Poland's family foundation law review criticized for tax focus over succession goals

A recent proposal to revise Poland's family foundation law, put forth by the Ministry of Development and Technology and the Ministry of Finance, has drawn sharp criticism. The review, mandated by the existing law, is accused of misrepresenting the primary purpose of family foundations by focusing heavily on tax benefits rather than their core function of ensuring succession and long-term wealth management.

The proposal's authors appear to view tax advantages as the main driver for establishing family foundations in Poland. They highlight comparisons of passive income, such as dividends and rental income, showing lower effective tax rates when channeled through a foundation compared to direct taxation of an individual. This includes a 15% corporate income tax (CIT) levied upon distribution from the foundation, contrasted with personal income tax (PIT) rates of up to 19% plus a solidarity surcharge, or flat rates for rental income. The review emphasizes the benefit of deferred taxation.

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The review of the family foundation law... must be assessed critically.

However, critics argue this assessment is one-sided. They point out that while individuals can use their post-tax income for any purpose, foundation assets are legally bound to statutory objectives or permitted business activities. If a beneficiary or founder needs funds for personal consumption, living expenses, or recreation, the 15% CIT applies, making it potentially less favorable than the flat rates for individual rental income. The review's own data reportedly shows that the effective tax burden on foundations from rental income is higher than the flat rate for individuals.

Furthermore, the review cites data on tax authority interpretations and investigations into potential tax avoidance schemes involving family foundations. These schemes often involve transferring real estate for rental income, transferring receivables, or structuring with foreign entities. While acknowledging these abuses occur and that the Ministry of Finance generally takes a consistent stance against them, critics maintain that the overall analysis of family foundations remains unbalanced.

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The image emerging from the analysis remains one-sided.