Poland’s tax system is complex and divided into personal income tax, corporate income tax, inheritance and gift tax. It is important to note that there are no purely private foundations recognised by Polish law and that Polish law does not allow the setting up of trusts. However, private foundations and trusts are well recognised by Polish ant-abuse rules, namely as controlled foreign companies (CFCs). Foreigners are allowed to own real estate in Poland; however, in some cases, a special permit issued by the minister of internal affairs may be needed (citizens of the EU have the right of free acquisition of the real property in Poland). Gains realised on disposal of real properties are subject to a flat rate tax of 19%. If the property has been acquired for residential purposes by the individual and then kept for more than five years, a full tax exemption is granted.

Generational Wealth Transfer

Poland today is at a moment of generational transition; the first generation of successful entrepreneurs is preparing for retirement and the younger generation is taking over management of their businesses. However, the inheritance and gift tax rules have not been changed for many years. Taxation of inheritance and gifts depends on the family ties between the donor and the donee. Gifts and inheritance between close family members are tax-exempt, on the condition that the inheritance or donation is declared to the tax office within six months from the moment of the legal act. This is still privileged taxation; however, this may not relate to distributions from private foundations and/or trusts. In such situations, distributions may be treated by the law, as donations between third parties and may be taxed at up to 20% of their value. Poland has started discussions on a privileged system of private foundations, called family foundations, but this is still at a very early stage of drafting. Polish legislation requires significant improvements in the area of intergenerational wealth transfer.

Charitable Foundations

For charitable foundations, the Corporate Income Tax Law provides a full exemption for corporate income tax on the condition that the foundations use the income for charitable purposes. If not, the regular corporate tax rate of 19% will be applicable. Donors have the opportunity to decrease their taxable base by the amount of money donated to charitable foundations (by up to 10% of their taxable income per year). Another possibility, very popular among taxpayers, is the so-called 1% – this is the possibility of allocating 1% of the total tax due to a charitable institution indicated in the Polish register of eligible public welfare organisations.

Individuals

For individuals, transfers among close family members are fully exempted from inheritance and gift tax on the condition that they are reported to the tax office and, in the case of cash donations, made by bank transfer.

Income tax planning in Poland has been significantly reduced by the wide introduction of the general anti-abuse rule (GAAR), measures to fight base erosion and profit shifting (BEPS), and all the other OECD and EU anti-avoidance tools. However, there are still preferences, related to the Parent-Subsidiary Directive, which exempt certain capital gains realised on significant participations, from tax. Moreover, there is regulated vehicle, known as an Alternative Investment Company, which also provides an exemption at the level of this company on capital gains (real estate transactions are excluded). This is an interesting tool for reinvestment.

In general, foreigners from the EU and/or OECD countries may purchase most kinds of real estate in Poland without specific restrictions. However, the general rule is that gains realised on that property’s disposal are taxable in Poland. The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) also changed most of double tax treaties without the real estate clause. However, residents and non-residents who purchase residential properties may realise a tax-free gain if the disposal occurs after at least five years after the year in which the property was purchased.

As indicated in 1.1 Tax Regimes, Polish regulations on inheritance and gift tax are not new. There have been, however, some discussions around changes to the taxation of inheritance and gifts. One of the ideas is to limit the exemption on tax free wealth transfers to those of up to PLN1 million. The surplus may be taxed at a 20% rate. There is no official draft law on this idea; however, the risk of it being implemented may be increased due to the lower revenues caused by COVID-19. One of the arguments used was that the above limit would be enough to transfer the wealth of most citizens without any further taxation. This idea is potentially dangerous for wealth management and restructuring may be necessary. Most wealth in Poland consists of real estate and businesses, with limited liquidity. Therefore, the situation could be similar to some other countries, where beneficiaries are not able to pay taxes on high value fortunes with small cash liquidity.

Poland implemented the Common Reporting Standard (CRS) in 2017 through the act on Exchange of Tax Information with Other Countries. It reflects OECD standards and, as a consequence, Polish financial institutions are required to implement due diligence and reporting procedures to identify reportable accounts and report them to the Chief of the National Tax Administration. Financial institutions are also required to identify customers who are non-Polish tax residents and report certain information to Polish tax authorities, which may then be shared with the tax authorities where those customers are tax residents.

Additionally, clients are required to declare their countries of tax residency to Polish financial institutions and any data related to tax residency status must be updated.

Clients subject to the United States Foreign Account Tax Compliance Act (FATCA) must provide additional information for the CRS as these are different regulations with different requirements.

Disclosure Requirements

To comply with the requirements of the CRS and provide the financial institutions with the required data, individuals should undertake the following activities:

• establish their tax residency status based on internal law and double tax treaties;
• complete the forms and declarations required by the financial institutions; and
• where necessary, provide the financial institution with a certificate of tax residency.

Additionally, this year, new obligations were levied on companies incorporated in Poland. Each company has the obligation to register its ultimate beneficial owner in the publicly accessible register. There are huge fines, which may be levied on board members of companies that do not fulfil these obligations. Transparency is now one of the key factors that entrepreneurs and wealthy families must consider in their relations with financial institutions. Implemented for fighting against money laundering and tax evasion, these regulations expose families to the risk of public access to their sensitive private information. Furthermore, it is sometimes difficult to meet the requirements of financial institutions in the case of complicated multi–jurisdictional structures, which increases the risk of termination of banking relationships with clients.

Polish legislation has also implemented DAC6 (the EU Directive on cross-border tax arrangements) by implementing mandatory disclosure rules into the Polish domestic law. The scope of Polish legislation with regard to the EU’s mandatory disclosure regime (MDR) extends beyond the scope of DAC 6, covering domestic arrangements and other taxes as well as extraterritorial application to non-resident intermediaries and taxpayers.

A number of businesses set up in the early 1990s have now grown and matured. Poland has a long-standing tradition of entrepreneurship, which survived even communism as well as nationalisation. As a result, family-owned businesses are the cornerstone of the Polish economy. A significant number of family-owned enterprises are expanding abroad; this requires the implementation of proper family governance. Moreover, the transfer of power from an older generation (usually founders) to a younger, internationally educated one has just started. This transfer generates multiple issues, from different visions to the legal set-up that will keep businesses growing and avoid their fragmentation and depreciation.

In recent years, Poland has implemented a number of anti-avoidance rules: GAAR, a CFC rule and a principal purpose test (PPT), to name a few. Unfortunately, these rules also affect proper inheritance planning. One of the biggest challenges is the safe implementation of private foundations/trusts into the international structures of clients. From a Polish perspective, such structures may be found to be aggressive tax planning vehicles, whereas, in fact, they are mostly implemented for asset protection and family governance.

Another important issue is the difficult multi-jurisdictional taxation of inheritance. In Poland, the rule is that a Polish citizen is liable for inheritance tax regardless of their current tax residency. Lack of a double tax agreement on this matter leads to the problem of double taxation. Many Polish families currently live in different countries, there are lots of Polish citizens who are simultaneously citizens of multiple countries, as well as owners of wealth located in these other countries. From this perspective, wealthy Polish families face the same problems as families from other, more wealthy jurisdictions. In light of the above, implementation of last wills as well as succession planning vehicles, such as private foundations and/or trusts, becomes essential.

In Poland there is no specific forced heirship regime, as heirship can be avoided by anybody who does not wish to inherit. However, as discussed below, individuals do not enjoy complete testamentary freedom. The primary form of inheritance is testamentary succession. However, if the deceased left no last will, the Polish law provides for a succession regime as follows.

• The deceased’s children and spouse are, by law, called to the succession first.
• If the testator did not have any descendants, their spouse and parents are appointed to the inheritance.
• If neither of the parents are still alive when the inheritance proceedings are opened, the siblings of the testator are appointed to the inheritance.
• If one of the siblings is dead at the time of the opening of the inheritance proceedings, its descendants are entitled to that sibling’s share of the inheritance.
• If the deceased has no parents or siblings, or their siblings are deceased, the spouse of the deceased inherits all the assets.
• If none of the above are still alive when the inheritance proceedings are opened, grandparents of the deceased are appointed to the inheritance.
• Finally, the commune of the last place of residence of the deceased is appointed to the inheritance, if such place cannot be established, the national treasury inherits all.

Legitimate Portion

Another important issue in the Polish heirship regime is that of “legitimate portion”. The legitimate portion is the institution of inheritance law, aimed at protecting the testator’s closest relatives from any exercise of the freedom to draft their will and dispose of their property during their lifetime through donations. As a rule, the legitimate portion amounts to half the value of a share in the estate that would fall to a person under statutory succession. The legitimate portion amounts to two thirds of the value of a share in the case of minors.

The statutory matrimonial property regime is the community of property, which takes effect upon conclusion of the marriage. It includes assets acquired by the spouses, both individually and jointly, during the regime (community property). Assets excluded from the community property belong to the personal property of each spouse.

Community property includes, in particular:

• remuneration received for work and income from other profit-oriented activities;
• income from the community property as well as from each of the spouses’ personal property; and
• financial benefits from an open or employee pension fund.

The personal property of each spouse includes (but is not limited to) the following:

• assets acquired before the community of property regime took effect, assets acquired by inheritance or donation unless the testator or donor stipulated otherwise, assets which exclusively serve one spouse’s personal needs, assets obtained as a reward for a spouse’s personal achievements, and assets acquired in exchange for personal assets unless particular provisions provide otherwise;
• property rights resulting from a joint ownership of property subject to separate regulations (eg, joint ownership in a civil law partnership or commercial partnership);
• inalienable rights, to which only one person may be entitled;
• assets received as damages for bodily injury or a health disorder or as a compensation for harm suffered (this does not, however, include disability benefits received due to the partial or total loss of earning ability of a spouse or due to their increased needs or decreased prospects of future earnings);
• claims for remuneration for work or for income from other profit-oriented activities; and
• copyrights and related rights, intellectual property rights or other rights of a creator.

Either spouse may individually possess and use the assets that form part of the community property. Neither spouse may dispose of, or undertake to dispose of, a share of the community property or of a particular asset thereof that would fall to them when the statutory regime ceased. Spouses are obliged to co-operate in the management of their community property.

Secondary market trade (transfers between individuals) is generally not subject to VAT and is taxed with transfer tax (tax on civil law transactions). The tax rate is 2% in the case of tangible property and 1% in the case of intangible property. The tax base is the fair market value of the acquired subject. The tax is payable by the purchaser and is non-refundable.

Transfer of property at death is exempted from this tax, it may, however, be subject to inheritance tax. Also, the donation of property is not subject to tax on civil law transactions.

Currently, Poland still has a favourable tax regime; one where an acquisition of the ownership title to tangible property or property rights by a spouse, descendants, ascendants, stepchildren, siblings, or step-parents will be exempt from tax where:

• the acquirer reports the acquisition of ownership of the tangible property or property rights to the competent head of the tax office within six months from the day on which the tax liability arose, or on which the court ruling confirming the acquisition of succession became final; or
• the acquirer acquired the cash by gift or donor’s instruction, and they present a confirmation that the amount acquired was transferred to the acquirer’s bank account or was received by a postal money order.

Digital assets – along with other assets inheritable under Polish law – can also be subject to autonomous disposition in the will of the user’s account. The latter requires the sharing of the inheritance (by an agreement between the heirs or by a court ruling) and can take place only after the account user has passed away.

As mentioned in 1.1 Tax Regimes, Poland still does not have any special regime for private foundations. Polish practitioners have tried to underline that domestic regulations for private foundations are necessary but the legislature has continued to treat this kind of structure as tax evasive. Recently, however, some progress has been made in this area as the draft legislation on family foundations has been published. The draft reflects most of the solutions used in other jurisdictions; however, it is still not clear how both the transfers and the profits of Polish foundations will be taxed. Poland has had good experience with private foundations for its citizens in other countries, and can easily implement the best solutions. Succession planning with the use of private foundations is very popular among wealthy families.

Poland is a continental law jurisdiction, which does not currently recognise trusts and has not done so historically. However, in recent years, trusts have appeared in Polish tax regulation, as structures which may generate tax obligations for their stakeholders (mainly beneficiaries).

Poland does not recognise trusts, so their tax treatment is not completely clear and straightforward. However, it may be pointed out that distributions to beneficiaries will be subject to inheritance tax of up to 20%. It may also be problematic, with regard to CFC rules, if a foundation’s beneficiaries keep control over a private foundation with its seat abroad. Polish tax residents are generally treated the same way as citizens – ie, if they spend more than 183 days in the tax year in Poland, they have the same obligations as Polish residents.

There are no irrevocable planning vehicles in Poland. However, the problem of irrevocability, as well as control over foreign vehicles of this type, may expose Polish residents to tax liabilities if they are the founders and/or beneficiaries of private foundations.

Poland does not have any dedicated vehicle for asset protection domestically. Therefore, in recent years, the number of private foundations for Polish citizens in other jurisdictions has increased significantly. Polish citizens and successful entrepreneurs understand that keeping their wealth may be as important as its growth.

The easiest succession planning strategy is to pass the wealth directly to the younger generation, using a last will with a more detailed description. This may, however, lead to fragmentation of a business and, as a consequence, less efficient management. Therefore, wealthy Poles have started to write family constitutions which are usually combined with private foundations set up in jurisdiction such as Liechtenstein, the Netherlands and Malta.

Polish tax law always refers to fair market value. It is the responsibility of the taxpayer to declare it properly. Tax authorities have the right to verify it during a tax audit. All relevant factors should be taken into consideration during the value determination. Therefore, it is always recommended to appoint an independent valuator, who will be able to determine the value with, for example, an appropriate discount for lack of marketability and control. Obviously, this valuation is not binding for tax authorities, but may be persuasive evidence during any potential tax dispute.

As Poland recognises neither private foundations nor trusts, wealth disputes are usually limited to question surrounding wills under Polish law. Such disputes may be long-lasting and their results are difficult to predict. The potential disadvantage of litigation in this area is the risk of a significant decrease in the value of the businesses subject to that dispute. Such litigation sometimes blocks the effective governance of the business as well as the normal exercise of shareholders’ rights.

As mentioned in 5.1 Trends Driving Disputes, litigation may last for a long period of time, partly due to the fact that fair shares and/or compensation shall be decided by the judge. In practice, reaching a final verdict that satisfies all the parties is a lengthy and almost impossible process.

Due to the current state of legislation in Poland, this issue does not arise for most Polish families. This may, however, have importance when trust structures in commonwealth countries have been implemented during the inheritance planning process.

This issue does not arise due to the specifics of the legal system in Poland. Any fiduciary relationships in Poland are regulated by the Civil Code, and liability therefore arises on general rules – no specific provisions appear.

No special regime for fiduciary regulation exists in Poland.

No special regime for regulation of a fiduciary’s investment of assets exists in Poland.

There is no concept of domicile in Poland. Only the concept of residency is recognised. An individual may be treated as a resident of Poland if they have a centre of vital interest in the territory of Poland or stay in Poland for over 183 days in any given tax year.

Polish Citizenship

Polish citizenship may be acquired in several ways.

Pursuant to the law, a child acquires Polish citizenship by birth to parents, at least one of whom is a holder of Polish citizenship, irrespective of whether the child was born in Poland or abroad.

A child adopted by a holder or holders of Polish citizenship acquires citizenship if the full adoption had been completed before the child turns 16. In this case, the child is considered as possessing Polish citizenship from the moment of their birth.

The President of the Republic of Poland can grant a foreigner, at their request, Polish citizenship. No conditions limit the constitutional competence of the Republic of Poland; the President can grant Polish citizenship to any foreigner. Granting Polish citizenship to both parents will extend that citizenship to children under their custody. Polish citizenship granted to one of the parents will be extended to a minor under their parental custody, in the event that the other parent has no parental custody, or where they have given consent to the minor acquiring Polish citizenship. When the child has turned 16, only their consent is required.

Foreigners are eligible to be recognised as Polish citizens administratively. To apply for Polish citizenship through recognition of citizenship an applicant must be a foreigner living on the territory of Poland, pursuant to applicable permissions, who, in the course of many years’ residence in Poland:

• has become integrated into Polish society;
• knows the Polish language;
• has means of support and housing;
• respects the Polish legal order; and
• does not pose a threat to national defence or security.

See 7.1 Requirements for Domicile, Residency and Citizenship.

Poland does not recognise any special vehicle for the purpose of providing for minors or adults with disabilities.

Appointment of a guardian requires a court proceeding in Poland.

Unfortunately, Polish legislation does not have any special regulations related to preparing financially for long retirements. The only additional governmental support is the so-called 13th pension, which is paid to every pensioner. In most cases, helping older family members is the duty of the younger generation. One good point is that access to top quality medical treatment is possible, especially within the private healthcare system.

According to the law, a mother of a child is the woman who gave birth to the child. Therefore, surrogacy agreements, according to prevailing jurisprudence, are void and unenforceable. This also applies to agreements where a surrogate mother gives her consent for the future adoption of the child by genetic parents, because consent to the adoption of the child cannot take place earlier than six weeks after birth. A person can adopt a child only if it is in that child’s best interests. The child must be a minor at the moment the adoption application is submitted. The adoptive parent must have full legal capacity and have personal qualifications justifying the belief that they will properly carry out the obligations of a parent. There must also be an appropriate age difference between the adopter and adoptee. The adopter must complete training organised by a specialised adoption centre and obtain the formal opinion of such a centre.

Only spouses can jointly adopt a child. Joint adoption is not available to cohabiting couples, either heterosexual or same sex. Adoption is available for individuals. Generally, an adoption by only one of the spouses is possible only after the consent of the other spouse.

In Polish law, there is no regulation concerning civil partnership or same-sex marriage.

Charitable foundations are recognised by the Polish law and are becoming more and more popular. Polish tax law foresees tax incentives for donations to public-benefit foundations. The donor can deduct the amount of the donation in their tax declaration (tax deduction), as set out below.

Payers of personal income tax can deduct the amount of certain donations from their taxable basis up to 6% of their taxable income (there are no limits for support given to the Roman Catholic Church). A donation is deductible if the recipient organisation conducts public-benefit activities and is a non-governmental organisation or a corporate entity operating under provisions on relations between the State and the Catholic Church in the Republic of Poland, on the State position on other churches and religious unions, and on the guaranteed freedom of conscience and religion (should their statutory objectives encompass public-benefit work or local authority organisation unions). There are no strict limitations regarding the type of organisation to which donations may be made. The only restriction is that a donation, in order to qualify for a tax exemption, may not be made to individuals; entities engaged in the production of alcoholic beverages, fuels, tobacco, electronic devices, or precious metals; or entities engaged in the trade in precious metals. Corporate donors can deduct the amount of their gifts from their taxable income by up to 10% (there are no limits for support given to the Roman Catholic Church).

As a consequence of the factors discussed in 10.1 Charitable Giving, charitable foundations set up under Polish domestic law are the most popular for charitable activity. There are lots of successful families making donations to foundations they have set up, and who have delegated, to one family member, the responsibility of developing that foundation’s activities and collecting money from third parties with which to grow it.