Table of Contents:
- What activities can a family foundation engage in?
- Will the family foundation be exempt from tax?
It turns out that family foundations will be able to sell shares and interests contributed by the founders tax-free. This follows from an individual interpretation in which the tax consequences of selling shares in a limited liability company acquired free of charge from the founder by the applicant intending to establish a family foundation were examined. The main issue was to determine whether such a transaction qualifies for exemption from CIT.
What activities can a family foundation engage in?
According to Article 5 of the Family Foundation Act (Journal of Laws of 2023, item 326, as amended), a foundation may participate in commercial companies, investment funds, cooperatives, and similar entities domiciled in the country or abroad, and also participate in these companies, funds, cooperatives, and entities. This is the so-called permitted economic activity of a family foundation, and the income of a family foundation is exempt from taxation. For tax purposes, it is crucial to correctly determine whether the foundation is conducting activities in accordance with the requirements set by the legislature. According to the provisions of the Corporate Income Tax Act, to the extent that a family foundation conducts business activities beyond the scope specified in Article 5 of the Family Foundation Act, the CIT rate is 25% of the taxable base.
However, it is worth noting that the foundation may also dispose of assets, provided that they were not acquired solely for further disposal. This reservation does not apply to rights resulting from accession to commercial companies and participation in these companies, as well as to assets referred to in Article 5(1)(4) (i.e., securities, derivative instruments, and similar rights).
Will the family foundation be exempt from tax?
In an individual interpretation dated December 21, 2023, with reference number 0111-KDIB1-2.4010.319.2023.2.DP, the Director of the National Tax Information clarified that the sale of shares in a limited liability company by the foundation, contributed free of charge by the founder, falls within the scope defined in Article 5(1)(3) of the Family Foundation Act, i.e., permitted economic activity. As a result, the income of the family foundation from the sale of shares will not be subject to tax. The foundation will benefit from the tax exemption under Article 6(1)(25) of the CIT Act.