Exchange Gains and Losses of Book Adjustments in Accordance with Year-end Exchange Rates Shall Not Recognized in Tax Declarations
In the global economy, it is common for profit-seeking enterprises to purchase or sell goods and services abroad. The fluctuation of the New Taiwan dollar exchange rate has become one of the factors that affects their annual profits. Profit-seeking enterprises should pay attention to the reporting of exchange gains and losses from foreign-currency denominated assets or liabilities when filing the annual profit-seeking enterprise income tax return.
National Taxation Bureau of the Southern Area, Ministry of Finance (hereinafter “The Bureau”) stated that there are book-tax differences in recognition for exchange gains and losses. In book accounting, values of foreign-currency denominated assets or liabilities should be adjusted according to the exchange rate at the end of the year, and the amount of adjustment should be recognized as exchange gains and losses. Nevertheless, in tax accounting, exchange gains and losses should be recognized subject to their realization in accordance with Article 29 and Article 98 of the Regulations Governing Assessment of Profit-seeking Enterprise Income Tax. If values of foreign-currency denominated assets or liabilities are adjusted only due to the exchange rate, the amount of adjustment shall not be recognized as exchange gains or losses of the year. That is to say, exchange losses arising from the adjustment in accordance with the exchange rate at the end of the year have not yet been realized, so they shall not be listed as losses in tax accounting. Correspondingly, unrealized exchange gains are not recognized as revenue. While the profit-seeking enterprise assesses unrealized exchange gains and losses at the end of the accounting period, it shall make an off-the-book adjustment when filling the profit-seeking enterprise income tax return.
For example, Company A exported commodities on Jan. 4, 2021 and the transaction amount was USD 1 million. One US dollar exchanged at a rate of 28 NTD on that day. The sales revenue was hence recorded NTD 28 million in the account. If the accounts receivable USD 1 million was not collected or waived on Dec. 31, 2021, where one US dollar exchanged at a rate of 27.5 NTD on that day, the exchange loss should be recognized as NTD 0.5 million on the financial statement. Nonetheless, such an unrealized exchange loss was the difference on book value caused by the adjustment in accordance with different exchange rates. It shall not be recognized as the exchange loss of the year 2021 when filing tax returns.
The Bureau would like to remind profit-seeking enterprises that while declaring the tax return, the unrealized exchange gains and losses shall not be included in profit or loss of the current year. Profit-seeking enterprises should pay attention to relevant regulations while declaring exchange gains and losses, and preserve the detailed documents of correct calculation of exchange gains and losses for National Taxation Bureaus to review so as not to affect their own rights.
Press Release Contact: Ms. Chen
Profit-seeking Enterprise Income Tax Division
TEL: 06-2223111 ext.1101
Reference URL：https://www.mof.gov.tw/Eng/singlehtml/f48d641f159a4866b1d31c0916fbcc71?cntId=3d2de01ba916423aa5d4243677b60c2e