Sale of assets through a foundation – when does risk arise?
One of the more frequently discussed topics regarding family foundations is the possibility of selling assets through the foundation. The operation itself is not prohibited, but its purpose matters. If an asset was contributed to the foundation solely to sell it quickly, it may be deemed an action aimed only at achieving a tax benefit. In practice, this means a risk of the transaction being challenged by the tax authority.
As the expert emphasized, the problem does not arise directly from the Family Foundation Act, but from anti‑tax avoidance provisions. If a real business purpose cannot be demonstrated, authorities may tax the transaction under Article 119a of the tax ordinance.
When do we talk about a situation where the goal is to avoid taxation? Not when taxation is your main concern, but when you cannot show a good economic purpose. In other words, if you do not present a solid business justification, it is assumed that the goal is a tax purpose. – Krzysztof Ciesielski noted.
The situation looks entirely different when the asset was actually used, e.g., as a fixed asset or part of an investment strategy. Then the sale is much safer.
High‑profile cases show the scale of risk
Recently, Poland saw a case that confirmed authorities’ interest (too quickly) in asset sales. One of the first family foundations was used to contribute shares of very high value and then sell them quickly.
The problem was the lack of a business justification for such action. As a result, there was a risk that the tax office would treat the operation as if the foundation were merely a conduit for tax avoidance. This shows that the legal structure alone is not enough; the business logic behind the decisions matters.
In the interview, the expert repeatedly stressed that a family foundation should not be treated solely as a tool for tax optimization.
Its main functions are entirely different:
- asset protection,
- succession planning,
- keeping companies in the hands of owners and their families.
I can say that such a structure, where the foundation is the owner of your companies, is a very good idea. The conclusion is that a foundation being a partner in a limited liability company is the direction we would definitely pursue. – the expert explained.
Foundation members do not have to be the closest family, but it would be best
Ideally, the beneficiaries of the foundation would be the closest family (zero tax group), but the expert pointed out that the intended goal can also be achieved with extended family or unrelated individuals.
(…) This needs to be well drafted in the statute. So we work on the statute with partners, families, and then send the family to a notary who accepts the act. In that act, we can effectively transfer shares to the family foundation. – Krzysztof Ciesielski emphasized.
Setting up a family foundation is not formally complicated, but it requires proper preparation.
Foundation registration actually consists of four stages:
- drafting the statute,
- preparing the notarized deed,
- contributing assets,
- registration in the register.
Family foundation or limited liability company?
A family foundation in Poland has a limited scope of permissible business activity, focused on asset management. At first glance, this excludes typical company activity. However, the expert stressed that activities beyond the catalog in Article 5 of the Family Foundations Act are not absolutely prohibited, but they result in a tax rate of 25% of income from such activity.
A family foundation is, by default, a CIT taxpayer, but if set up and organized properly, it can be exempt from CIT as an entity.
The expert further noted that tax burdens actually depend on who is the beneficiary. Within a zero tax group, taxes are most favorable; the further from the zero group, the higher the taxes, but still lower than double taxation in a company.
And as a founder, I can pay myself a monthly salary, say in quotes, effectively taxed at 13% – the expert summarized.
Pension in practice
The interview also covered pensions and other benefits paid by ZUS. The expert and FXMAG editor cited known cases where ZUS questioned the right to benefits or their amount. They highlighted the problem of the so‑called single partner, or rather the lack of a strict participation threshold in judgments when a company is actually considered a limited liability company versus a single‑member entity.
Cost of setting up and running the foundation
Finally, the costs of setting up and running a family foundation were summarized. The setup costs range from several to several tens of thousands of zlotys. The price may be higher if the future founder currently runs a sole proprietorship rather than a limited liability company. The foundation’s accounting must be kept in full commercial books. Because family foundations are relatively new and complex, accounting firms already expect significantly more than for company accounting.
Additionally, there is an audit every four years – it is hard to estimate the price, as audits are not yet available on the market, but the expert estimates it will cost roughly as much as setting up the foundation itself.
It was also reminded that a family foundation has the right to hire, so standard burdens apply as in any activity with an employee.
