As announced last week, today we will look at tax returns related to investing in stocks.
Stock trading and tax liability
In the case of stock trading, the tax liability will arise upon sale. This means that individuals who purchased shares in 2024 but did not sell them will not be required to file a tax return. Individuals who purchased shares earlier but sold them in 2024 will be required to file a PIT-38 tax return. An exception are shares acquired before January 1, 2004, the sale of which, under certain conditions, will be exempt from income tax.
Sale of shares from foreign stock exchanges
Determining income and tax-deductible expenses for the purchase of shares quoted in Polish currency is not a major problem. Tax settlements can be problematic when selling shares of foreign companies quoted in a foreign currency. In such a situation, both purchase and sale transactions must be converted into Polish złoty at the average NBP exchange rate from the last business day preceding the transaction. It is also necessary to determine in which country the tax liability arose. To do this, we must refer to the relevant double taxation treaty. In most cases, the tax liability will arise in Poland. However, if we also paid tax abroad, we are entitled to deduct it from the tax due in Poland, in accordance with the appropriate double taxation avoidance method.
The date of purchase and the date of sale of shares
When buying and selling shares, an investor's activity is typically limited to clicking buy/sell on the brokerage website or app. The balance in the brokerage account changes in real time. However, from a tax perspective, the moment of legal acquisition of shares is crucial, as it occurs at the end of the settlement cycle (the period from the conclusion of the transaction to the final settlement, i.e., the transfer of ownership of the securities and the transfer of funds between the parties). Poland adopts the T+2 settlement cycle. This means that we become owners of the shares two days after the transaction is concluded. It also means that we sell the shares on the second day after the sale transaction is concluded. This has two consequences:
- in the case of sale of shares on one of the last two days of the calendar year, the income will not be generated until the new year,
- the exchange rate from the day before T+2 will apply.
Cost of obtaining income
The cost of obtaining income from the sale of shares is the purchase price as well as transaction-related fees, e.g. broker's commissions, custody fees, and currency conversion costs.
In the case of the sale of shares acquired through inheritance, we can settle the costs of obtaining income incurred by the testator.
The situation is different when it comes to the sale of shares acquired as a gift. In such a situation, we are not entitled to recognize any costs for obtaining income. However, income in the amount of inheritance and gift tax paid is exempt from income tax.
Determining income
The income, which is the basis for calculating tax, is the difference between revenue and the costs of obtaining the revenue. The FIFO (first in, first out) method should be used to determine income. This means that when selling securities acquired at different prices, where it is impossible to determine their purchase price, the principle that each sale applies to the shares acquired in succession (starting with the earliest acquired) is applied to determining income.
Dividends
As of 2024, dividends received (the so-called Belka tax) also trigger a tax liability. This tax rate is 19% and is often unnoticeable for investors in companies based in Poland. These companies are tax remitters, meaning the net amount (after tax) is transferred to our brokerage account. We don't have to report dividends received in our tax return. However, this applies to dividends from companies based in Poland. It's important to remember, however, that not all companies listed on the Warsaw Stock Exchange and NewConnect are listed on the Warsaw Stock Exchange.
Dividends received from foreign companies must be declared individually. Furthermore, we receive gross dividends (either tax-free or taxed at source in the company's country of residence) in our bank account. This means we will have to pay tax on the dividend received. If it was withheld in the company's country of residence, the tax due in Poland will be reduced by the amount of tax withheld abroad. However, if the dividend was not taxed at source, the entire tax will be paid in Poland. Foreign dividends should be reported in the PIT-38 form.
Next week we will look at tax returns for bond investments.
If you would like to consult your tax settlements from the stock exchange or entrust them to specialists, please contact our office.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of February 3, 2025
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