Family foundation assets – what do they consist of?
In the broadest sense, the assets of a family foundation will be any assets, including movable, immovable and also rights, which vest in that foundation. The assets of a family foundation may include a wide range of components, but take into account that these components should be consistent with the permitted scope of business activities of that foundation. Otherwise, it may turn out that e.g. a family foundation, by trading in assets other than those shown in the law, will expose itself to taxation of its activities at a “punitive” corporate income tax rate of 25% on the tax base.
Assets of the Polish family foundation and the initial fund
A family foundation increases its assets generally in the following situations:
- by the contribution of property to the foundation fund of a family foundation by its founder;
- by contribution of assets by donation after the foundation has been established by the founder or another person;
- by acquiring assets in exchange for property contributed to the family foundation;
- by acquiring assets in exchange for funds raised through business activities.
In order to establish a family foundation, it is necessary to cover the initial fund, the amount of which is determined in each case in the statutes of the family foundation. In doing so, the value of the initial fund cannot be less than PLN 100,000, and the initial fund itself can be covered by the founder’s contribution of any assets (not only cash).
The assets of a family foundation will therefore include both its founding fund and the property acquired during the foundation’s lifetime both gratuitously from the founder (and third parties) and the profit earned. In this context, it seems artificial to distinguish within the foundation’s assets its founding fund and property. The initial fund should be perceived as one of the conditions related to the establishment and registration of a family foundation, which is no longer of independent significance in the later stages of activity (in contrast to, for example, share capital in a limited liability company). Instead, the founding fund itself becomes part of the foundation’s assets, shown in the inventory of assets.
Who covers the initial fund and when?
As already mentioned, the contribution of assets to cover the initial fund is one of the requirements for the establishment of a family foundation. The deadline for the contribution of assets to cover the initial fund varies depending on how the family foundation is established. If the basis for the foundation’s existence is a deed of incorporation, the assets to cover the initial fund should be contributed before the foundation is entered in the register of family foundations. In practice, this means that the contribution of assets should take place as soon as the founding deed is signed. The founder is obliged to cover the initial fund. In the case of a family foundation established by a will, the coverage of the founding fund may take place within two years from the date of registration of the family foundation in the register, and the management board of the foundation will be obliged to do so.
In what form can property be contributed to a Polish family foundation?
As already mentioned, assets to an established family foundation can be contributed by anyone. This also applies to family foundations in organisation. Of course, care must be taken here not to distort the proportions resulting from the share of assets contributed by the founder and the foundation. In an optimal state, all of the foundation’s assets should be contributed by the founder who is related to the beneficiaries (within so called “zero tax group” determined as in the case of inheritance and gift tax). In a situation where only part of the assets is contributed by a founder who remains within the zero tax group with a beneficiary, this beneficiary, receiving a benefit from the family foundation, will be able to benefit from the exemption of the value of this benefit from personal income tax only in the proportion in which the property contributed by the founder remains to the property contributed by other founders or third parties, not related to the beneficiary (in such a situation, the property is treated as contributed by the family foundation itself).
As for the legal form of the contribution of property to a family foundation, in principle it can be any form. If the property will be contributed by the founder, his/her spouse, descendant, ascendant or siblings, this should be done in form of a donation. In such a situation the contribution of property will not disturb the proportion of the foundation’s property inventory – the founder will still be entitled to the same share of the property and the beneficiaries to the same personal income tax exemption.
If the property were to be contributed by a third party, outside the group defined above, it is worth considering a fee contribution of such property. The acquisition of property by the foundation in exchange for funds previously contributed by the founder will not disturb the proportions referred to above. In the situation of a donation of property to the foundation by a third party, such property will be treated as contributed by the foundation, which will effectively reduce the level of personal income tax exemption of benefits paid to beneficiaries remaining in the zero tax group with the founder.
When is the best time to contribute assets to a family foundation in Poland?
Whether the assets are contributed to the family foundation for its initial fund or later after its establishment is of little relevance. According to current tax interpretations (e.g. individual interpretation of 20 August 2024 ref. 0115-KDIT1.4011.463.2024.1.MR), it is irrelevant for the determination of the proportion of shares in the foundation’s assets whether the assets were contributed by the founder to the founding fund or to the foundation’s assets.
What seems to be of greater importance when contributing property to a family foundation is whether or not the foundation has already been registered. This is because by contributing property to a family foundation in an organisation, you run the risk that if an application for registration of this foundation in the register of family foundations is not submitted within 6 months from the date of its establishment (signing of the deed of incorporation) or the court legally refuses to register such a family foundation, it will be liquidated by operation of law. This means that the property contributed so far to the family foundation will be returned to its founder (or other persons indicated in the articles of association), but the income received by the founder from this return will be taxed with income tax.
How to correctly determine the shares in the assets of a Polish family foundation?
In contrast to the timing of the contribution of assets to the foundation fund of a family foundation, who contributes the assets is important. This is because if the founder and the beneficiary do not remain in the so-called nil group determined for inheritance and gift tax purposes, the exemption from personal income tax on the payment of benefits to this beneficiary from the family foundation, will not apply.
Where there are multiple funders or contributors of assets to a family foundation, it becomes important to determine the proportion of the value of the property contributed to the family foundation by each funder or by the family foundation. This proportion is determined on the assumption that the property contributed to the family foundation by gift or inheritance by:
– of the founder or his or her spouse, descendants, ascendants or siblings – shall be deemed to have been contributed by the founder;
– other persons – shall be deemed to have been contributed by the family foundation.
In the case where the founders are spouses and all the foundation’s property has been contributed by only them (to the founding fund or by way of a donation), the proportion referred to above will be 100% for each of them (individual interpretation of 7 August 2024 ref. 0114-KDIP3-2.4011.536.2024.1.JM).
More about the family foundation in Poland
If you would like to learn more about setting up a family foundation, we invite you to read the other posts on our website about the purpose, organs and scope of a family foundation visit: https://pla.partners/cel-fundacji-rodzinnej/ .
Family foundation in Poland – law firm Warsaw
If you are looking for a law firm to help you with the operation of a family foundation, prepare documentation for the contribution of property to the foundation or other documents related to the operation of the entity, we invite you to contact us.
About the author
