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As the author of newsletters describing the establishment and functioning of family foundations, I feel obliged to clarify the upcoming changes in law concerning family foundations, particularly in the very interesting area of their taxation.

By default, family foundations are exempt from corporate income tax (CIT) until their income is distributed to beneficiaries.

Only the distributed income is subject to a 15% CIT. However, if a family foundation exceeds the permitted scope of activity specified in the Family Foundation Act, the basis for the CIT exemption ceases, and CIT is imposed at a 25% rate.

Beneficiaries must also take into account personal income tax (PIT), the amount of which depends on the degree of kinship between the beneficiary and the founder (ranging from a partial exemption in “group zero” to 15% PIT), and on the object of taxation in the case of closest relatives.

This clearly results in more favorable tax rules.

On this basis, family foundations were described as a tool for tax optimization, namely as a way of liquidating assets without incurring higher taxes that would normally arise from real estate transactions, real estate income, or securities trading.

How did this optimization work?
Individuals owned real estate acquired during their “ordinary” course of life. They then established a family foundation and contributed these properties as assets. Shortly after setting up such a foundation, the properties were sold, and the profits were distributed to the founders and members of the foundation in such a way that they became beneficiaries, and payments were made to them as beneficiaries.

The same applied to distributions related to securities trading and income from rental and lease of real estate (mainly highly profitable short-term rentals such as Airbnb or holiday apartments).

Such practices were met with negative reactions from the tax administration, which – based on Article 119a of the Tax Ordinance – classified such actions as tax avoidance (the GAAR clause). Sometimes this happened at the level of tax interpretations and protective opinions.

Apparently, these instruments did not meet the needs of the Ministry of Finance, as it has prepared (the draft is not yet in the Polish Parliament and is difficult to find even on the Ministry’s website) a proposal to amend the CIT Act.

As the Ministry of Finance indicates in the explanatory memorandum to the bill:

“It is also necessary to limit the risk of situations where the contribution of assets to a family foundation takes place solely for the purpose of disposing of them through an entity taxed preferentially. The response to these risks is the proposed tightening amendments.”

Summary of the changes:

• Explicit indication that the rules on taxation of controlled foreign corporations (cf. Art. 24a of the CIT Act) apply to family foundations;
• Limiting the CIT exemption for rental, lease, or similar contracts only to cases where the property is rented directly by the family foundation exclusively for residential purposes, with the foundation obliged to prove this;
• Limiting the CIT exemption for the disposal of property contributed or transferred free of charge to the family foundation, or acquired by the foundation from a related party, if the disposal occurs within 36 months from the end of the calendar year in which the contribution, transfer, or acquisition took place;
• Limiting the CIT exemption in the case of participation in partnerships (non-legal persons), funds, cooperatives, or similar entities, in Poland or abroad, that conduct business activities but are not subject to income tax or are exempt from it on all their income;
• Expanding the definition of hidden profit distributions to include loans granted to beneficiaries, founders, or natural persons related to them or to the foundation;
• Expanding the definition of hidden profit distributions to include receivables from loans in the amount of written-off, time-barred, or deemed uncollectible debts from loans granted by the family foundation to beneficiaries, founders, or related natural persons.

In other words, if enacted, the law will limit the tax benefits of family foundations by defining specific cases of tax avoidance within their activities.

Is this logical?
While it seems logical in the case of income from shareholdings, the provisions on income from real estate appear underdeveloped.

For example, family businesses are often associated with family guesthouses and agritourism farms, profiting precisely from the direct relationship between clients – holidaymakers – and the owners, i.e., their family character. Unfortunately, the amendment fails to recognize this. I hope this aspect will be considered during legislative work.

An interesting point is the chosen reference date: August 31, 2025. According to the legislator’s intent (as stated in the justification), this date is meant to prevent artificial contributions of assets to family foundations and their quick sale in anticipation of these tightening measures, which could lead to abuses and aggressive tax optimization.

From a legal theory perspective, such a situation may be deemed lawful, as it does not strictly constitute retroactive application of the law, but rather makes future obligations dependent on a state of affairs existing before the law’s entry into force – consistent with the principles of a democratic state governed by the rule of law. The legislator’s stated reason, namely ensuring the actual enforceability of the provision, seems clear and legally relevant.

However, one may challenge this interpretation by arguing that the legislator must respect constitutional principles of tax law, such as the prohibition of retroactive tax burdens, and could have foreseen these restrictions already when adopting the Family Foundation Act itself.

The chances of this bill becoming law are unclear. Given the current President’s Toruń Declarations, they do not seem high. The President appears to thoroughly scrutinize even minor legal changes and does not hesitate to use the legislative veto if a bill conflicts with these declarations, which could ultimately block the reform. Nonetheless, this matter should be closely monitored, and potential tax “losses” should already be assessed and secured.