In connection with the first anniversary of the regulations regarding family foundations, we continue to discuss the most interesting tax interpretations regarding this institution.
VAT Foundation
If the Foundation's disposal or provision of property is continuous and for profit-making purposes, the Foundation should be deemed a VAT payer in this respect. The Foundation's VAT treatment of the disposal or provision of specific property will depend on whether it is made as part of activities subject to VAT, as referred to in Art. 5, Section 1 of the Act (supply of goods and provision of services for consideration within the territory of the country, export of goods, import of goods into the territory of the country, intra-Community acquisition of goods for consideration within the territory of the country, intra-Community supply of goods).
Interpretation of November 8, 2023, reference number 0112-KDIL1-3.4012.473.2023.1.MR
Income from participation in transparent companies will be taxed
The permitted business activity for a family foundation is participation in commercial companies. Participation in a civil partnership, as well as in foreign companies in which the sole taxpayers are the partners (tax-transparent companies), exceeds the permitted business activity of a family foundation. Consequently, any profits received are taxed at a 25% rate.
Interpretation of December 7, 2023, reference number 0111-KDIB2-1.4010.413.2023.2.AR
Contribution of a business to a family foundation without VAT
A donation of a business to a family foundation, like any other transfer of a business, is not subject to value added tax.
Interpretation of March 5, 2024, reference number 0112-KDIL3.4012.77.2024.1.KFK
Contribution of company shares after leaving Estonian CIT does not affect the tax payment deadline
A company taxed on a lump sum basis must pay tax within a shortened period on the day preceding:
- putting into liquidation,
- filing for bankruptcy,
- takeover by another entity,
- cessation of business activity for any other reason,
- significant limitation of the scope of activities.
Contributing a shareholder's shares to a family foundation does not constitute a basis for shortening the payment deadline for the flat-rate tax. In particular, this activity does not constitute a takeover by another entity.
Interpretation of March 8, 2024, reference number 0111-KDIB1-2.4010.36.2024.1.AK
Short-term rentals are not permitted activities.
While real estate rentals benefit from the corporate income tax exemption for family foundations, short-term rentals fall outside the scope of permitted business activity. Income from rentals provided to related entities is taxed by the foundation under general rules, i.e., at a rate of 19%.
Interpretation of March 4, 2024, reference number 0111-KDIB1-2.4010.53.2024.1.ANK
A car for the CEO free of tax
The use of a vehicle by the president of the management board of a family foundation, who is its beneficiary, is not subject to CIT, unless it constitutes a benefit granted to that beneficiary.
Interpretation of March 19, 2024, reference number 0114-KDIP2-1.4010.69.2024.2.MR1
No tax avoidance
Establishing a foundation, contributing property to it, conducting business activities and receiving benefits by beneficiaries, where the main objectives of the activities are to secure the future of family members, facilitate the succession of family assets, conducting business activities by the foundation and accumulating and managing property in the interests of the beneficiaries, does not constitute tax avoidance.
Security opinion of December 21, 2023, reference number DKP3.8082.5.2023
If you are wondering whether a family foundation would be a good solution for you, we encourage you to consult with our law firm.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of May 26, 2024
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