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POLAND: An Introduction to Private Wealth Law

Poland/Private Wealth Law/trends and developments in 2021

2021 marks another year of pandemic restrictions affecting social and business relations in Poland. Despite substantial public aid measures resulting in a massive increase of the public finance deficit, several industries have been severely affected by the COVID-related 2020 crisis and slowdown. The tax measures stemming from EU and OECD Anti-Tax Avoidance policies implemented prior to 2021 have strongly impacted legislation and affected business decisions of HNWIs.

This new environment resulted in revision of past policies and a more restrictive approach on taxation of existing cross-border arrangements. The new tax policy measures have been recently proposed by the Government to fund increased public spending and to make incentives for Polish HNWIs to transfer their wealth back to Poland.

The Government plans to introduce a series of changes in tax system in 2022 under a programme called “New Deal”. It aims to increase the income tax burden for taxpayers earning income more than PLN120,000 annually, while reducing taxation for lower wage earners. All taxpayers will be affected by new, non-deductible health insurance contributions and liquidation of lump-sum health insurance contribution. The total tax and contribution burden is to be substantially increased as a result of making health insurance contributions non-deductible for income tax. It is to be expected that this will result in an effective 9-10% increase in tax burden for individuals.

Another incentive brought by the programme is the so-called “return relief”, which is to encourage not only employees, but also entrepreneurs who have settled abroad to return to Poland with their assets. As announced, individuals coming back to Poland will pay half of their PIT due within two years of their return. There is also a discussion on the introduction of a new “lump-sum” tax for HNWIs returning to Poland. At the same time, there are no developments as to amendments in tax legislation related to “exit tax” to make the Polish legislation fully in line with EU regulations.

The programme will be discussed in the Polish Parliament in coming weeks and is likely to be adopted. It will substantially increase the tax burden for Polish HNWIs in the coming years.

2021 welcomes a new system for family business succession. A bill on family foundations is be introduced to the Polish legal framework in 2022 to facilitate family business succession, address succession-related legal issues (forced heirship) and to encourage Polish HNWIs to transfer their business assets from foreign private foundations back to Poland.

Under the proposed legislation, family foundations will be considered as legal persons with full legal personality and will be required to have their corporate seat in Poland. The foundation will be allowed only to act as a family holding entity and cannot conduct operational activity other than deriving passive income.

The foundation’s bodies will include the foundation board, board of protectors and the meeting of beneficiaries. The foundation board will be appointed by the founder and will have functions like those of the management board in a commercial company. The board of protectors is to supervise the activities of the family foundation management board and to maintain compliance with the law and the foundation’s internal regulations. The meeting of beneficiaries is to be authorised to appoint and dismiss members of the foundation board in the absence of the founder and the board of protectors and adopt resolutions on matters specified in the draft bill or the foundation's articles of association. The appointment and the scope of rights of the foundation beneficiaries is to be determined by the founder. Under the draft bill, not only a natural person related to the founder, but also a non-profit organisation will be able to become a beneficiary of the foundation. In its current shape, the Polish private foundations will be comparable to Austrian or Liechtenstein private foundations.

In case of a threat to the security of claims of creditors not being the foundation’s beneficiaries, distributions to be made to beneficiaries will depend on the current financial situation of the family foundation, and the foundation's management board will be authorised to adjust their amounts.

The draft bill on family foundations brings amendments to the Polish inheritance law in the scope of legitim and forced heirship (i.e. the part of an estate that children or other close relatives can claim against the decedent's testament). The amended regulations provide for a possibility to renounce the legitim, spread it into instalments, postpone the payment deadline, or reduce its amount if the company's guaranteed share is considered when calculating it. The benefits received from the family foundation by the beneficiary will reduce its legitim’s value. This a very positive development as it has not been regulated by law in the past.

The draft sets out new rules for taxation of foundations creating a tax efficient way of transferring assets among family members. It is likely that these rules will impact not only domestic family foundations but also foreign private foundations with Polish families' assets having a comparable legal status to the Polish private foundations.

Contribution of property to the family foundation by the founder will be tax neutral but the foundation’s income will be subject to CIT. Distributions made from the foundation to the beneficiaries being direct family of the founder, as well as to the founder himself, will be exempt from inheritance and donation tax up to the value of the property endowed to the foundation. Payments made to other beneficiaries will be subject to tax.

The draft of family foundations legislation will be adopted by the Polish Parliament by the end of 2021. It is likely that the new regime will be attractive for the Polish HNWIs willing to organise their succession plans in Poland, but it is doubtful if it will be useful for asset protection purposes as in such cases non-Polish legal vehicles are more likely to be efficient.