Benefits paid to the beneficiaries of family foundations can be taxed at two levels. On the one hand, the levy falls on the foundation itself [it pays 15% CIT]; on the other, the benefits received by beneficiaries may be subject to PIT.
Taxation of beneficiaries [PIT]
Whether beneficiaries are taxed depends on the tax group to which they belong within the meaning of inheritance and donation tax. The zero group pays no tax, groups I and II pay PIT at 10%, and all others pay 15%.
It is therefore worth recalling which relatives, by blood and by marriage, belong to each of the tax groups.
Tax groups of foundation beneficiaries
Zero group – 0% PIT
Revenue from benefits received from the foundation by the founder, or by a person who in relation to the founder belongs to the following circle:
- spouse
- descendants
- ascendants
- stepchild
- siblings
- stepfather and stepmother
is exempt from PIT
– subject to the appropriate proportion.
First and second groups – 10% PIT
The first tax group under the Inheritance and Donation Tax Act comprises:
- the spouse
- descendants
- ascendants
- a stepchild
- a son-in-law
- a daughter-in-law
- siblings
- a stepfather
- a stepmother
- parents-in-law
Persons who belong to both the zero group and the first group use whichever taxation option is better for them, so they are effectively exempt from PIT on the benefits they receive.
The second tax group under the same Act comprises:
- descendants of siblings
- siblings of parents
- descendants and spouses of stepchildren
- spouses of siblings
- siblings of spouses
- spouses of siblings of spouses
- spouses of other descendants
For the purposes of the Act, parents are also taken to include adoptive parents, and descendants to include adopted children and their descendants.
Other beneficiaries – 15% PIT
All other persons, not falling within the lower-taxed categories, are subject to 15% PIT on the benefits they receive.
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
