In recent years, in legal and tax practice, one can observe a growing interest in foreign issues. For some clients, this is due the search for investment opportunities in other markets and expanding their operations abroad. Nevertheless, it is with increasing frequency that we record interest in foreign jurisdictions motivated by a desire to secure assets and to regulate the issues of succession. In this context, the Liechtenstein Foundation has enjoyed unabated interest.

In many countries, including Poland, a fairly strict inheritance law is applied. Although it is possible to regulate the succession of property by means of the commonly known will, this does not allow for the exclusion of a number of basic rules of inheritance. In other words, a business owner is not able to fully guarantee the succession of their company according to plans using only the institution of the will. Hence the widespread interest among business owners planning succession according to alternative solutions, such as a family foundation in the Principality of Liechtenstein.

What is the Liechtenstein Foundation? 

The Liechtenstein Foundation is a separate entity located abroad and has its own assets at its disposal, in accordance with the rules set out in detail in the foundation deed. The founding entity, on the other hand, is the founder (one or more), who also generally has a decisive influence on how the assets transferred to the foundation will be used and what the profits earned will be used for. Considering that the assets (e.g., shares in companies) become the property of the foundation, new opportunities for succession planning arise. 

Taxes in Poland and the Liechtenstein Foundation

The main tax consequences of a foundation in the Principality of Liechtenstein for Polish taxpayers are related to the regulations on so-called  controlled foreign companies (i.e. CFC).

Under Polish regulations, a foreign entity may be considered a CFC of a natural person who is a tax resident of Poland if it meets at least one of five criteria. 

  1. Firstly, entities located in the so-called tax havens, non-cooperative tax jurisdictions, should be considered as CFCs (Criterion I). 
  2. Secondly, a CFC will also be an entity from a country with which neither Poland nor the EU has concluded an international agreement providing a basis for the exchange of fiscal information (Criterion II). 

In the case of a foundation from the Principality of Liechtenstein, the above criteria should not be applied because:

  1. The Principality of Liechtenstein is not a so-called tax haven within the meaning of Polish legislation and
  2. The Principality of Liechtenstein belongs to the EEA (i.e., European Economic Area) and has concluded an agreement on the exchange of tax information with the EU[1].

Therefore, the recognition of a foundation from the Principality of Liechtenstein as a CFC of Polish taxpayers (i.e., founders or beneficiaries) could be made on the basis of one of three following criteria. The common denominator for each of them is that the foundation should be controlled in at least 50% by Polish tax residents and that the effective tax rate of the foundation’s income should be lower than 14.5%. 

While the latter condition is most likely to be met in the case of the Principality of Liechtenstein (due to low taxation), whether the founders and beneficiaries of the foundation exercise control over it may be disputable. Nonetheless, it should be emphasized that after the last amendment of the regulations, the examples of the forms of exercising control were indicated, among others, to be the expectative of obtaining profit as a founder or beneficiary of the foundation, as well as exercising factual control understood as influence on the entity’s operation resulting from a foundation deed or another document regulating the establishment or functioning of a given entity, but also factual control. The modifications to the regulations on the control over a foreign entity in this direction may indicate that the Polish fiscal authorities explicitly identify foundations as entities potentially subject to CFC regulations.

Therefore, in the case of any foundation established by Polish founders or one having Polish beneficiaries, it is necessary to go through specific CFC criteria to verify that the foundation does not constitute a CFC for Polish taxpayers.

  1. A foundation may be considered to be a CFC if, in addition to the conditions regarding control 
    and the actual level of taxation (discussed above), it also meets the condition regarding the structure of revenues, i.e., that the revenues of a passive nature (e.g., dividends, interest, revenues from the sale of shares in the company or from copyright) amount to least 33%. 
  2. However, even if the passive income criterion is not met, the foundation may still be considered to be a CFC. Such a situation will occur when, for example, shares in companies (Polish and foreign ones), intangible assets, real estate or movable property owned by the person exercising control and receivables from affiliated entities constitute more than half of the foundation’s assets. And when at the same time, the foundation’s passive revenues (e.g., dividends, interest, etc.) amount to less than 30% of these assets. 
  3. After all, even if a foundation does not meet any of the above criteria (except for the actual control and the level of taxation), it may still be considered to be a CFC. Such a case may occur if a foundation achieves income exceeding the value specified as 20% of the sum: the carrying amount of the entity’s assets, employment costs and the accumulated value of the previous depreciation write-offs, and when at the same time less than 75% of the entity’s income comes from transactions with unaffiliated entities having their residence, registered office, management board, registration or location in the same country as this entity.

Consequences of the recognition of a Foundation in Liechtenstein as a CFC

The basic consequence of recognizing a foundation as a CFC will be the taxation of its income in Poland, on the side of the founder or beneficiaries. In practice, this means that if a foundation is recognized as a CFC, the taxable income should be calculated for it. The income will be calculated according to Polish rules, i.e., taking a fictious assumption that the foundation is a Polish taxpayer. Then, on the income calculated in this way, the Polish taxpayer (e.g., a natural person – the founder) will have to pay tax in Poland at the rate of 19% plus 4% for income above PLN 1 million per year. At the same time, in the case of a CFC determined according to criterion IV, if there is no actual taxable income, the tax is calculated on the hypothetical income of the foundation determined as 8% of the value of its assets. In addition, additional reporting obligations for the Polish taxpayer are also involved.

It should also be pointed out that the tax will be payable in Poland, even in the absence of any payment from the foundation to a Polish founder or beneficiary. While, indeed, there exists a legal exception which allows deducting the dividend or another payment of the CFC’s profit from the income that was taxed by the CFC according to the above principles (i.e., the tax will not be effectively payable on the income of the CFC’s entity that was paid to the beneficiary of the CFC). Naturally, in such a situation, the Polish beneficiary will pay tax on the payment received in Poland. However, it is worth noting that at present it is not entirely clear whether the payment from foundations in the Principality of Liechtenstein can be treated in the same way as a dividend. Individual rulings already exist on the market, which confirm the possibility of deducting the payment obtained from the foundation from the taxable income of a CFC[2]. However, it should be noted that the interpretations were changed to the benefit of taxpayers only after the judgments of administrative courts. Thus, at first instance, the tax authorities did not allow the deduction of payments received from a foundation from CFC income, which effectively led to the double taxation for Polish taxpayers.


To sum up, the Liechtenstein Foundation remains an interesting subject for people planning succession in business. However, it should be remembered that in the current legal reality in Poland, it may be associated with significant, negative tax consequences for the Polish founders and beneficiaries of the foundation.

[1] Agreement between the European Community and the Principality of Liechtenstein providing for measures equivalent to those laid down in Council Directive 2003/48/EC on taxation of savings income in 

the form of interest payment (including the protocol of 20 October 2015; No. 11798/15)

[2]See: Individual Interpretation of 21 March 2022 (ref. 0114-KDIP3-2.4011.224.2019.2022.10.S.AK)