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Exchange rate differences and two different currencies - how to book?

In practice, entrepreneurs trading with foreign partners have to settle exchange differences. We deal with them when the payment of receivables takes place on a date other than the date of obtaining income or incurring the cost. Most often, contractors pay in the currency in which the invoice was issued. However, what should be done if the currency on the proof of purchase differs from the currency in which the liability was paid?

When do the exchange rate differences arise?

The moment of occurrence of exchange rate differences (both positive and negative) has been regulated in detail in the Personal Income Tax Act. Pursuant to Art. 24c, exchange differences arise when:

the value of 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 (positive differences) or higher (negative differences) than the value of this income on the day of its receipt, converted according to the actually used exchange rate on that day,
the value of the cost expressed in a foreign currency after conversion into zlotys at the average exchange rate announced by the National Bank of Poland is higher (positive differences) or lower (negative differences) than the value of this cost on the date of payment, converted according to the actually used exchange rate on that day.

Importantly, positive exchange rate differences increase income from business activities, while negative differences should be classified as tax deductible costs.

Settlement of exchange rate differences - two currencies

Taxpayers who settle exchange differences must compare the amounts after converting a foreign currency into Polish zloty. This operation is not complicated when both the income received (or the cost incurred) and the payment are made in the same foreign currency. How, however, to proceed when an economic event and payment took place in two different foreign currencies? Are we also dealing then with the formation of exchange rate differences? Well, yes, the taxpayer in a given situation is obliged to settle exchange differences according to the same rules.

If the income received or the costs incurred were shown, for example, in euro and the payment was made in US dollars - both amounts should be converted into the Polish currency at the appropriate exchange rate. Then compare both amounts and record the difference according to the income or expenses of the business.

Example 1.

As part of his business activity, Mr. Robert purchased commercial goods from a US contractor. Received a purchase invoice issued on 06/07/2017 where the purchase value was shown in US dollars. As Mr. Robert has a foreign currency account in euro, he made the payment in this currency on June 14, 2017. Exchange differences should be settled as follows:

1) convert the incurred costs into Polish zlotys according to the average exchange rate of the National Bank of Poland and the American dollar on the day preceding the invoice, that is on June 6, 2017;

2) convert into Polish zlotys the value of the actually paid amount according to the average NBP exchange rate of euro on the day preceding the payment;

3) if the amount from point 1) is higher than the amount from point 2), the resulting positive exchange rate difference should be booked as income from the activity.

4) if the amount from point 1) is lower than the amount from point 2), the resulting negative exchange rate difference should be booked as tax deductible costs.

The resulting differences in values constitute exchange rate differences within the meaning of the provisions of the Personal Income Tax Act. At the same time, it is irrelevant that the economic event and the payment were made in two different foreign currencies. A similar position in this matter was taken by the Director of the Tax Chamber in Bydgoszcz in the individual ruling of May 14, 2010 (ITPB1 / 415-169a / 10 / MR).

In the opinion of the tax authority, the occurrence of exchange rate differences occurs when an economic event and a liability in this respect are expressed in a foreign currency. At the same time, the provisions do not regulate that it must be the currency in which the invoice was issued.

Calculation of exchange rate differences when selling in the wfirma.pl system

In order to correctly post the exchange rate differences from sales in the wfirma.pl system:

convert the value of due income into PLN (from an invoice) at the average NBP exchange rate on the last business day preceding the moment of the income generation,
convert the value of received receivables into PLN;

in the case of a bank statement in PLN - at the rate on the day on which the amount due was paid (the rate actually applied by the bank),
in the case of a foreign currency statement - at the average exchange rate of the National Bank of Poland on the last business day preceding the day of receiving the payment,

3.Deduct the amount from point 1 from the amount from point 2.

If the value is positive, it is the income that should be booked in the tab REVENUE »OTHER REVENUE» OTHER DW.

If the value is negative, it is the cost that is booked in the tab EXPENDITURE »ADD EXPENSE» INTERNAL EVIDENCE.

A photocopy of the invoice and the bank statement should be attached to the printed DW.

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Calculation of exchange rate differences on purchase in the wfirma.pl system

In order to correctly post the exchange rate differences from the purchase, it is necessary to:

convert the value of the expense from the invoice at the rate of the last business day preceding the invoice issue;
convert the value of paid receivables into PLN:

in the case of payment from a PLN account, when the bank makes a currency conversion - at the rate on the day on which the payment was paid (the rate actually applied by the bank),
in the case of payment from a foreign currency account - at the average exchange rate of the National Bank of Poland on the last business day preceding the date of payment;