Community Foundations in Poland:
The Regulatory Environment
by Monika Mazurczak



The Legal Status of Polish Community Foundations
Not unlike other charitable organisations in Poland, community foundations may be established as any of the following legal entities (organisations with the status of an independent and legally established body): an association, a foundation, or a joint-stock company. Of the 17 community foundations currently being set up in Poland (under a programme sponsored by the Academy for the Development of Philanthropy in Poland), 7 are foundations and 10 are associations.
A joint-stock company is publicly perceived to be solely a profit-oriented organisation. This purely business connotation might not help build a strong image and credibility with the local community.
In both cases, a foundation or an association may set up and manage a community foundation. What are the key characteristics of a community foundation in the context of the Polish law on foundations and associations? Can a community foundation set up as an association or foundation be legally independent, representative of broad local community interests, operationally transparent with respect to decision-making, active in fundraising and endowment building, and involved in grantmaking programmes to facilitate local solutions to local problems?

Associations vs. Foundations
Under Polish law, an association is a voluntary, self-established organisation designed to operate on a non-profit and long-term basis. It takes a minimum of 15 individuals (natural persons) to set up an association. Organisations that are legal entities, such as businesses and local governments, may be supporting members. The responsibilities and powers of association members are defined in an association?s statutes. Association is a legal entity gathering persons around some issue. Association can be registered without any funds and can have no other source of funds than members fees (although it may have other sources).
A foundation is a legal entity with defined assets, which are utilised on a non-profit basis to support a public cause which must be consistent with state interests ("formally personalised assets whose designation and form of utilisation is decided by the founder, as defined in the Statutes"). Foundations are set up solely to pursue public or ECONOMIC objectives which are in line with the interests of the Republic of Poland. Both natural and legal persons may be founders provided that they have made an asset contribution. The minimum amount of such assets must be 1,000 Polish zlotys.
Both these legal entities may run (but do not have to) commercial activity (after making appropriate entry in National Court Register).

Registration and Statutes - the Crucial Starting Point
In order to ensure that a community foundation is independent, impartial, representative, diversified in scope, transparent, and credible in its financial dealings and decision-making, whether a foundation or an association, it must make specific provisions in its statutes and establish clear rules and procedures to define how grants will be made, decisions taken, assets invested towards the endowment fund, etc.
Both the Foundations Law and the Associations Law impose specific requirements on organisations to ensure transparency of leadership election and related decision-making processes. All formally registered organisations are required to define such processes in their statutes.
Associations and foundations must be registered in the National Court Register. 16 regional courts are entitled to provide registration and latter entries.

Supervision and Operational Transparency
All nationwide foundations are subject to supervision by a competent department (ministry). For example, a foundation primarily active in the public health area will be supervised by the Ministry of Health. In contrast, associations are audited for regulatory and statutory compliance by their local county authorities (Pol. starostwo - local government level: larger than a municipality but smaller than a province).
The openness and transparency of operations, funding sources, expenditures, and performance results are a top priority for community foundations. This is how they build their credibility not only with donors but with the entire community they serve. While it is only foundations that are statutorily required to submit annual financial and performance reports to their competent ministry, it has become common practice for many charitable organisations in Poland to publish their annual reports in the form of brochures or press announcements and websites.

Community Foundation Governance: Can Community Foundations Be Representative of Their Communities?
The General Meeting of members is the supreme governing body of an association. The Management Board or the executive authority has to be audited by an Audit Committee (the name itself is not binding but is widely used in most cases). Members of the Management Board may not sit on the Audit Committee. The General Meeting may, at its discretion, resolve to set up a Community Foundation Board of Trustees with specific responsibilities, e.g. to review grant proposals. Ultimately, the Management Board makes all grant decisions, but it is then evaluated by the General Meeting. The Management Board and the Audit Committee may be term-elected.
In foundations, the Management Board makes all the decisions (it is the only obligatory governing body under the Foundations Law; other bodies are optional). General election procedures, as well as responsibilities and powers are defined in the Statutes. Other bodies may be created in the Statutes such as audit committees, review committees, and Programme Boards. All these bodies may be term-elected.

Fundraising
Both foundations and associations may raise funds to support their core activities. Community foundations may use a variety of different fundraising techniques permitted by law.
Polish legislation regulates contracts with individual and corporate donors (sponsorship contracts, designated donation contracts, grant contracts, joint programme implementation agreements, etc.). Polish community foundations may seek grants from local government at the municipal and county levels. However, the Public Financing Law does impose numerous restrictions on grant programmes and eligible causes.
Community foundations as legal entities may run public fundraising campaigns such as auctions, lotteries, street fundraising, or ?bricks? (special certificates given to donors enabling tax deductions), subject to permits obtained from a relevant administrative office. They also can organise charity balls and other fundraising events.

Endowment-Building Opportunities
Under Polish law, endowment capital is a pool of financial assets designated to support one or more public causes, where the actual expenditure is deferred. For any donor seeking tax deductions it is essential that the receiving party make a discretionary statement to confirm that the donations will be used for a cause eligible for a tax exemption under relevant regulations. This implies that no such donation has to be immediately expended on a public cause for the donor to be entitled to a tax deduction. Thus, the receiving foundation or association may accumulate, save, and invest the endowment funds without depriving the donor of a tax incentive.
Community foundations are currently limited in their investment options to bank deposits, treasury bills, and government bonds. Under Polish law, no capital gains from deposits or securities transactions are subject to income tax. However, there have been cases where the tax authority has interpreted the tax laws on capital gains from securities transactions to the disadvantage of charities.
Thanks to the cooperation of the whole NGO sector the new Public Benefit Act has been recently passed by the Parliament. According to this bill, public benefit organisations can invest their funds in stocks, bonds, and other financial instruments without taxation of investment and income from this sources on the condition that the income is spend on public benefit activities.

Community Foundation Grant Programmes
Both foundations and associations may provide financial support to other public cause organisations on the condition that they have provided for this option in their statutes. This support may be given in the form of open grant contests (reactive role of the community foundation), requests for proposals, or they may actively seek partners for specific projects or programmes (pro-active role).
Community foundations may provide financial or in-kind grants (e.g. equipment, property, property rights).

Tax Incentives for Community Foundations and Donors
According to the Personal Income Tax Law and the Corporate Income Tax Law, donors making financial or in-kind contributions to foundations or associations engaged in specific activity areas, as defined by this legislation, e.g. education, culture, sports, public health, welfare, and professional and social reintegration of the disabled enjoy the right to a tax break of up to 15% of their pre-tax income. Those who support, for example, charity, public security, or environmental protection activities get a tax break of up to 10% of their pre-tax income.
The income of foundations and associations generated from the above eligible activity areas is exempted from the corporate income tax. In practical terms, this means that no charitable organisation will pay any corporate income tax if it is solely active in a charity-related business. This also applies to income from business activities pursued by associations or foundations if that income is allocated to eligible activity areas in its entirety.
Thus, foundations and associations which pursue philanthropic goals are tax privileged as are their counterparts in the US, the latter being additionally recognised as 501(c) charitable organisations.

Lobbying Challenges and Problems Faced by Polish Philanthropic Organisations
Under the current laws on foundations and associations, community foundations are facing numerous legal challenges from the initial stage of writing their statutes and getting registered all the way to the receipt of funds from local governments, particularly from municipalities. For example, there is no consistent interpretation of the public financing law, which regulates local government grants to charities.
Other problems encountered by philanthropic and other non-governmental organisations in Poland are:
> Unfavourable VAT regulations on in-kind donations (very narrow scope of exemptions).
> High registration fees.
Creating a favourable environment for local philanthropy and community foundations is an enormous challenge for support organisations, lawyers, and legal associations involved in NGO advocacy.

Monika Mazurczak
Director of the Academy for the Development of Philanthropy in Poland

Consultation: Paweł Piotrkowicz
Updated by Iwona Olkowicz