Although family foundations have been around since May 2023, those wanting to organise their assets to pass them on to their family in the future – without having to liquidate their business or carry out complicated asset divisions – still have many questions. One of these is who decides on payments from the foundation and how these are taxed. Here, we explore how this works in practice and what you should know before designating the beneficiaries of your foundation.
Who decides on payments from a family foundation?
The Executive Committee of the family foundation makes decisions on payments, acting in accordance with the provisions of the Articles of Association and the founder’s wishes.
You can read more about planning the structure of a foundation here.
To briefly remind you, a foundation’s Articles of Association should specify the following in detail:
- Who can be a beneficiary, i.e. a person who will receive benefits or funds from the foundation
- The benefits that can be paid and their form, e.g. one-off payments or investments
- The situations in which payments will be made
- Whether the decision to make a payment requires the consent of other bodies within the foundation, such as the Supervisory Board (if applicable)
Who can be a beneficiary of a foundation?
The founder has complete freedom when it comes to designating the beneficiary or beneficiaries. Typically, these are children, grandchildren, spouses or other relatives, but they can also be individuals with no familial connection to the founder, such as friends, life partners or even the founder themselves.
The founder may also set additional conditions, for example making the payment of money conditional on marriage or completion of studies.
Taxation of payments from a family foundation
The taxation of payments from a family foundation is twofold: tax on the part of the foundation, and also on the part of the person receiving the benefit.
Tax for the family foundation
Although foundations are often exempt from corporate income tax (CIT), this tax must be paid at a rate of 15% when benefits are paid to beneficiaries.
Tax for the beneficiary
The amount of tax payable depends on the beneficiary’s relationship to the founder and the resulting tax group:
- Group I (spouse, children and parents): no income tax on benefits from a family foundation
- Group II, i.e. extended family (parents’ siblings, siblings of spouses) – 10% PIT, which is calculated independently of the CIT paid by the foundation
- Group III, i.e. unrelated persons (other acquirers) – 15% PIT
Example
The founder pays his son PLN 1,000,000 – the foundation pays 15% CIT, but the son does not need to pay additional tax.
However, if the money were given to the founder’s partner, with whom he is not married, she would have to pay an additional 15% PIT.
Summary
- The foundation’s Executive Committee decides on issuing payments, but should act in accordance with the Articles of Association and the founder’s wishes
- The founder determines who can receive funds from the foundation and on what terms
- The foundation pays 15% CIT on the payment of benefits
- Beneficiaries in the first tax group are not subject to income tax
- The selection of beneficiaries and their relationship with the founder directly impacts the amount of taxation
A family foundation is not only a succession tool, but also an effective form of tax planning – provided that it is well planned and properly managed.
Any questions? Contact us
Arkadiusz Kępka
