A growing number of Polish investors are putting their capital to work in foreign markets by purchasing shares listed outside Poland. While diversification is a sound strategy, it also comes with additional tax obligations. How should dividends and capital gains from foreign investments be properly reported? Here is a step-by-step guide.

Obligation to Report Foreign Income

Polish tax residents are required to declare all income in their annual tax return, regardless of the country in which it was earned. This includes dividends from foreign companies – even when tax has already been withheld at source. Such income is subject to a flat 19% tax rate in Poland and is generally reported on the PIT-38 form.

Currency Conversion – The Foundation of Accurate Reporting

All foreign-currency income must be converted into Polish zloty using the average NBP exchange rate from the day preceding the date of receipt. In practice, this means every single transaction – no matter how small – needs to be converted separately.

If dividends were received in multiple currencies, each payment must be converted individually. The same rule applies to any tax withheld abroad.

Cost of Acquisition

When selling foreign securities, the cost of acquisition plays a critical role. The purchase price of shares or other financial instruments must be converted into PLN using the NBP exchange rate from the day preceding the purchase date.

Maintaining thorough records of every transaction directly affects the amount of tax due – so it is well worth getting the documentation right from the start.

Avoiding Double Taxation

Foreign dividends are taxed on their gross amount – that is, before any withholding tax is deducted in the source country. Tax paid abroad can be credited against Polish tax liability, but only up to the 19% rate applicable in Poland. Any excess foreign tax is neither refundable nor available for carryforward.

This mechanism is governed by double taxation treaties and requires accurate reporting of both income received and foreign tax paid.

PIT-38 or PIT-36 – Which Form to Use?

In most cases, foreign capital income belongs on the PIT-38 form. There are exceptions, however – if an investor only received dividends and did not sell any securities, the income may be reported on PIT-36 (with appendix ZG) or on PIT-36L (for entrepreneurs using a flat tax rate).

The correct form depends on the nature of the income and the taxpayer’s status.

Loss Carryforward

Losses from foreign investments do not go to waste. They can be carried forward over 5 consecutive tax years, with a maximum of 50% of the loss deductible in any single year. This is a valuable tax-planning tool that can meaningfully reduce future liabilities.

Summary

Reporting foreign investments demands precision and well-organised records. The key elements are correct currency conversion, complete transaction documentation, and a solid understanding of foreign tax credit rules.

A well-prepared tax return is more than just a legal obligation – it is also the best way to avoid costly mistakes and ensure smooth communication with the tax authorities. If you need assistance with reporting your foreign investments, we are here to help – do not hesitate to reach out to our office.