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Family foundations have long been a popular means of managing assets and securing a family's future. They particularly appeal to business owners who want to safeguard their wealth for future generations while minimising tax obligations. However, planned changes to the rules intended to take effect in 2025 could significantly change how family foundations operate and are taxed.
Why is the government introducing changes?
The Ministry of Finance says the new rules aim to tighten the tax system and close legal loopholes that allowed family foundations to avoid paying tax. Although legally used, foundations have become a means of tax avoidance, potentially leading to unfair tax advantages over other ways of managing assets. In this situation, well-organised accounting may be crucial to adapting to the new rules and minimising tax risk.
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Comparison of existing rules and proposed changes
1. Sale of shares: changes in taxation
Currently, family foundations can sell shares contributed to them without paying tax, provided the income remains in the foundation. Only when the money is paid to beneficiaries does the obligation arise to pay 15% CIT and the relevant PIT.
Changes planned from 2025:
- Income from selling assets contributed to a foundation will be subject to 19% CIT at the time of the transaction, removing the option to defer taxation.
This change may significantly influence foundations' investment decisions, forcing them to consider more carefully when to sell assets and how to distribute funds to beneficiaries.
2. Solidarity levy: changes in calculation
Until now, payments by family foundations were not included when calculating the solidarity levy. Beneficiaries could thus receive large sums without this additional tax burden.
Changes planned from 2025:
- Benefits paid to family foundation beneficiaries will be included in the solidarity-levy calculation base.
- In practice, people receiving high benefits from a foundation may have to pay an additional 4% tax if their annual income exceeds the threshold.
The solidarity levy aims to help people in financial difficulty by taxing the wealthiest citizens. Extending it to family foundation beneficiaries aims to distribute tax burdens more fairly.
3. CFCs and transparent companies: new taxation rules
Under the current tax system, family foundations and their beneficiaries were largely exempt from paying tax on income from controlled foreign companies (CFCs).
Changes planned for 2025:
- Family foundations will have to report income earned by their controlled foreign companies (CFCs), which will be taxed in Poland.
- Tax on income obtained through tax-transparent entities will also become stricter and more precise.
The aim is to eliminate the practice of concealing income abroad and using foreign structures to avoid domestic tax.
4. Unauthorised business activities of foundations: tougher penalties
Previously, unauthorised business activities by family foundations could result in a punitive 25% tax.
New rules from 2025:
- In addition to the punitive 25% tax, courts will be able to dissolve a family foundation for conducting unauthorised business.
- These tougher penalties seek to deter foundations from unlawful activities that could endanger their stability and reputation.
This sends a clear signal to family foundations that the government intends to monitor their activities closely and eliminate abuses.
5. Taxation of property rental
At present, a family foundation's rental or lease of property and the income from it are exempt from tax.
Proposed change from 2025:
- Taxation of family foundations' income from agreements granting the paid use of property.
What do the changes mean for business owners and beneficiaries?
The new rules may end favourable tax options previously available to family foundations. Some key consequences could include:
Higher tax burdens – Family foundations will have to plan asset sales more carefully to minimise tax burdens.
Greater tax risk – Managing assets through foundations will become more complicated, particularly concerning CFCs and the need to report foreign income.
Reduced appeal of family foundations – Higher taxation and tougher penalties for business activities may encourage owners to seek alternative asset management structures.
What steps can be taken?
In the face of these changes, business owners and family foundation managers should consider:
- Analysing their foundations' tax structure to adapt to the new rules and avoid unnecessary burdens.
- Consulting tax experts to understand the specific implications of the new regulations and develop a plan.
The changes show that the government seeks greater transparency and fairness in asset management, but they also increase the challenges for people using family foundations to manage and protect capital. In this situation, properly maintained foundation accounts may be essential to success.
If this article interests you, explore our family foundation services and find out how we can help:
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