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19 May 2023

A new addition to the Polish legal system: the family foundation

Starting on 22 May 2023, it will be possible to establish and register family foundations in Poland. The Polish legal system will thus be expanded by a new institution that allows assets to be accumulated and managed, and profits to be distributed to beneficiaries. The legislature wished to provide the means for family-owned businesses and their owners to engage in intergenerational wealth management and to grow their wealth over time while protecting it from dispersal to unrelated entities and persons. Hence, family foundations may serve as a means to retain and multiply a family's wealth, independent of inheritance law.

The founder (i.e. the entity establishing the foundation) can only be a natural person with full capacity to engage in legal acts, who makes a declaration on the establishment of a family foundation in a founding deed or in their will. The law allows for several individuals to act as the founders, provided that the foundation is not established through a will. Before a family foundation is duly constituted, a declaration on the establishment of a foundation must be made, its statutes and a list of assets must be drawn up, members of its bodies appointed, and the founding funds contributed. Finally, the foundation must be entered in the register of family foundations.

Assets and activities

Founders must equip a family foundation with assets equal to no less than PLN 100,000 (approx. EUR 22,000), while the foundation itself may only engage in those activities permitted by law and the statute, these being, among others: disposal of assets, rental, leasing; acceding to commercial law companies, investment funds, cooperatives and entities of a similar nature with their registered seat in Poland or abroad, and participating in such companies, funds and cooperatives; acquiring and disposing of securities, derivatives and other rights of a similar nature; making loans to certain entities specified by law; and trade in foreign currency belonging to the family foundation in order to make payments related to the foundation's activities.

A family foundation's bodies are the management board (responsible for managing the foundation's affairs and representing it to third parties), the supervisory board (responsible for supervising the management board's compliance with the law and the foundation's statutes), and the beneficiaries' assembly (responsible for approving the foundation's financial statements and making decisions regarding the financial results it achieves).

Beneficiaries and tax incentives

Only natural persons and non-governmental organisations can be the beneficiaries of a family foundation (i.e. entities that receive financial distributions from the foundation). Note that beneficiaries do not have to be family members, and the founders themselves can also be beneficiaries. The allocation of distributions can be made subject to conditions or time restrictions.

The legislature also chose to introduce a number of tax incentives, including a favourable subjective exemption from corporate income tax in respect of specified economic activities, delaying income tax on permitted activities until the payment of distributions to beneficiaries, and the exemption of beneficiaries from income tax on the distributions they receive if they are members of the so-called Group 0 for estate and gift tax. Overall, this could result in family foundations becoming an attractive vehicle for growing family wealth in a tax-neutral manner.

author: Krzysztof Wawrzyniak