Author: PLA.partners Law Firm
The choice of vehicle to manage real estate in a family business runs today between three models: a family foundation, a private limited company, and the activity of a natural person, most often on a lump-sum scheme. Each of them has a different profile of effective taxation and a different succession value. Experts at PLA.partners organise the calculation from the perspective of a founder planning a long-term structure.
Effective taxation of real estate in three models
In a private limited company, the paid provision of real estate means an effective burden of around 26 percent, composed of CIT and PIT on dividend. In a family foundation, the burden is around 19 percent, because the foundation loses the preferential CIT rate, but the CIT on rental is credited against the levy on distributions to beneficiaries. A natural person on a lump-sum scheme is taxed on rental at 8.5 percent up to a revenue threshold of 100 thousand PLN and 12.5 percent on the excess, yet without separation of assets, without protection from operational risk, and without succession value. Each model has a different price for a similar tax result.
When the family foundation wins, when it loses
The family foundation wins where succession matters, where assets are to be separated from operational risks, and where long-term intergenerational planning is the goal. It allows depreciation of real estate (excluding land), but only on paid acquisition; real estate contributed by the founder without payment is not subject to depreciation. It loses where the rental is provided to a related entity, that is already from a related party threshold of 5 percent, because then it does not benefit from the preferential CIT exemption and is taxed at 19 percent, although it is not classified as a benefit to beneficiaries. Maciej Pilarek, advocate and partner at PLA.partners, indicates that the choice of vehicle today is above all a choice between effectiveness and succession.
What a founder should consider before contributing real estate
The decision to contribute real estate to a family foundation should include an analysis of the real economic purpose, the rental structure, the situation of related entities, the transfer pricing policy, and the VAT consequences. A contribution of an organised part of an enterprise is in principle VAT-neutral, but the further activity of the foundation is not. In the practice of the PLA.partners team, the optimal real estate structure most often emerges when the decision on the vehicle is preceded by a map of objectives: revenue-generating, succession-oriented and protective.
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