Buying Bonds and Distributing ETFs from Poland: Withholding tax

[thegreatrsd]

Hi!

As a beginner investor, I was researching ways to diversify my rather unbalanced (100% VUSA) portfolio. I decided to buy some US Treasury bonds and simply hold them until maturity. However, I came across this thing called "withholding tax". AFAIK, this tax gets applied when I receive any yield (in form of dividends or interest) from a foreign entity. In case of the US companies the default rate is 30%, but since there's a double tax treaty between USA and Poland (which I'm a resident of), the applied rate would be reduced to 15%.

In a comment to this post, @bevinluvwithjesus wrote: "Polish tax office says I have to pay a difference between Polish rate (19%) and rate from treaty (15%)". This triggered my interest, however, not being a Polish speaker, I failed to find any information on how to properly resolve such cases. I kindly ask for your help.

• First of all, what is the appropriate way to notify the tax service about receiving a dividend or interest payment? When we simply sell securities, we must fill the PIT-38 Form and that's all. However, I've stumbled across some mentions of the necessity of "PIT / ZG" Form when dealing with dividends.
• If my broker (currently Revolut) automatically withholds 15% from my profit, and then after examining my papers the tax office claims that I should pay 4% extra - should I obey or dispute it? Or maybe I should pay this difference on my own in advance to avoid the late fee?
• Do the tax rates differ between foreign jurisdictions? For example, what would be the withholding tax rates if I receive:
  
  a) payments from a bond issued by the German government;
  
  b) dividends from an ETF listed somewhere in the EU;
  
  c) fixed-rate interest from a broker located in Ireland (e.g. Interactive Brokers).And will these taxes also be "rounded up" to the Polish rate?

Many thanks!

 

[bevinluvwithjesus]

@thegreatrsd So let's go.

So first of all, be sure to double check what I have posted here, because I may be wrong, may don't know or take into account some specific factors, and because I may accept risk for myself it doesn't mean you should do it. And I made some shortcuts in explanation.

So I assume you are only tax resident of Poland, remember those may overlap and US citizens always stay US tax residents. Also I don't have experience with foreign bonds/interest, stocks only.

First point, dividends/interested and capital gains from selling securities (not sure how discount in case you buy bonds under nominal value is counted though) are accounted separately, so some things work different.

So about selling/trading securities, I see you already known about it. PIT/ZG may still be needed in this case. There are different interpretation, but in theory if you sell securities on foreign (not Polish) exchange, then you have to add PIT/ZG to PIT-38, where you declare profit (but not loss) from each foreign country where exchange was. So if you earned money selling stocks in NYSE, you declare profit from USA. Off course there are different interpretations if it is needed for stocks at all or if broker is Polish based and profit is covered in PIT-8. Personally I declare it. Revolut is foreign so I won't talk about that mess caused about Polish tax office last time with PIT-8.

So the answer for first question is: dividends/interest are declared in PIT-38, and PIT-ZG is not needed at all for it. Just in case it is good to keep a records to prove how you calculated your tax.

Let's go for the second. There is a law which say (in short) that capital gains tax is 19% (so called "Belka tax" from the name of Finance Minister), but if dividend/interest tax is paid abroad, it is deducted, but not above 19%, and DDT (double taxation treaty) is taken into consideration.

So if 15% was deducted, you have to pay 4% in Poland to get round 19%, unless DDT itself says otherwise, in case of USA it doesn't. So no point in avoiding it, if tax office gets trough FACTA or CRS information you got dividends and you haven't declared them, you may get tax audit within 5 years. I don't see possibility to win this dispute, that one case is clear in Polish tax system. So yes, declare and pay IMHO.

Things gets complicated if you haven't filled W-8EN and broker withhold 30% when DDT rate is 15%, but it seems you have avoided it so far.

Time for the third question. Yes, they differs wildly. For example this for german bonds: link - 25% plus 5,5% subcharge. ETF differs from country to country, Ireland, most popular, is 0%, Luxembourg 15%, Germany 25% plus 5,5% subcharge, as far as I'm aware. Ireland interest I see 20% I guess? I assume those are from cash on broker account?

Here goes giant red flag. With USA you were lucky broker supports (you said 15% was withhold) W-8EN form, thanks to this USA payer knows your tax residence and so withheld rate in accordance to DDT, it's so called "relief at source". Other countries don't have such good solutions, so broker/payer assumes you may be from anywhere and hits you with largest possible withholding rate (for example you may find those under "tax heaven" label for some countries) and you should apply to get a refund from foreign tax office, which may be costly and problematic. EU made a directive to solve it or rather simplify procedure, but it will start in 2027.

Small advice, unless you want cash, it is more simple to buy US or Ireland based reinvesting bond ETF, but it's tricky, because in case of just buying US bonds at nominal value or lover and holding to maturity, there is no risk of losing money (except US default). In any other case it's gets trickier. I think TIPS and short term bonds ETFs should be less volatile, still it is outside my experience.

 

[thegreatrsd]

@bevinluvwithjesus First of all, huge thanks for such a thorough explanation!

Second, I’ve made a mistake in my question. I naïvely assumed that the ETF I bought with Revolut (VUSA) is an American one, hence all the talks about W8-BEN.

Turns out, it’s an Irish fund. More than that, regular EU investors can not buy ETFs that are domiciled in the USA.

So I own an Irish ETF that pays dividends. The PWC website claims that the WHT rate between Ireland and Poland is 0/15. I failed to find the meaning of such notation - does it suggest that the tax might actually be 0% under some conditions? BTW Revolut support confirmed, that they would subtract 15% from my dividends paid by this ETF.

So, just to confirm. If I receive my first dividend in 2024, then until April 30th 2025 I have to submit both the PIT38 and PIT/ZG forms, after which I would have to pay the difference between the Polish tax rate (19%) and the one that was already subtracted by Revolut (15%) - is that correct?

Also, I’m not sure whether you know it, but it doesn’t hurt to ask.

Right now I’m looking for an alternative broker to Revolut because I found out that they offer little to no protection of my shares. I’m considering T212 or Degiro, however, both don’t seem to support transferring shares from Revolut. It looks like I would have to sell my stocks at Revolut and re-buy them again, therefore I will have to pay the taxes next year. But I guess better safe then sorry

 

[bevinluvwithjesus]

@thegreatrsd It is always good to check the ISIN code of stock/ETF you own, first two letters means country where company is registered and usually tax residence match it.

So about first, 0/15 indeed means sometimes 0% is possible, but such exemptions usually are for corporate investors, for example between companies owning substantial share. I'm a but surprised it's 15%, usually there is no relief at source and broker do not inform company about tax residence of clients, so I would expect being classified as"Non-treaty" with 25%. On the other hand usually Ireland domiciled ETFs have 0% WHT (for example IBZL.AS I own - ISIN: IE00B0M63516).

About second one, yes, but without PIT/ZG. PIT/ZG is needed only to report profits from selling securities.

I don't use Revolut for stocks.