The withdrawal of the United Kingdom from the European Union means that UK investors buying shares in Polish companies are likely to be covered by the tax on civil law transactions (TCLT). Many investors conduct their operations in EU capital markets via brokers having their seats or branches registered in the UK (London). This means that trading in securities across clients' accounts takes place outside Poland, under the local law.

At this point it should be reminded that, as a rule, trade in shares, to the extent it involves sale, is subject to TCLT, regardless of the type of entities involved and their country of origin. Moreover, pursuant to Article 4(1) of the TCLT Act, the obligation to settle the tax due lies with the buyer. Notwithstanding the above, Article 9(9) of the TCLT Act provides for tax exemption on sales made by and through foreign investment companies as well as on transactions entered into as part of organized trading.

Thus, outside organized trading, the exemption is limited to those transactions which involve investment companies or foreign investment companies. Under the Act of 29 July 2005 on Trading in Financial Instruments, the definitions of ‘investment company’ and ‘foreign investment company’ are narrowed to entities conducting brokerage activities within UE and EEA.

Up to now, non-EU investors could purchase shares in Polish companies through brokers seated in the UK and thus use the exemption provided for by the Act.

With the exit of the UK from the European Union, however, UK-seated brokers cease to be perceived as ‘foreign investment companies’ and, consequently, the exemption under the Act becomes unavailable to entities buying shares in Polish companies through them.

The TCLT objective exemption referred to in Article 9(9) of the TCLT Act draws from the conceptual framework established by the Act on Trading in Financial Instruments. In fact,  Article 9(9)  makes a clear reference to notions defined in the Act, i.e. financial instruments (Article 2(1) thereof),  organized trading (Article 3(9) thereof), foreign investment company (Article 3(32) thereof) and investment company (Article 3(33) thereof).

The intention of the lawmakers was to exempt from TCLT all activities related to professional trading in financial instruments, carried out by authorized entities or within the frames of organized trading. It seems reasonable, given that introduction of any sorts of indirect taxes could hamper the trade in shares of Polish companies and, consequently,  negatively impact the development of the Polish capital market. Thus, exempting such transactions from TCLT and VAT aims at making foreign investors more interested in trading in Polish securities.

Yet, the withdrawal of the United Kingdom from the European Union shook the entire system. There is no reasonable justification for why Brexit should undermine the rules of trading in shares of Polish companies and diminish their attractiveness to investors operating through London brokerage houses.

It seems that Polish tax authorities entered the period of post-Brexit turbulence unprepared. Moreover, the regulatory tool set seems to lack solutions for effective enforcement of TCLT-related obligations of foreign investors or brokerage houses or for controlling the performance of their obligations under TCLT Act. Most frequently, it relates to entities not established and not registered for tax purposes in Poland and, most importantly, not aware of the duties vested in them by the TCLT Act. Importantly, even if such entities intended to comply with the Polish regulatory framework, the very performance of duties set forth by the TCLT Act may pose an important problem:  the fact that TCLT must be declared for each transaction separately, and that the possibility to submit declarations for settlement periods (in force as of 1 July 2021) is limited by a raft of formal conditions importantly hampers effective settlements. What is even more, TCLT settlements must be made in Polish. This creates a language barrier which may be difficult to overcome for investors not aided by professional advisors.

Finally, it must be stressed that the Polish tax authorities have no financial interest in levying TCLT on foreign investors. This is because proceeds from TCLT fuel local government units, meaning that the costs of organization of the TCLT collection process in such a way would burden exclusively the State treasury.

Even now the situation sparks anxiety among brokers and investors, aware that additional duties related to TCLT settlements may be triggered any moment.

It is worth noting that some tax jurisdictions has been aware of the need to tax trading in shares listed in local markets, e.g. Spain which in January 2021 introduced a new tax on financial transactions relating to international trade in shares,  applicable when market capitalization exceeds EUR 1 billion. In this case, however, we are dealing with an intentional, systemic solution, which takes into account the competitive character of the local capital market, while in Poland, extending TCLT obligations to new entities seems rather a coincidence which should be resolved with appropriate regulatory means.


Mikołaj Jaworowski, Senior Manager, Tax FS Department, KPMG in Poland