Family foundations: the key to securing succession and protecting wealth
In recent years, an increasing number of Polish businesspeople have become interested in securing their wealth and have also been paying close attention to matters of inheritance. This is hardly surprising, given that the first generational change is approaching, with a new generation of managers soon set to take the helm of many family businesses. This makes the topic of succession extremely relevant. One increasingly popular solution to this hurdle is an institution that has only been operating on the Polish market for two and a half years. This is the family foundation, and it enables effective future planning for businesses while protecting what has already been achieved.
Today, we discuss its importance, benefits, and challenges with Agata Dziwisz-Moshe, Head of the Tax Practice at Kochański & Partners, and Hubert Henryk Królak, Director of the Private Banking Development Department at Bank Pekao S.A.
What is a family foundation, and what are its main objectives?
Agata Dziwisz-Moshe: A family foundation is a special type of legal entity whose purpose is to manage, protect and grow family assets for the benefit of current and future generations.
Such structures have been operating successfully in the West for decades, and until recently, the vast majority of Polish businesspeople transferred their assets there. Fortunately, since May 2023, family foundations can now be established in Poland. This greatly facilitates succession and ensures the stability of businesses after they are handed over to the next generation.
This is because foundations allow a business or wealth to be passed on without being divided or sold, thus preserving the value and integrity of the assets within the foundation. Importantly, family foundations are generally not liable for founders’ obligations. The exceptions to this are obligations arising before the foundation’s establishment and the founder’s maintenance obligations, regardless of when they arose. In certain situations, family foundations and their beneficiaries may also be eligible for preferential tax treatment.
Hubert Królak: From the bank’s perspective, a family foundation is a client with a long-term investment horizon and a clear ownership structure. For a financial institution, this means a stable relationship, predictable investment decisions and reliable engagement. By familiarising itself with the foundation’s articles of association and governing bodies, the bank can precisely tailor solutions — ranging from investment products to financing — to the foundation’s strategy, as well as the needs of the founder and individual beneficiaries.
What is the process for setting up a family foundation in Poland? Who is eligible to do so? Is this a beneficial option for everyone?
Hubert Królak: Any natural person with full legal capacity can set up a foundation. In practice, this will usually be an entrepreneur who wants to organise their succession. Our internal analyses show that potential founders primarily cite the desire to protect and secure their assets against unforeseen future events and to ensure the continuity of their family business as their main motives.
Although the process of establishing a family foundation is not complicated, it does require proper preparation and advice. First, the Articles of Association must be drafted. These define the foundation’s objectives, management structure and bodies, as well as the rules for distributing benefits to beneficiaries. The founder establishes the foundation through a notarial deed, contributes the initial capital — which must total at least PLN 100,000 — and then registers it with the District Court in Piotrków Trybunalski, which maintains the Register of Family Foundations. From that moment on, the foundation acquires legal personality and can operate in accordance with the relevant legislation.
However, a family foundation is not suitable for everyone. It is aimed at those who think long-term, want to secure their wealth and establish a clear ownership structure within their family.
From the bank’s perspective, the process of establishing a family foundation is a time when clients organise their assets and create a financial structure to which the bank can provide more comprehensive services. At this stage, the bank acts as an advisor and partner, helping to plan the account structure and investment policy, finance the foundation’s portfolio companies and tailor services to the new asset management model. Banks also value the transparency that foundations bring to rights and responsibilities, as this promotes operational security and regulatory compliance.
Agata Dziwisz-Moshe: Another important point is worth mentioning here. A foundation can be established by more than one person, for example spouses or siblings. However, if the founders are not immediate family members, certain undesirable tax consequences may arise. Namely, regardless of the corporate income tax levied on the foundation, any benefits paid to beneficiaries will be subject to personal income tax on the portion corresponding to the share of assets contributed by individual founders. Therefore, before establishing and structuring a family foundation, it is advisable to discuss all possible consequences with a trusted tax adviser.
Is it possible for a family foundation to carry out economic activity?
Agata Dziwisz-Moshe: Yes, and you do not have to wait until it is registered to start doing so – a so-called family foundation in organisation can manage assets, acquire rights and take on liabilities. This is important given the current waiting time for registration, which is up to even ca. 14 months.
It is worth remembering that, while a family foundation may carry out economic activity, only the taxable revenue obtained from activities specifically listed in the Act will be exempt from income tax. For example, a family foundation may rent out property, invest in securities, lend money to beneficiaries or hold shares in companies or partnerships.
However, if it wishes to conduct operational activities outside this scope, e.g. in trade or production, it will have to pay a 25% income tax.
Such structuring of tax preferences for foundations is intended to preserve their main purpose of managing and protecting family assets rather than actively competing in the market. The specific taxation of foundation activities and disbursements therefore requires particular attention to be paid not only to the structure of contributed assets and beneficiaries, but also to the nature of the economic activities conducted. As always, if you have any doubts, it is best to consult a professional adviser.
What is the organisational structure of a foundation, and who makes the key decisions?
Hubert Królak: The executive committee heads the foundation and is responsible for its day-to-day management and operation. The committee’s activities may also be supported by a supervisory board, although this is not mandatory as long as the number of beneficiaries does not exceed twenty-five. A very important role is played by the beneficiaries’ meeting. Similar to a shareholders’ meeting in a limited liability company, it reviews and approves financial statements, grants discharge and decides on the distribution of profits or loss coverage.
In general, the Family Foundation Act grants considerable discretion to the founders in shaping the structure of their foundations. They can decide on the structure and powers of individual bodies, determine who the beneficiaries will be and what benefits they will receive, and can also retain influence over the foundation’s decisions through its articles of association or participation in its bodies.
What are the reporting and tax obligations of foundations?
Agata Dziwisz-Moshe: In accordance with the Accounting Act, all foundations must keep accounting records and submit a financial statement at the end of each financial year, regardless of the amount of revenue. Family foundations also have specific obligations, such as keeping a register of contributed assets, a list of beneficiaries, and a record of benefits paid. A well-planned family foundation can also offer tax benefits to the founder and beneficiaries.
Firstly, it will not pay corporate income tax (CIT) on current profits from activities carried out within the permitted scope specified in the act. However, payments to beneficiaries will be subject to CIT at a rate of 15%. In this respect, family foundations are similar to companies applying Estonian CIT. This structure of taxing disbursements is intended to encourage the accumulation and reinvestment of capital.
Nevertheless, in the case of payments made by a family foundation, the beneficiary may be liable for personal income tax, however this does not apply to payments made to the founder’s closest relatives, including parents, grandparents, great-grandparents, children, grandchildren, great-grandchildren, spouse, siblings, stepfather, stepmother and any stepchildren. Therefore, it can be assumed that, in most cases, payments to beneficiaries will not be subject to PIT. Another advantage is that payments from a family foundation are not subject to social security contributions (social and health insurance) or the solidarity levy.
What are the main benefits of setting up a family foundation for entrepreneurs and their families?
Hubert Królak: In summary, a family foundation is an extremely effective means of ensuring succession and protecting assets. It was primarily designed for entrepreneurs who want to guarantee the continuity of their businesses and provide financial security for their families for generations to come. The main advantage of a foundation is the ability to transfer the family organisation to successors without dividing it among potentially numerous heirs. In our organisation, we refer to a family foundation as an intergenerational family treasury that permanently stores both material assets and unique family values.
Additionally, the structure of a family foundation enables effective investment. Profits and dividends can be accumulated within the foundation, promoting the long-term growth of value.
From the bank’s perspective, a family foundation is a unique client, combining a long-term vision with investment potential. This creates opportunities to develop individual investment strategies, dedicated capital allocation policies, and succession solutions. Family foundations also allow for stable relationship management, as financial decisions are made by their governing bodies in a planned manner and in accordance with their articles of association. This builds trust and promotes partnership-based cooperation.
Agata Dziwisz-Moshe: It is important to remember that family foundations benefit from favourable tax treatment, which undoubtedly contributes to their extensive popularity. However, it is worth cautioning against viewing the foundation solely as a tool for tax optimisation. Such an approach may be questioned and disregarded in the tax assessment, which could have painful and costly consequences for many. Contrary to popular belief, the tax authorities already have the means to effectively counteract the creation of artificial structures built solely for the purpose of avoiding taxation. This is why we repeatedly emphasise that, when considering a family foundation, every aspect of its operation should be planned precisely, and tax issues should always be discussed with specialists.
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