Table of contents:
1. What did the applicant ask?
2. Is the sale of real estate by a family foundation subject to taxation?
As noted by the Director of the National Tax Information, if a family foundation initially assumes that it may sell the acquired real estate, then the income from such a sale will be subject to a 25% corporate income tax (CIT), even if the sale occurs many years later. This is one of the first interpretations of the disputed issue related to the sale of real estate contributed to the family foundation by its founders.
What did the applicant ask?
A family foundation submitted an application for an interpretation. In October 2024, the foundation signed preliminary agreements before a notary, under which it committed to purchasing apartments with garages by the end of 2026. These properties were intended to be rented out, and the income generated would be allocated to further investments and the growth of the family’s wealth. After at least 10 years, the rented properties could be put up for sale. The application sought clarification on whether the family foundation would benefit from the tax exemption specified in Article 6(1)(25) of the CIT Act concerning the sale of real estate after a period of no less than 10 years from acquisition.
Is the sale of real estate by a family foundation subject to taxation?
As a general rule, family foundations are subject to an entity-based exemption from corporate income tax (CIT). However, this exemption does not apply to income from assets transferred or made available by the family foundation directly or indirectly to a beneficiary (including a founder who is also a beneficiary) or to assets in connection with the dissolution of the family foundation, as well as benefits classified as hidden profits.
For tax purposes, it is crucial to determine whether the Family Foundation conducts its activities in accordance with the statutory requirements. According to Article 24r(1) of the CIT Act, if the family foundation engages in business activities beyond the scope defined in Article 5 of the Family Foundation Act, the CIT rate is 25% of the tax base. As stated in Article 5(1)(1) of the Family Foundation Act (UFR), a family foundation may conduct business activities, including the sale of assets, provided that the assets were not acquired solely for resale.
According to the Director of the National Tax Information (ref. 0111-KDIB1-2.4010.700.2024.1.DK), Article 5(1)(1) UFR does not impose any additional conditions—if the sole purpose of acquiring a given asset is its resale, it constitutes so-called “prohibited activity” for a family foundation. The timing of the sale does not affect this determination, regardless of how distant in the future it may be:
“It should be emphasized that Article 5(1)(1) UFR, as directly influencing the norm of Article 6(1)(25) in conjunction with Article 6(7) of the CIT Act, which concerns tax exemption, must be interpreted strictly (literally), as is the case with all provisions of this nature. The legislator did not include in this provision any requirement or reservation regarding the length of time that must pass from the purchase of an asset to its sale for the transaction not to be considered an acquisition of an asset solely for resale. Therefore, to meet the condition set out in Article 5(1)(1) UFR, the time interval between acquisition and disposal is irrelevant. What matters is solely the purpose of the acquisition, which, in this case, is the family foundation’s intention to sell the property.”
Consequently, the sale of real estate by the Foundation will be subject to a 25% tax rate under Article 24r(1) of the CIT Act, as such activities fall outside the permissible scope for a family foundation. The Family Foundation will not be exempt from corporate income tax on the real estate sale transaction under Article 6(1)(25) of the CIT Act.
