A family foundation is a legal person established to accumulate assets, manage them in the interests of beneficiaries and provide benefits to them. It may also carry on business activity.
Permitted business activity
A family foundation may also carry on activity, but only within a specified scope, which covers:
1) disposing of assets, provided the assets were not acquired solely for the purpose of further disposal;
2) letting, leasing or making assets available for use on another basis;
3) joining commercial companies and partnerships, investment funds, cooperatives and entities of a similar nature, having their registered office in Poland or abroad, and participating in those companies, funds, cooperatives and entities;
4) acquiring and disposing of securities, derivatives and rights of a similar nature;
5) granting loans to:
a) capital companies in which the family foundation holds shares,
b) partnerships in which the family foundation participates as a partner,
c) beneficiaries;
6) trading in foreign means of payment belonging to the family foundation in order to make payments connected with the family foundation’s activity;
7) producing plant and animal products processed other than industrially, except for processed plant and animal products obtained from special branches of agricultural production and products subject to excise duty, provided that the quantity of plant or animal products from the foundation’s own cultivation, breeding or rearing used to produce a given product accounts for at least 50% of that product;
8) forest management.
A family foundation may carry on the last two types of activity only in connection with the agricultural holding it runs.
Other activity subject to punitive CIT
A family foundation is, as a rule, exempt from CIT. This exemption does not apply to business activity that goes beyond the scope of permitted activity.
What is more, income from such activity is taxed at a punitive rate of 25%.
If the foundation carries on mixed activity – permitted, CIT-exempt activity as well as activity going beyond the permitted scope – and particular costs cannot be allocated to the exempt and the taxed activity, those costs are determined in the appropriate proportion.
In addition, a foundation subject to CIT on non-permitted activity has no right to apply the exemptions and deductions under art. 17-18f of the CIT Act.
Lease of an enterprise
The CIT exemption likewise does not apply to revenue earned by a family foundation from rental, lease or another agreement of a similar nature whose subject is an enterprise, an organised part of an enterprise, or assets used for carrying on activity by a beneficiary, the founder or an entity related to the family foundation, a beneficiary or the founder, where the capital link is at least 5%.
In the case of the lease of an enterprise, however, the punitive CIT rate does not apply; instead, the lease is taxed on general principles, at the 19% rate. A foundation cannot apply the preferential 9% CIT rate to the lease of an enterprise, even where its income on this account is modest. A provision of the CIT Act expressly excludes this possibility.
Complicated? See how we can help:
we keep the foundation’s accounting and tax books, and help establish the chart of accounts and the reporting structure for the foundation’s governing bodies
we advise on all tax aspects of establishing a foundation and of the business activity it carries on
in cooperation with the lawyers involved in drafting the family foundation legislation, we will help you open and register a family foundation
