Taxation of family foundations after the changes – a guide for entrepreneurs

The government has published a draft amendment to the Corporate Income Tax Act (CIT), which also covers family foundations. The aim of the changes is to counteract tax abuse and restore the institution to its original character – a succession tool, not a vehicle for tax optimization. The bill (no. UD293) has been added to the Council of Ministers' legislative agenda.

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Key assumptions of the project

According to the project and announcements of the Ministry of Finance and Economy, the following are planned, among others:

• Condition of maintaining assets for 36 months – The sale of assets contributed to a foundation is to be tax-exempt only if the foundation retains them for at least three years. The goal is to curb the practice of quickly transferring assets solely for the purpose of obtaining favorable tax treatment upon sale.
• Exclusion from the exemption of income from short-term rentals - family foundation will not be able to benefit from tax preferences if it generates income from this type of activity. This is a response to the observed phenomenon of "hidden hotel business" within the foundation.

• The foundation is placed under the CFC (Controlled Foreign Corporation) regime – Family foundations will be treated like other entities holding shares in controlled foreign entities. This is intended to prevent the transfer of income to jurisdictions with more favorable tax conditions.
• Clarification of the rules for taxation of income from the transfer of real estate for use – especially in the case of short-term rental agreements or similar legal structures.

Reasons for the amendment

As the Ministry of Finance emphasizes, the analysis of practice showed that some family foundations were used instrumentally – not as a tool for the protection and succession of family assets, but as a vehicle for tax optimization. Reported abuses include:

• contributing assets to a foundation only to then sell them using tax exemptions,
• circumventing the ban on conducting business activities by the foundation through tax-transparent entities,
• using foundations to aggressively optimize and postpone taxation.https://pmr-restrukturyzacje.pl/czy-fundacja-rodzinna-podlega-opodatkowaniu/

Assessment of proposed changes

Changes should be considered in two dimensions:

1. From the state's perspective – The project strengthens the tax system and reduces the risk of loss of budget revenue. It also brings Polish regulations closer to EU standards in counteracting tax base erosion.
2. From a perspective founders and beneficiaries – The new regulations mean greater restrictions and the need for long-term planning. Family foundations remain an attractive succession tool, but they will lose some of their tax advantages for investment and speculative activities. The 36-month asset retention requirement will be particularly significant, limiting the flexibility of asset management.

A critical look – lack of legal stability

Family Foundation was introduced into the Polish legal system in 2023. Just a few months later, the legislator announced significant changes to the taxation rules. This dynamic raises serious concerns about the stability and predictability of tax law.

Problems resulting from lack of stability:

– Lack of predictability for funders and tax advisors.
– The risk of having to change strategy by entities that have already established family foundations.
– A discouraging effect for new founders who expect a lasting and secure legal framework.

Long-term succession planning requires a stable regulatory environment. Frequent and sudden changes can undermine entrepreneurs' trust in the institution of family foundations, thus weakening their attractiveness as a succession tool.

Summary

The family foundation was intended to be an institution supporting the stability and continuity of Polish family businesses. The proposed changes indicate that the legislature recognized the risk of its use for purposes contrary to the legislator's intention.

At the same time, the changes introduced weaken confidence in the stability of tax law in Poland. The family foundation remains a succession tool, but in the new tax regime its operation requires greater caution, planning and readiness to change the strategy.