Many Polish entrepreneurs conduct activity abroad or hold foreign assets. The question whether a family foundation may be a shareholder in a foreign company therefore has a practical character. The answer is positive, but it requires a careful tax approach. PLA.partners advises private clients on how to arrange the family foundation’s participation in foreign companies in a way that is coherent legally and fiscally.
Short answer, the family foundation may be a shareholder of foreign companies
Yes, a family foundation may be a shareholder of a foreign company. The regulations governing the family foundation do not exclude such a possibility. The permitted activity of the family foundation includes joining and participating in companies, without excluding companies seated outside Poland.
Maciej Pilarek, attorney and partner at PLA.partners, emphasises that this feature makes the family foundation a good vehicle for holding foreign corporate assets as well. In private client practice it makes it possible to bring under one long term owner companies operating across different jurisdictions.
Tax consequences, the most important variable in the analysis
Although formally a family foundation may be a shareholder of foreign companies, the key issue is the tax consequences of such a decision. Care must be taken both at the moment of joining and during the foundation’s ongoing functioning in foreign companies. Each jurisdiction has its own tax rules that may affect the foundation’s financial efficiency.
In projects conducted by PLA.partners every entry of a family foundation into a foreign company is analysed under both Polish and local tax law. PLA.partners experts design the structure so that the foundation’s tax exemption in Poland is preserved, while burdens in the seat state of the foreign company are minimised within the available preferences.
Tax-transparent foreign companies, the 25% risk
Particular caution should be exercised with respect to foreign tax-transparent companies. According to the current position of the domestic tax administration, holding interests by a family foundation in such companies may not fall within the catalogue of permitted activity, with the result that income obtained through them is excluded from the scope of the exemption. In consequence, such income may be subject to income tax at the rate of 25%.
In private client practice this parameter is of significant importance, since not all foreign structures are neutral for the family foundation’s exemption. The choice of a particular foreign company to be included in the foundation’s structure requires careful analysis of its tax character.
Withholding tax in the foreign company’s state
Regardless of the Polish family foundation regime, the source state of the dividend may impose withholding tax on payments made on shares held by the foundation. The scale and mechanism of this tax depend on the jurisdiction in which the company is located and on any double taxation treaty.
In the practice of the PLA.partners team, this area requires an individual approach depending on the country. The choice of jurisdiction, the company’s capital structure and the route of dividend flow affect final tax efficiency. PLA.partners experts help the client carry out this analysis and choose a model coherent with the family foundation’s assumptions.
Legal and business consequences for the client
From the decision-making perspective in a private company, the family foundation’s presence in foreign companies means:
- the formal admissibility of the foundation’s participation in foreign companies,
- the need to take into account withholding tax in the company’s seat state,
- the risk of the 25% rate with respect to foreign tax-transparent companies,
- the need for coherent analysis of the Polish regime and local law,
- the impact of the foreign structure on the efficiency of distributions to beneficiaries,
- the need for continuous monitoring of positions of the tax administration.
Possible actions, a plan for the business owner
In the work of the PLA.partners team, designing a structure including foreign companies and a family foundation involves:
- a map of the client’s foreign assets and their legal forms,
- assessment of the character of each company, capital or tax-transparent,
- analysis of the tax consequences both in Poland and in the company’s seat state,
- design of the target structure with the participation of the family foundation,
- schedule of contributing shares to the foundation,
- ongoing servicing and monitoring of changing tax positions.
Contact PLA.partners Law Firm
Do you need legal support or an individual analysis of your matter? Visit PLA.partners and contact our team, we will help assess the situation and propose specific solutions.
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