When paying benefits to their beneficiaries, family foundations are required to account for 15% CIT. A benefit is understood to mean assets, including cash, things or rights, transferred to a beneficiary, or made available to a beneficiary for use, by a family foundation or a family foundation in organisation, in accordance with the statutes and the list of beneficiaries.
Taxation of distributions [CIT]
The provision of the CIT Act appears relatively clear. The question arises, however, of how the foundation is to calculate the tax due and who bears the economic burden of that tax. Does the foundation collect the tax as remitter of the tax, in the same way as withholding tax [the burden of the tax is borne by the beneficiary]? Or does the burden of the tax fall on the foundation’s assets?
This issue has been settled in several rulings of the tax authorities [the Director of the National Fiscal Information (KIS)]. The view that emerges from them is that the tax due is borne by the foundation’s assets and not by the beneficiary’s benefit. The beneficiary will therefore receive the benefit due in the amount specified in the statutes.
The tax is payable to the account of the tax office by the 20th day of the month following the month in which the benefit or assets were provided or made available.
Example calculation
| Benefit due | 1,000 |
| Tax rate [nominal] | 15% |
| Tax payable | 150 |
| Payment to the beneficiary | 1,000 |
| Effective tax rate | 150/1,150 = approx. 13.04% |
Tax rulings
The family foundation as taxpayer
The tax base will be the revenue corresponding to the value of the benefit provided or made available by the family foundation, directly or indirectly, to a beneficiary or the founder. Under the adopted taxation model, where benefits are paid to beneficiaries, the family foundation acts as the taxpayer. The financial burden of the tax rests on the foundation. The tax base is the value of the benefit provided or made available by the family foundation, directly or indirectly, to a beneficiary. [0111-KDIB1-2.4010.242.2023.1.DP]
The tax is borne by the foundation’s assets
The tax base is the value of the benefit that reaches the beneficiary, i.e. the tax itself does not reduce the benefit paid out. The 15% tax will therefore be borne by the Foundation’s assets, and not by the value of the benefit paid to the beneficiary. It is thus the family foundation paying out the benefits, and not the beneficiary, that is charged the 15% income tax on a benefit provided or made available, directly or indirectly, by the family foundation.
In line with the above, it must be agreed that the 15% CIT on the value of the benefits paid out by the Foundation is not deducted from the value of the benefit paid; the notions of gross and net therefore do not arise here, since the beneficiary always receives the benefit in the amount that follows from the Foundation’s statutes and the other rules for determining the value of the benefit payable. [0111-KDIB1-2.4010.261.2023.1.DP]
Complicated? See how we can help:
we keep the foundation’s accounting and tax books, and help establish the chart of accounts and create the reporting structure for the foundation’s governing bodies
we advise on all tax aspects of setting up the foundation and of the business activity it carries on
as part of our cooperation with lawyers involved in drafting the family foundation legislation, we will help you open and register a family foundation
