Polish wealth managers warn against tax changes for family foundations

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A Polish law designed to encourage the wealthy to keep their money in the country is creating uncertainty according to wealth managers, after the government signalled it could change tax rules to avoid favouring the richest. 

About 3,000 family foundations have been set up in Poland since the law was introduced in May 2023, shortly before a change in government that returned Prime Minister Donald Tusk to office.

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But lawyers and fund managers say the flow of money into the foundations has recently turned into a trickle after a senior government official questioned the terms of the legislation. The law not only reduced inheritance taxes but also simplified the rules for individuals to pass on their fortune to the next generation. 

While Poland’s economy has grown faster than most of its EU counterparts since joining the bloc in 2004, several of the country’s most successful entrepreneurs have moved assets to tax havens. For instance, an ongoing family succession battle between billionaire Zygmunt Solorz and his children is being handled by a court in Liechtenstein because that is where Solorz registered his foundations.

In August, deputy finance minister Jarosław Neneman told the Polish national news agency: “I do not understand why wealthy individuals who are beneficiaries of family foundations should benefit from tax preferences that go far beyond the spirit of the family foundations act.” 

Jakub Sierzchala, who chairs an informal group of about 15 managers of Polish family offices, said his counterparts had put plans to create private foundations on hold because “this [comment] has spooked a lot of people. It enhanced the view that the government is not a very trustworthy partner”. 

The finance ministry has not elaborated on what changes Neneman envisaged and did not immediately respond to a request for comment.

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Polish billionaire Rafał Brzoska said in an interview that Tusk’s government was now threatening “a great solution to bring assets back to Poland”. Brzoska, who is the founder of InPost, Europe’s largest parcel locker company, added: “Let us now not be surprised if, after [many] family foundations were created in 12 months, angry people who trusted the country, will completely move away their capital to Austria, Liechtenstein or other places.” 

Katarzyna Karpiuk, a lawyer at PwC in Warsaw who has helped clients set up family foundations, said that uptake had far exceeded expectations. “It’s been a success and let’s hope it’s not going to be changed.”

She added that the government was continuing a long-standing approach to taxation that undermined business confidence: “Tax regulation in Poland is being changed almost every year.” 

Neneman also questioned whether people were creating foundations in order to carry out business transactions on preferential tax terms, rather than to prepare their inheritance: “We have observed the phenomenon of assets being contributed to a foundation and then quickly sold,” he said.

Still, rich Poles now worry that their money could become trapped in Poland if the government introduces high exit taxes on foundations.

“They can pass whatever new bills they want, turn it all upside down,” said Sierzchala. “We all know that once you put assets into an entity, it can be made very difficult to take them out.”