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Dissolving a family foundation: key tax considerations
Establishing family foundations is increasingly popular among people who want to protect assets and organise their management transparently and safely. A family foundation is an effective asset management tool, but before deciding to establish one, understand the dissolution process and its tax implications. Here are the main aspects to consider for a smooth process without surprises.
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Tax and accounting valuation of a foundation's assets upon dissolution
Proper valuation of assets contributed to a family foundation is essential to its management. Assets are valued at acquisition cost, or their tax value. This method provides financial predictability and consistency, which matter greatly in tax settlements. It is useful to understand how valuation affects final settlement when the foundation is dissolved.
Example 1: Valuing property during dissolution of a family foundation
Suppose a founder contributes property bought for PLN 500,000. Its market value when contributed is PLN 700,000 and reaches PLN 800,000 when the foundation is dissolved. The CIT calculation is:
Market value on dissolution: PLN 800,000
Purchase price: PLN 500,000
Taxable income: PLN 800,000 - PLN 500,000 = PLN 300,000
CIT (15%): PLN 300,000 * 15% = PLN 45,000
This simplified calculation applies when the property was the foundation's only asset and primarily serves to explain the settlement method on dissolution. It illustrates the basic principle of calculating taxable income and the importance of correctly valuing assets at various stages of a foundation's existence.
Valuing company shares upon dissolution of a family foundation
Contributing shares also has particular tax implications. For example, if a company had a market value of PLN 10 million and share capital of PLN 5,000 when contributed, the shares may be worth PLN 15 million when the foundation is dissolved. The calculations are:
Market value on dissolution: PLN 15,000,000
Share capital: PLN 5,000
Taxable income: PLN 15,000,000 - PLN 5,000 = PLN 14,995,000
CIT (15%): PLN 14,995,000 * 15% = PLN 2,249,250
Aggregate asset valuation
When a foundation holds more than one asset, add the market values of all assets on the dissolution date and compare the total with the combined tax value of previously contributed assets. This provides a more precise estimate of total taxable income.
Suppose the foundation holds property and company shares as follows:
Property:
Market value: PLN 800,000
Purchase price: PLN 500,000
Company shares:
Market value: PLN 15,000,000
Purchase price: PLN 5,000
The calculations are:
Total market value of assets: PLN 800,000 + PLN 15,000,000 = PLN 15,800,000
Total purchase prices: PLN 500,000 + PLN 5,000 = PLN 505,000
Taxable income: PLN 15,800,000 - PLN 505,000 = PLN 15,295,000
CIT (15%): PLN 15,295,000 * 15% = PLN 2,294,250
If you found this article interesting, explore our tax advisory services and read how we can help you:
Summary
Understanding the tax aspects of dissolving a family foundation is essential for financial predictability. Valuing assets at purchase price and preparing appropriately for dissolution enable effective management and reduce tax risks. Considering different scenarios and analysing potential tax consequences carefully can significantly affect the benefits of operating a family foundation.
A family foundation is more than a tool for asset management: it is also an effective way to protect and grow assets. Proper management and planning, including understanding dissolution-related taxes, give founders and beneficiaries peace of mind and financial security.
For further questions on establishing or dissolving a family foundation, contact our TaxCoach accounting firm. We can help with tax optimisation and asset management, offering professional advice tailored to your needs and circumstances.
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