Poland introduces new rules to smooth succession of family businesses

Poland has introduced new rules allowing family business owners to ensure a smoother and less costly succession of their firms to family members upon their retirement or death.

The succession of a business has until now required the direct involvement of at least one of the heirs in the running of the business and agreement with other family members, which in practice sometimes led to conflicts and has meant that the division of assets could take years.

The new law introduces the mechanism of a “family foundation” which will allow its beneficiaries to profit from the company and its assets even without direct involvement, by putting it under the management of a board of directors or a supervisory board.

The government says that the law, which comes into force today and was modelled on German and Austrian legislation among others, will serve shareholders, employees “and consequently the Polish economy”.

In order to establish a family foundation, the business owner has to donate assets worth at least 100,000 zloty to it and declare it before a notary public either in an instrument of incorporation or in a will. It will also be necessary to draw up statutes setting out the rules for how the foundation will operate.

The foundation can be created by an individual or several individuals if established during the founder’s lifetime but, if put into a will, there can only be one founder. The beneficiaries of the foundation, on the other hand, can be individuals or non-governmental organisations carrying out public benefit activities.

The new law was passed by parliament in January this year and signed by the president in February. Many advisory and tax companies have already started offering advice to business owners thinking of using the mechanism.

They say that it is tax advantageous as, in principle, it takes into account the family relationship between the beneficiaries and the founder and the establishment of a family foundation and the transfer of assets to the foundation is not taxed.

If a beneficiary acts as an individual rather than a legal entity and is a close relative of a founder they also will not have to pay personal income tax (PIT) on income from the foundation. The funds transferred to the beneficiaries, however, would be taxed with a 15% corporate tax (CIT).

“From the tax point of view, the situation of a family foundation looks promising. Of course, practice will reveal many issues, but the most important thing is that it is a good tax solution for the multiplication of assets by a family foundation, so by the family,” Piotr Aleksiejuk, a managing partner in Wojarska Aleksiejuk & Wspólnicy law firm, told Newseria Biznes news agency.

According to the justification presented with the draft of the law in 2021, nearly 830,000 of Poland’s 2.36 million registered non-financial companies are run as family businesses.

That same year, the Institute for Family Business (IBR) found that 57% of family firms were planning a succession within the next five years, reports news service INN:Poland.

Main image credit: cottonbro studio / Pexels 

Alicja Ptak

Alicja Ptak is senior editor at Notes from Poland and a multimedia journalist. She previously worked for Reuters.