Withholding tax — source tax on foreign dividends

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