Czech Foundations as Holding Parents: Succession, Asset Protection and Taxation

JUDr. Jakub Dohnal, Ph.D., LL.M.
JUDr. Jakub Dohnal, Ph.D., LL.M.
1.6.2026 | ARROWS law firm

If you own a corporate group or a family business and want to ensure that your assets are not divided among heirs after your death, a foundation or endowment fund with a subsidiary company is an effective legal solution under Czech law. This article explains how a holding structure with a foundation as the parent works, its advantages, and the key setup aspects for tax efficiency.

The photo shows a specialist consulting on a holding structure involving a foundation.

Key takeaways

  • A foundation or an endowment fund may own interests in subsidiaries and, within a holding structure, keep a family business intact. The assets will therefore not be automatically divided among heirs according to statutory succession rules.
  • If a subsidiary distributes profit to the foundation in the form of dividends, such income may—if statutory conditions are met—be exempt from Czech corporate income tax, preventing intra-group taxation of profits.
  • The legal personality of a foundation means that, unlike a trust fund, a foundation is a separate legal entity that can be structured like a company with clearly defined bodies, powers, and documentation.
  • Without careful setup of the board of directors, beneficiaries, purpose, and the tax regime of the family foundation, there is a risk that certain provisions will be invalid, additional tax liabilities will arise, tax benefits will be lost, or family disputes over governance will occur.

Why entrepreneurs are addressing asset transfers now

When you own a company you have built over years, it is natural to care about what will happen to it. Under the default rules of Czech inheritance law, assets are divided according to classes of heirs, often equally between the spouse and children. This means that a single company that you manage strategically and as a unified whole could become a company owned by several different people who may not get along or may have different interests.

To prevent this, business owners sooner or later turn to attorneys and address the matter in advance. However, not all approaches are the same. Some solutions—such as a simple will—are not sufficient for comprehensive protection of the business’s integrity. Others—such as a trust fund—are effective, but offer a different legal nature and structure.

That is why in recent years a solution involving a foundation or an endowment fund holding interests in a subsidiary has been gaining traction among entrepreneurs. This is a model in which a holding structure is established: the foundation, as the superior parent organisation, owns an interest in the operating subsidiary that actually conducts the business. If you are considering how to set up such a structure and keep it legally functional in the future, ongoing consultation within corporate law, holdings and structures may help. Business profits are then distributed to the foundation in the form of dividends, and the foundation manages them and distributes them to beneficiaries (family members) according to a pre-set plan.

Why this approach? Because a foundation is a legal entity which, while it does not have an entrepreneur, has clearly defined bodies (a board of directors and, where applicable, a supervisory board), statutes, and a purpose. What you contribute to the foundation becomes its property and will not be divided upon your death, as it is no longer part of your estate.

Foundation and endowment fund: Key differences

To navigate this topic, we first need to clarify what distinguishes a foundation from an endowment fund. Both are foundations—i.e., legal entities established by segregated assets for a specific purpose. In practice, however, they differ significantly.

A foundation must have a minimum endowment capital of CZK 500,000. This amount is recorded in the public register and constitutes the asset core intended to generate a lasting return and must not be consumed. A foundation is established by a public deed—i.e., a notarial deed. In family structures, it is also worth considering what instructions you want to “lock in” for the future regarding the management and distribution of assets, which we also discuss in the article Conditions in an entrepreneur’s will: How the testator’s instructions can affect the distribution of assets.

It must have a board of directors with at least three members. A supervisory board is mandatory for public-benefit foundations, or if required by the foundation deed or statutes. For private family foundations it is not mandatory under Czech law, but establishing one may be useful to oversee the board of directors and to increase beneficiaries’ trust.

An endowment fund is administratively simpler. It has no minimum contribution requirement and can therefore be established with any amount of assets. An endowment fund does not have to be established by a public deed, although this is recommended. Unlike a foundation, an endowment fund does not have endowment capital; all assets are treated as a single pool of the fund’s assets.

Both forms can, however, be conceived as family foundations—i.e., private structures intended for the founder’s family. Precisely for private structures, it is advisable to address potential conflicts between beneficiaries or the foundation’s bodies in advance, because their resolution often falls within commercial and litigation disputes. This means that both types—a foundation and an endowment fund—can serve exactly the purpose we are interested in here.

For family ownership structures, a foundation or an endowment fund is often chosen in practice because it offers a clear legal status as a legal entity, unlike a trust fund. The choice of the specific form depends on the scope of assets and the desired level of formality. The decision-making may also involve the question of whether and how transfers of ownership interests or shares will take place in the future, the impacts of which we summarise in the news item How the taxation of income from the transfer of an ownership interest in an s.r.o. and the sale of shares is changing again from 2026.

Establishing a foundation and the required steps

A foundation is established by a foundation deed, which must be signed by the founder and the authenticity of the signature must be officially certified, or which is drawn up directly in the form of a notarial deed. The deed must include:

  • the name and registered office of the foundation,
  • the founder’s name and place of residence,
  • the purpose of the foundation (for a family foundation, this is “management and distribution of assets for family members”),
  • the amount of the endowment capital (at least CZK 500,000) and the manner in which it has been or will be contributed,
  • the appointment of the first members of the board of directors and, where applicable, the supervisory board.

The foundation will also issue bylaws governing its internal operation: how the board of directors is constituted, what powers it has, how beneficiaries are determined, and under what conditions funds are paid out to them. The bylaws may form part of the foundation deed or be a separate document approved by the board of directors. Once the foundation deed has been executed and the contribution has been paid or secured, the foundation is entered in the Foundation Register maintained by the registration court, and the foundation is established on the date of registration.

A similar procedure applies to an endowment fund, but without the mandatory minimum amount of the foundation capital and without the requirement of a public deed, so the process is somewhat simpler and less formal.

Subsidiary in a holding structure

Once you have a foundation, it can hold an ownership interest in a business corporation—typically a limited liability company (s.r.o.) or a joint-stock company (a.s.). This creates a holding structure in which the foundation acts as the parent.

Holding structure with a foundation as the parent company

In practice, it may look like this: you have an existing company that you founded and own as an individual. You want to protect it from being divided after your death. The solution is:

  • Transfer the ownership interest in the original operating company directly to a newly established foundation.
  • Or establish a new limited liability company (s.r.o.) that will be owned by the foundation and will serve as the holding company—i.e., the parent company. Then transfer the ownership interest in the original operating company to this newly established s.r.o.
  • This creates a chain: foundation → holding s.r.o. → original operating s.r.o. and potentially other subsidiaries.

Assets in the foundation remain separate from the founder’s personal ownership—once you contribute them to the foundation, they are no longer yours but belong to the foundation. Profit from the subsidiary (in the form of dividends) flows to the foundation, which then—under the bylaws—distributes it to beneficiaries or reinvests it.

Profit and prevention of double taxation

This is a key point. When a subsidiary generates profit and decides to pay it out as a dividend, the dividend goes to the foundation (the parent). Without a special regime, double taxation could theoretically arise—first the profit is taxed at the subsidiary level and then the dividend is taxed at the foundation level as income.

However, the Czech Income Taxes Act addresses this. If the foundation holds at least a 10% stake in the subsidiary for at least 12 consecutive months and the subsidiary is established in the EU, dividends may be exempt from corporate income tax in line with the parent-subsidiary regime. In practical terms, this means that part of the capital can be moved within the group from the company to the foundation without an additional tax burden.

This is one of the main tax advantages of this solution and why it is referred to as “tax-efficient”. At the level of individuals (beneficiaries), income may then be exempt from personal income tax—if structured as gratuitous transfers (gifts) to close persons—as described below.

The foundation’s role in managing the subsidiary

The foundation acts as a shareholder. When a general meeting is held (or a sole shareholder adopts a decision), the foundation participates in decision-making through its board of directors. The foundation’s board of directors appoints a representative to act for the foundation at the general meeting—to vote, approve budgets, and propose new management.

This means that control over the company’s operations remains in the hands of the foundation, which manages it according to a predetermined plan and purpose. Even if a generational transition takes place and your successors assume the role of members of the board of directors, the structure remains the same—the foundation continues to own and manage the interests, thereby ensuring continuity.

Asset protection: Separation of ownership and its limits

The benefits of separating ownership are often described in promotional materials as automatic. The reality is more complex.

Assets protected from creditors and family disputes

If you contribute assets to a foundation, they cease to be part of your personal property. This has two practical consequences:

First, the assets are not exposed to your personal creditors. If you faced enforcement proceedings or insolvency, creditors cannot pursue the assets in the foundation because they are no longer yours. Similarly, if one of your descendants divorces and their spouse has a claim to a share of the community property of spouses, they cannot claim a share from the foundation—the assets never became part of the community property.

Second, the assets are not subject to probate proceedings. When you die, the court does not have to decide who will receive the assets in the foundation because they are no longer part of your estate. Instead, the court will only deal with your assets outside the foundation, and the foundation’s beneficiaries receive their benefits according to its bylaws.

This significantly reduces the risk of family disputes. Instead of your five children dividing ownership in a courtroom and negotiating who will be the owner and director of the company, everything is clearly set out in advance in the foundation’s bylaws.

Limits of asset protection

However, it is important to know where the protection ends:

  • The foundation’s assets may be encumbered – The foundation is a legal entity and, as such, may dispose of its assets, including encumbering them (e.g., by a pledge), provided this is consistent with its purpose and bylaws. What is crucial, however, is the obligation to preserve the foundation capital at its value. If the foundation were to take out a loan and pledge assets, the board of directors must ensure that this does not jeopardize the fulfilment of the foundation’s purpose and the preservation of the foundation capital. It is therefore not “inalienable” property in an absolute sense.
  • The rules must not breach the foundation’s purpose – If you state in the foundation deed that the foundation aims to support, for example, the education of its beneficiaries, you cannot then simply transfer assets to a third party or use them for something else that conflicts with that purpose.
  • The benefits do not apply to the foundation’s own debts – If the foundation, as a legal entity, incurs debts, its assets are thereby exposed. Protection from the founder’s creditors does not apply to the foundation’s own creditors.
  • Without proper governance and oversight, the board of directors may face liability – If the foundation’s board of directors acts irresponsibly, breaches the bylaws, or fails to act with due managerial care, its members may be personally liable or face litigation from beneficiaries.

Tax regime: Current status and pitfalls

Foundations and endowment funds in the Czech Republic are taxed under the Czech Income Taxes Act. The regime is not uniform for all of them—it depends on whether the foundation pursues a public-benefit purpose or whether it is a purely family solution. A family foundation typically does not have the status of a public-benefit taxpayer.

Taxation of the foundation and exempt income

For foundations and endowment funds that are not public-benefit taxpayers, the corporate income tax rate is 21% (effective from 2024 and expected for 2026). A contribution of assets to a foundation (or an endowment fund) is not taxable for the founder or for the foundation, i.e., the transfer of an ownership interest in a subsidiary does not constitute taxable income.

The key exemption, however, applies to dividends. When a subsidiary pays a dividend to a foundation that holds at least a 10% stake in it for at least 12 consecutive months, the dividend is exempt from corporate income tax at the foundation level. This is precisely the mechanism that prevents intra-group taxation of profit and makes the structure attractive.

Other income of the foundation (e.g., interest on deposits, rent from real estate that is not part of the foundation’s endowment principal and is not part of its public-benefit activities) is typically taxed for a private family foundation at the standard rate of 21%, as the exemptions reserved for public-benefit taxpayers do not apply.

Taxation of distributions to beneficiaries

When a foundation provides a benefit to individuals (beneficiaries), an important question arises: is it income from profit, or from the foundation’s assets themselves? From a tax perspective, it is crucial whether this is a gratuitous benefit (a gift) and whether the beneficiary falls within the circle of persons close to the founder.

If the foundation pays benefits to individuals who are relatives of the founder or persons connected to the founder, these benefits may be exempt from income tax at the level of the individual.

Under Section 4a(a) and (c) of the Czech Income Taxes Act, gratuitous benefits (gifts) received from a relative in the direct line and in the collateral line (e.g., a sibling, uncle, aunt, nephew, niece), or from a person with whom the taxpayer lived in a shared household for at least one year immediately prior to receiving the gratuitous benefit, are exempt from tax. These exemptions apply regardless of whether the foundation is public-benefit or not.

In practice: if the foundation pays CZK 100,000 to its adult descendant, and this is classified as a gratuitous benefit (gift) within the foundation’s family purpose, the individual (the descendant) does not have to pay tax on this income if they meet the conditions of Section 4a of the Czech Income Taxes Act. By contrast, if it were, for example, a bonus paid by a company, this would be taxable income from employment for the individual (rate 15% / 23%), or a dividend, which would be subject to 15% withholding tax.

If the beneficiary does not fall within the circle of persons under Section 4a of the Czech Income Taxes Act, then the gratuitous benefit (gift) from the foundation would be subject to personal income tax as “other income” under Section 10 of the Czech Income Taxes Act, and the beneficiary would have to tax it at the progressive rate of 15% or 23%. In this case, the foundation is not a withholding tax payer.

Complexity of tax matters

This clearly shows how complex tax matters are, and why you should not address structuring without professional assistance. An asset structure that is set up incorrectly from a tax perspective can cost you significant amounts. It is essential that the foundation’s statutes clearly define the nature of distributions to beneficiaries and that the conditions for any exemptions are met.

Most common questions about establishing and operating a family foundation

1. Isn’t it better to simply draw up a will in which I specify that the share should not end up among the heirs?
You can draw up a will, but it has limited effects. If the will does not include specific mechanisms (for example, that the share cannot be transferred outside the family without the consent of the others), the heir can simply sell the share. A foundation addresses this better, because the share remains in the foundation, not with an individual heir.

2. If I have three children, what happens to the foundation’s profit when I die?
The profit generated by the foundation is distributed according to the statutes you have drawn up—for example, each year each child receives a certain percentage. This is not an automatic division as with an estate; everything is managed and predictable.

3. Can a bank encumber the assets in the foundation if the foundation ends up in debt?
Yes, it can. The foundation’s assets (except for the value of the endowment principal, which must be preserved) can be encumbered in the same way as the assets of any other legal entity, provided this is consistent with the foundation’s purpose and statutes. If the foundation had debts and could not meet them, creditors may seek satisfaction from its assets. However, the beneficiaries’ assets are not at risk, as they are not owners of the foundation.

4. What happens if the foundation is not public-benefit?
If the foundation does not have the status of a public-benefit taxpayer, it is not eligible for a more favourable corporate income tax rate (e.g., for a certain range of income) or for a broader scope of exempt income. Even so, the exemption for dividends received from subsidiaries and the exemption for gratuitous benefits (gifts) for beneficiaries who are close persons still apply.

Establishing a foundation: Practical steps and what to watch out for

You have decided to establish a foundation. What needs to be done?

1. Preparatory phase: What to clarify before establishing

First, you need to be clear about what you want to achieve.

  • Do you want to establish the foundation during your lifetime so it has time to “grow”, or do you plan to establish it by a disposition upon death (i.e., in a will)?
  • Should the foundation own only a share in a single subsidiary, or do you want a holding structure with multiple subsidiaries?
  • Who will be the beneficiary—will all your children receive equal shares, or do you want to differentiate based on certain criteria (age, ability, education)?
  • Do you have current managing directors in the subsidiary you want to transfer to the foundation, or do you want the foundation’s board of directors to appoint new leaders?
  • Are there any financial or legal issues between you and your descendants (debts, divorces, disputes) that could complicate the transfer now?

The answers to these questions determine how you structure the foundation.

2. Foundation deed and statutes: Preparation

The foundation deed must contain mandatory information, but it should also include a number of key arrangements and restrictions so that it operates as you envision:

  • How the statutes and the foundation’s purpose can be amended – whether you reserve the right to amend them yourself, or whether the board of directors can do so; what happens if circumstances arise that require the foundation to be adapted.
  • Who is authorised to appoint members of the board of directors – in the foundation deed you can specify, for example, that your eldest son or an appointed person will have the right to nominate members, thereby maintaining family control even after your death.
  • Rules for payments to beneficiaries – whether money is paid regularly, as a one-off, or only after a certain age; whether it is paid from returns on assets or from the assets themselves (with regard to preserving the endowment principal).
  • Rule on the indivisibility of shares – to clearly stipulate that the share in the subsidiary remains in the foundation and will not be sold or divided among individual beneficiaries.

The foundation deed is executed before a notary and must be in the form of a public deed (a notarial deed), or the signatures must be officially certified. The notary will help ensure that all mandatory requirements are included and that the deed is legally binding.

3. Contribution of assets and registration of the foundation

Once the deed is ready, the next step is the actual contribution of the share in the subsidiary to the foundation. This is carried out by:

  • Signing a gift agreement or purchase agreement between you (as an individual) and the foundation, under which the share is transferred to the foundation.
  • Paying up the contribution—if it is a cash contribution, the funds are deposited into the foundation’s account; in the case of a non-cash contribution (a share in an s.r.o.), the change of ownership of the share is registered in the Commercial Register, with the foundation entering as the new owner.
  • Registering the foundation in the Foundations Register—the court, upon receiving the application, registers the foundation and assigns it an identification number. The foundation comes into existence on the date of registration.
  • Ensuring that the foundation registers with the tax authority for tax purposes.

The entire process can take several months, especially if it involves the transfer of a complex asset structure.

4. Common mistakes when establishing a foundation

Here are common mistakes to avoid:

  • Poor selection of the board of directors – if a person who lacks expertise or loyalty to the foundation’s objectives gets onto the board of directors, conflicts and poor decisions may arise.
  • Vaguely defined purpose of the foundation – if the purpose is not clearly described, a court may later conclude that the foundation is unable to fulfil it, and the foundation may face amendment or dissolution.
  • Inadequate investment management – the foundation’s assets must be managed responsibly. If the board of directors does not obtain expert advice, fails to monitor market developments, and invests poorly, this may lead to a decline in the foundation’s value and potentially to legal liability of the board members under Czech law.
  • Ignoring tax rules – if the foundation does not keep proper accounts, fails to comply with notification obligations towards the Czech tax authority, or the conditions for dividend exemption are not met, tax penalties and imbalances in the structure may arise.
  • Decisions made without legal advice – especially in complex groups with multiple subsidiaries or assets abroad, it is easy to make a mistake without a lawyer, which can then cost you significant financial resources.

Potential risks and solutions: How ARROWS helps

Potential issues

How ARROWS can help (office@arws.cz)

Incorrect shareholding set-up in a subsidiary – the foundation acquires a minority stake without influence over decision-making

ARROWS attorneys in Prague will help you set up the shareholding structure so that the foundation has sufficient influence over key decisions. They will ensure that your intention to maintain continuity of control is legally enforceable.

Invalidity of the foundation deed or parts of it – the court later dissolves the foundation or parts of it

ARROWS, a Prague-based law firm, will ensure that the foundation deed is drafted in compliance with all legal requirements under Czech law. That it contains the mandatory information and is legally binding, and that the bylaws are prepared with your specific needs in mind and cannot be successfully challenged later.

Tax issues – demanding tax audit, additional tax assessment, penalty, loss of tax benefits

ARROWS attorneys work in cooperation with tax advisors and will ensure that the foundation structure meets the tax conditions for dividend exemption under Czech legislation. That distributions to beneficiaries are correctly classified and that the entire structure is “tax clean” vis-à-vis the Czech Financial Administration.

Family disputes over control of the foundation – between beneficiaries or between beneficiaries and the board of directors

ARROWS helps draft clear rules in the foundation bylaws and design a board of directors that will be independent and professional. And, in the event of conflicts, provides mediation or legal representation.

Death or incapacity of key persons – a board member dies or suffers a serious illness

ARROWS will help you set succession rules and identify and prepare alternate board members. And ensure that the foundation deed designates a person who will have the right to appoint board members in their absence.

Conclusion

A foundation with a subsidiary is a legal technique that addresses one of the most pressing issues for entrepreneurs: how to ensure that a family business is not divided among heirs after death and that continuity of management is guaranteed. Assets contributed to the foundation become its property and will not be divided under Czech inheritance law. The foundation then operates as a legal entity with its own bodies and rules that you have set yourself.

Tax advantages – especially the exemption of dividends between a parent and subsidiary – make the structure tax-attractive and, in the long term, significantly more efficient than solutions without planning. And importantly: assets in the foundation may be protected from your personal creditors, from your children’s divorces, and from family disputes that could otherwise block the company’s operations.

However, reality is more complex than it may seem. Without careful set-up of the board of directors, without a clearly formulated purpose of the foundation, without proper fulfilment of notification obligations towards the Czech tax authority, and without understanding the tax conditions for dividend exemption, there is a risk that the solution will become complicated immediately: invalidity of certain provisions, additional tax liabilities, disputes between beneficiaries, or loss of the intended benefits.

ARROWS attorneys, a Prague-based law firm, have long focused on asset structuring, corporate matters, and generational transfers. If you want to establish a foundation safely and be confident it is set up correctly, or if you already have a foundation and want to verify that the tax regimes are in order, we are here for you. Email us at office@arws.cz and tell us what stage you are at.

FAQ - Establishment, operation and taxation of a family foundation

1. Is it the same as a trust fund?
A foundation and a trust are similar in that both protect assets from being divided, but they differ in their legal nature. A foundation is a legal entity with its own bodies, bank account and legal personality – it operates as a separate entity. A trust is rather an arrangement where the assets are owned by a trustee, not by the trust itself. A foundation therefore offers a clearer legal status and more transparent governance under Czech law.

2. How much time and money does it take to establish a foundation?
A notarial deed for the foundation deed costs in the order of thousands of Czech crowns (depending on the value of the foundation endowment; the minimum fee is approx. CZK 2,000–10,000). The court fee for registration in the foundation register is CZK 6,000. If you engage a lawyer to prepare the bylaws and guide you through the entire process, the lawyer’s fee will be added. In total, you should expect the establishment of a foundation to cost from CZK 30,000 to CZK 100,000 depending on complexity. This is a one-off investment that pays off through asset protection and tax savings in the long term.

3. If I contribute a stake worth one million to the foundation, do I have to pay tax on it?
No – a contribution (gift agreement) to a foundation or a foundation fund is not taxable for either the founder or the foundation under Czech law. It is therefore not a gift that would create tax obligations for an individual. The state is only notified of the fact that the foundation has been established and that the contributed assets are now owned by it.

4. What happens if the foundation ends up in debt?
A creditor cannot pursue you personally – the creditor enforces its claim against the foundation’s assets. The assets of individual beneficiaries are not at risk because beneficiaries are not owners of the foundation. However, note that if the foundation has multiple creditors and its assets are insufficient, creditors may enforce their claims against the foundation’s assets, which would reduce the funds available to beneficiaries.

5. Can I change or dissolve the foundation later?
In the foundation deed, you can reserve the right to amend it – for example, that the board of directors may amend the bylaws under certain conditions. This increases the flexibility of the arrangement. Dissolving a foundation is more difficult – it usually requires a court decision, and only in precisely defined cases (e.g., if it can no longer fulfil its purpose). In practice, foundations are therefore more often adapted than dissolved.

6. Will my heirs have a problem when they inherit the foundation?
As beneficiaries, heirs will become persons entitled to receive benefits from the foundation in accordance with the bylaws (for example, regular income). Their rights are clearly defined and enforceable, but they are not owners of the foundation. Control of the foundation is held by the board of directors, which the founder designated or which elects itself. Heirs therefore do not have a “right” to dissolve the foundation or change its structure – benefits without the burden.

Notice: The information contained in this article is of a general informational nature only and is intended to provide basic guidance on the topic based on the legal framework as of 2026. Although we take the utmost care to ensure accuracy, legal regulations and their interpretation evolve over time. We are ARROWS advokátní kancelář, an entity registered with the Czech Bar Association (our supervisory authority), and for maximum client protection we maintain professional liability insurance with a limit of CZK 400,000,000. To verify the current wording of regulations and their application to your specific situation, it is necessary to contact ARROWS advokátní kancelář directly (office@arws.cz). We accept no liability for any damages arising from the independent use of the information in this article without prior individual legal consultation.

Read also: