How to calculate exchange rate differences between invoices issued in two currencies?

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The Polish economy is open to foreign entities. As a result, in many cases the taxpayer receives an invoice in foreign currencies. It then converts the invoice amounts into the national currency. As a result, exchange rate differences arise. In many cases, invoices are issued in both national and foreign currency.

The formation of exchange rate differences

At the outset, it should be noted that the essence of exchange rate differences consists in increasing or decreasing the zloty equivalent of an amount expressed in a different currency, resulting from its conversion into zlotys at different times of other currencies.

The method of determining the exchange rate differences is specified in detail in Art. 9b paragraph. 1 of the Act of February 15, 1992 on corporate income tax - hereinafter referred to as the CIT Act. Taxpayers may set exchange rate differences on the basis of art. 15a or accounting regulations, provided that in the period referred to in para. 3, their financial statements will be audited by audit firms.

Due to the fact that the accounting is kept in PLN and the taxpayer may incur costs or earn income also in foreign currencies, it is necessary to apply appropriate conversions to determine the actual cost incurred or income generated.

As it results from the cited provision, the settlement of exchange rate differences may be performed according to the rules specified in Art. 15a of the CIT Act. If the statutory conditions are met, the taxpayer may make exchange rate settlements in accordance with the accounting regulations.

Exchange rate differences increase respectively revenues as positive exchange differences or tax deductible costs as negative exchange rate differences (see Article 15a (1) of the CIT Act).

Foreign exchange gains

Positive exchange rate differences arise if the value:

  1. due income expressed in a foreign currency after conversion into zlotys at the average exchange rate announced by the National Bank of Poland is lower than the value of this income on the day of its receipt, converted according to the actually used exchange rate on that day;

  2. the incurred cost expressed in a foreign currency after conversion into zlotys at the average exchange rate announced by the National Bank of Poland is higher than the value of this cost on the date of payment, converted according to the actually used exchange rate on that day;

  3. received or acquired funds or cash values ​​in a foreign currency on the date of their receipt is lower than the value of these funds or cash values ​​on the date of payment or other form of outflow of these funds or cash values, according to the actually used exchange rate from these days, subject to point 4 and 5;

  4. a loan (loan) in a foreign currency on the day it is granted is lower than the value of the loan (loan) on the date of its return, converted according to the actually used exchange rate for those days;

  5. the loan (loan) in a foreign currency on the day of its receipt is higher than the value of the loan (loan) on the date of its repayment, converted according to the actually used exchange rate for these days.

Negative course differences

Negative exchange differences arise if the value:

  1. due income expressed in a foreign currency after conversion into zlotys at the average exchange rate announced by the National Bank of Poland is higher than the value of this income on the day of its receipt, converted according to the actually used exchange rate on that day;

  2. the incurred cost expressed in a foreign currency after conversion into zlotys according to the average exchange rate announced by the National Bank of Poland is lower than the value of this cost on the day of payment, converted according to the actually used exchange rate on that day;

  3. received or acquired funds or cash values ​​in a foreign currency on the date of their receipt is higher than the value of these funds or cash values ​​on the date of payment or other form of outflow of these funds or cash values, according to the actually used exchange rate from these days, subject to point 4 and 5;

  4. a loan (loan) in a foreign currency on the date of its granting is higher than the value of the loan (loan) on the date of its return, converted according to the actually used exchange rate for those days;

  5. the loan (loan) in a foreign currency on the day of its receipt is lower than the value of the loan (loan) on the date of its repayment, converted according to the actually used exchange rate for those days.

Taking into account the above, if the received payment for the sales invoice exceeds the invoice value, taxable income is generated (positive exchange rate difference). Otherwise, a cost will arise (negative exchange rate difference). However, if it is the entrepreneur who pays the liabilities and the amount of the payment converted into PLN is higher than the value indicated in the purchase invoice, the cost will arise (negative exchange rate difference). In the opposite situation, we will deal with income (positive exchange rate difference). Start a free 30-day trial period with no strings attached!

Invoice issued in two currencies

As discussed above, taxpayers often receive invoices in two currencies - usually in euros and zlotys.

Example 1.

The production plant sold the sawn timber. On the invoice, the seller included the amount due in both PLN and euro. The due date on the invoice is 14 days. The invoice also states that the payment must be made in euro. The taxpayer also provided his foreign currency account. In this case, will the taxpayer have an exchange rate difference?

Yes, in such a case, the taxpayer should settle the exchange rate differences. In this case, the payment was made in a foreign currency. In the light of the above-mentioned regulations, in order for exchange rate differences to arise, two elements must be present:

  • specification of foreign currency receivables in the invoice,
  • receiving the actual payment in a foreign currency.

So even though the invoice also includes the amount of PLN receivables, there will be exchange differences.

Example 3.

The wholesaler sold fabrics to an international concern that also has a plant in Poland. The agreement states that the taxpayer had to include the amount due on the invoice, both in dollars and zlotys. The due date on the invoice is 14 days. It also contains a record that payments should be made in PLN. The taxpayer also provided his invoice. In this case, will the taxpayer have an exchange rate difference?

No, in this case the taxpayer does not have to settle the exchange rate differences. In the analyzed case, both the invoice amount and the payment for it are made in the national currency. So there is no conversion of the invoice values ​​into the national currency.

To sum up, in the case of issuing an invoice in two currencies (including the domestic one), it is very important in which currency the payment was made. If the payment is made in a foreign currency, exchange rate differences will arise. In the opposite situation, the taxpayer does not have to calculate the exchange rate differences.