be an effective tool for succession and asset protection, but only when it stems from the real goals of the owner, the family and the business. Before implementing it, it is worth analysing the asset structure, taxes, inheritance risks and the management model.

We invite you to talk to us about the family foundation and to explore our advisory for private and family businesses.