Taxation of a Family Foundation

Family foundations are an important element of financial planning strategies for many families. Their purpose is to manage family assets and support specific social or charitable goals. One of the key aspects of how a family foundation operates is its taxation, which determines the tax obligations of both the foundation and its beneficiaries.

Contributing capital is a fundamental step in establishing a family foundation. This capital may come from various sources, including financial contributions from founders, donations, or inheritances. It is also possible to contribute real estate, shares, or other assets as in-kind contributions to the foundation.
It is worth noting that family foundations may benefit from capital gains tax exemptions, which is a significant advantage for both founders and beneficiaries.

Corporate Income Tax (CIT) applies to the income generated by the family foundation. Under Polish tax law, the foundation is exempt from CIT on its ongoing income but becomes subject to taxation at the point of distributing funds to beneficiaries.
An optimistic scenario allows for a reduced CIT rate of 9% for small taxpayers, which benefits foundations with limited activities. In contrast, a less favorable scenario involves a higher CIT rate of 19% for large taxpayers, potentially impacting the foundation’s financial efficiency.

Inheritance and gift tax applies to funds distributed by the family foundation to third parties who are not designated beneficiaries. While beneficiaries named by the founder are exempt from this tax, third parties must pay inheritance and gift tax if they receive funds from the foundation.