Withholding tax — source tax on foreign dividends

Quick Answer

Withholding tax (source tax) is a tax automatically deducted from dividends or interest in the country where the payment originates, before the money reaches you. For a Polish investor receiving US dividends, the standard 30% rate drops to 15% under the Poland-US treaty once a form W-8BEN is on file. Poland then charges its 19% Belka tax on the gross amount, but the tax paid abroad is credited proportionally, so the effective burden is usually 19%. The W-8BEN form is valid for three years. This is not tax advice.

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Definition

Withholding tax (source tax) is a tax automatically deducted from dividends or interest in the country where the payment originates, before the money reaches you. If a US company pays you 100 USD in dividends, the US will deduct withholding tax — and you'll receive less.

Withholding tax rates — popular countries

How it works in practice?

Direct purchase of foreign stocks

You buy Apple (US) shares through a Polish broker. Apple pays 100 USD dividend:

1. USA deducts 15% (thanks to PL-US treaty) → you get 85 USD
2. Poland charges 19% capital gains tax on the full 100 USD = 19 USD
3. You deduct the paid 15 USD (proportional credit method) → you pay an additional 4 USD

Effective tax: 19% (not 15% + 19% = 34%).

Through ETF (Ireland domicile)

With Irish accumulating ETF:

• Withholding tax (15% on US dividends) is deducted inside the fund — lowers NAV
• You don't receive dividends, so you don't pay Polish tax on an ongoing basis
• You pay 19% on capital gains when selling

Form W-8BEN

To benefit from the reduced US withholding tax rate (15% instead of 30%), you must file form W-8BEN with your broker. Most Polish brokers (XTB, mBank, Bossa) allow this electronically.

Important: W-8BEN is valid for 3 years — remember to renew.

How to recover overpaid tax?

In some countries (Switzerland, Germany) the standard rate is higher than the treaty rate. You can file for tax reclaim, but:

• The procedure is bureaucratic and time-consuming
• Processing costs may exceed the refund for small amounts
• Some brokers offer automatic reclaim (for a fee)

How Freenance can help

Freenance tracks dividends from foreign instruments and helps estimate the effective tax burden of your portfolio. You see real, net dividend returns — after accounting for withholding tax.

👉 Monitor dividends in Freenance — freenance.io

FAQ

What is withholding tax on US dividends for Polish residents?

The standard US withholding tax on dividends paid to non-residents is 30%, but the Poland-US tax treaty reduces it to 15% if you submit a valid W-8BEN form to your broker. Without the form on file, the full 30% applies and is generally difficult to recover.

What is form W-8BEN and how long is it valid?

W-8BEN is a US tax form on which a non-US individual certifies their foreign tax residency in order to claim treaty benefits, including the reduced 15% withholding rate. It is valid for the year signed plus three full calendar years, after which it must be renewed with your broker.

How is withholding tax credited against Polish capital gains tax?

For dividends from countries with a treaty, the tax paid abroad — up to the treaty rate — can be credited against the 19% Polish flat tax on investment income (the so-called Belka tax) when you file your annual PIT. The credit is proportional, so the effective combined tax on dividends usually equals 19%, not the sum of both.

Are accumulating ETFs a way to avoid withholding tax?

Not entirely — accumulating ETFs domiciled in Ireland still pay withholding tax inside the fund, which reduces net asset value. They can be tax-efficient for Polish investors because there is no ongoing dividend payout to declare, deferring Belka tax until you sell the units.

Can I reclaim overpaid withholding tax above the treaty rate?

Some countries (such as Switzerland, Germany, France) deduct more than the treaty rate at source and require a formal reclaim procedure to recover the excess. The process is paperwork-heavy, can take months, and may not be cost-effective for small dividend amounts; some brokers offer assisted reclaim for a fee.