Family foundations were intended to provide entrepreneurs with a stable framework for intergenerational wealth management. Yet not even four years have passed since the first such foundations were established, and the rules governing their taxation are set to be changed once again. This is because the scale of interest and the practical problems uncovered have overwhelmed the drafters of the legislation, as best illustrated by the figures – 927 applications for individual tax rulings and 77 opinions issued from the Head of the National Revenue Administration. This does not, however, mean that family foundations are being used on a massive scale for aggressive tax optimisation. A significant proportion of the queries concerned simply how to correctly apply the complex regulations.
Draft UD447 largely draws on solutions already proposed in 2025, which were vetoed by the President. The main new features are the increase in the corporation tax (CIT) rate from 15 % to 19 % and the extension of the personal income tax (PIT) exemption to the descendants of siblings who are founders.
An overview of the bill has already been published, but not all of its recommendations have yet been incorporated into the final legislation. The government is working on draft bill UD447, which is due to be adopted in the third quarter of 2026; however, as the full text has not yet been published, at present it is possible to assess primarily the direction of the planned changes rather than their final wording. We are therefore examining what’s in the pipeline and worth preparing for.
How will taxation change for family foundations?
No more quick sales of assets – a 36-month holding period
Until now, a foundation could contribute shares, equity interests or property to its structure and sell them the very next day, whilst benefiting from a corporation tax exemption. There was no requirement for a minimum holding period. In practice, this led to a simple pattern: contribute the shares, wait a few days, then sell them and take advantage of the tax relief.
This is being changed by draft bill UD447, which makes preferential tax treatment conditional upon retaining ownership of the assets for 36 months. The CIT exemption will not apply to those who dispose of them before the end of this period.
For founders planning to contribute assets, this means they must plan at least three years in advance.
The holding period makes sense as a targeted instrument, as it allows for a distinction to be made between those institutions that genuinely accumulate assets over the long term and those merely seeking quick tax benefits. And this was the aim declared by the authors of the review: the structure of the regulations was intended to remain neutral or favourable towards foundations pursuing a genuine succession objective. However, when viewed alongside the increase in the CIT rate, this rationale is far less convincing.
Increase in CIT from 15% to 19%
Until now, a foundation paid 15% CIT on the full value of benefits paid to beneficiaries. Persons covered by the exemption[1] (i.e. immediate family) did not pay personal income tax (PIT) on the payments received. In their case, the total tax burden on the payment was therefore only 15% (the CIT payable by the foundation alone).
The new regulations provide for an increase in the CIT rate from 15% %to 19%%. This applies to benefits paid to beneficiaries, hidden profits and assets distributed upon the foundation’s dissolution.
The mechanism is intended to be straightforward. The foundation pays funds to the beneficiary – for living expenses, medical treatment or education – and pays 19% CIT on this amount. The tax is borne by the foundation, not the beneficiary.
A beneficiary who is an immediate family member will still not pay tax. However, if they fall within the scope of personal income tax (PIT), the increase in CIT from 15%% to 19% %will also increase their total nominal tax burden. At a 15% %PIT rate, this will amount to 34%%, and in the case of descendants of siblings (currently subject to a 10% %PIT rate), 29%%.
This is neither a rational nor a coherent legislative structure, and its effects will also affect foundations that actually serve a succession purpose. The change undermines the very rationale behind the differentiation introduced by the holding period itself.
The draft therefore contains an internal contradiction: on the one hand, it rewards the long-term retention of assets; on the other, it increases the cost of their subsequent distribution.
An end to impunity associated with operating through transparent entities
Family foundations are generally exempt from income tax[2]. However, this does not apply, amongst other things, to the activities of a family foundation that go beyond the scope specified in Article 5 of the Family Foundations Act. In practice, some structures have circumvented this restriction by using foreign partnerships which do not pay tax in their country of incorporation, and whose income flows directly to the partners. As a result, the foundation did not formally carry out any activities, but merely controlled the partnership which did so. The draft legislation aims to close this loophole.
However, the question arises as to whether this change is necessary at all. The Head of the National Revenue Administration already has a wide range of tools at their disposal to tackle abuse – in particular the GAAR clause, which allows for action to be taken against such practices.
The draft bill retains the exemption for foundations that participate in transparent entities performing an exclusively passive role, i.e. managing assets without carrying out any operational activities. The problem is that the provisions do not define the boundary between ‘passive management’ and ‘active operations’. Article 5 merely sets out a list of permitted activities. This leaves scope for numerous disputes over interpretation.
CFC and exit tax – a foundation treated like any other taxpayer
The draft legislation provides for the inclusion of family foundations within the regime governing Controlled Foreign Corporations (CFCs). These provisions allow the income of foreign companies controlled by Polish taxpayers to be taxed in Poland, provided certain conditions are met. Until now, family foundations, by virtue of their exemption from corporation tax (CIT)[3], have been excluded from this regime. According to the drafters, this placed them in a more favourable position compared to other Polish holding companies. The draft aims to eliminate this disparity.
Short-term lettings excluded from the exemption leave condo-hotels and daily-let apartments without preferential treatment
The Family Foundations Act permits the letting of property as one of the permitted forms of activity; however, the issue of short-term lettings has been contentious from the outset. In many cases, the tax authorities refused to grant exemptions to foundations, deeming such activity to fall outside the scope of permitted activities; however, administrative courts more often ruled in favour of the taxpayers. We wrote about this, amongst other things, here: https://www.kochanski.pl/en/family-foundations-the-government-has-done-the-maths-and-presented-the-bill/
The draft clarifies the rules for taxing such income. The exemption for traditional long-term residential lettings will be retained, whilst short-term lettings involving apartments and condo-hotels on a per-night basis will be subject to corporation tax.
Some foundations will therefore have to re-examine the profitability of their operations and consider possible restructuring, such as transferring assets to a subsidiary outside the foundation’s structure.
The expansion of the list of hidden profits puts loans to beneficiaries under the microscope
The list of hidden profits for family foundations[4] has, from the outset, included, amongst other things, certain benefits related to loans. Draft Bill UD447 extends this list to include new cases, such as loan receivables granted by the foundation to its beneficiaries, founders or related parties that have been written off, have become time-barred or have been written down as uncollectible.
If a foundation writes off a loan of PLN 500,000 owed by a beneficiary, this amount will be classified as a hidden profit and taxed at the proposed CIT rate of 19 %.
A broader PIT exemption for family foundations is good news for companies set up by siblings
Until now, the children of a founder’s brother or sister were not included among those exempt from PIT[5] and, as a result, paid 10% PIT on the benefits they received.
Following the changes, they will be treated in the same way as the founder’s own descendants and will be fully exempt from PIT.
Protection under individual tax rulings – what about foundations that have operated in accordance with the law?
Those foundations that have obtained individual tax rulings and built their structures on that basis may face a dilemma. Is the protection they have obtained still valid?
The protection arising from an individual tax ruling may also cover the tax consequences of events that occurred after it was served. However, if the ruling is amended or revoked, the scope of this protection is limited.
Section 14m(2) of the Tax Ordinance provides for a so-called ‘protection period’. In the case of taxes settled annually, such as corporation tax (CIT), the exemption applies until the end of the tax year in which the amended individual ruling was served. In the case of taxes settled quarterly, the protection also covers the following quarter, and in the case of monthly taxation, it also covers the following month.
Foundations operating on the basis of current rulings will have to review their structures and assess which elements of their operating models require change following the entry into force of the new regulations.
Audit of a family foundation – an overlooked problem just around the corner
Draft UD447 focuses on taxes. Meanwhile, the issue of auditing family foundations remains in the background.
This is because a foundation is obliged to carry out an audit of its activities at least once every four years. Such an audit may be carried out by an audit firm or by a team comprising a statutory auditor, a tax adviser and a barrister/solicitor or legal adviser (radca prawny).
For the oldest family foundations, the first audit obligation will fall as early as 2027.
However, the Act does not specify either the content elements of the audit report, the detailed methodology for conducting the audit, or a catalogue of audit procedures. The absence of such criteria may lead to inconsistencies – as each auditor or audit team may define the scope of the audit and the method of documenting the results differently.
Do we need amendments to the Family Foundations Act?
Amendments to the Family Foundations Act are necessary, as practice has revealed many areas requiring clarification. However, these should be evolutionary rather than revolutionary in nature. Abuses should be tackled on a targeted basis, strengthening legal certainty and improving the functioning of family foundations – but without dismantling the model that serves succession planning, long-term asset management and the retention of Polish family capital within the country.
Draft UD447 only partially fulfils this objective. Where it addresses actual tax optimisation schemes – the 36-month holding period, closing the loophole for transparent entities, CFC rules, and exit tax – its logic is convincing.
However, where it resorts to non-selective measures, such as raising the corporation tax rate from 15% to 19%, it also affects foundations operating exactly as the legislator had intended when it enacted the legislation in 2023. And this, in light of the principle of legitimate expectations and the stability of tax law, is difficult to defend.
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