Book of revenues and expenses - settlements in foreign currencies

From year to year, entrepreneurs make more and more transactions with foreign contractors, therefore using settlements in foreign currencies. There are more and more questions and doubts surrounding this type of transaction. To do it legally, you need to take into account the correct exchange rate for a specific day. Which one exactly? In the article below, we suggest how to properly account for this type of economic event.

Conversion of foreign currency into Polish zloty

The general rule related to the conversion of a foreign currency into Polish zlotys is formulated in Art. 11a of the Personal Income Tax Act. He says that both revenues and expenses are converted into zlotys at the average exchange rate announced by the National Bank of Poland on the last business day preceding the date of obtaining income or incurring the cost.

Settlements in foreign currencies - exchange rate differences

With this type of transactions, there are often so-called exchange rate differences, which should be accounted for in accordance with the principles set out in Art. 24c of the PIT Act. The main reason for their occurrence is the discrepancy between the applied currency exchange rate for tax purposes and the currency exchange rate applied at the time of payment of the liability, receivable (or other title).

Exchange rate differences can be positive or negative.

Positive exchange rate differences arise when: - the value of income resulting from e.g. an invoice will be lower than the actual amount received from the contractor - the value of the cost incurred will be higher than the actual payment made

Negative exchange differences arise when:   - the value of income resulting from e.g. an invoice will be higher than the actual payment received - the value of the cost incurred will be lower than the actual payment made

Settlements in foreign currencies - KPiR

The amount cannot be entered in the KPiR other than in PLN. Settlements in foreign currencies result in exchange rate differences. The exchange rate differences should be properly recognized in the tax book of revenues and expenses. This is done as follows:

• when they are positive exchange rate differences, they increase revenues accordingly and should be included in column 8 - other revenues,

• when they are negative exchange rate differences, they increase costs, then they should be booked in column 13 - other expenses.

The exchange rate differences must be booked using the internal voucher. It is recommended that you attach to it a printout of the exchange rate used.

Example 1.

On March 5, 2015, company X received an invoice from its German contractor for the amount of EUR 1,500. The entrepreneur paid the liability to the foreign contractor on March 12 from his bank account (bank exchange rate PLN 3.9903).

Euro exchange rate on March 4, 2015 - PLN 4.1723.

General scheme for determining exchange rate differences when purchasing:

1. convert the expense value from the invoice at the average exchange rate of the National Bank of Poland from the last business day preceding the invoice issue,

2. convert the value of paid receivables into PLN (e.g. based on a bank statement) at the rate on the day on which the liability was paid,

3. from the amount from the first point, subtract the amount from the second point.

By following the formula:

• 1500 euro x 4.1723 PLN = 6258.45 PLN

• 1,500 euro x 3.9903 PLN = 5,985.45 PLN

• PLN 6,258.40 - PLN 5,985.45 = PLN 273.00

The calculations made show that this is a positive amount, so we are dealing with positive exchange rate differences, which should be included in column 8 of the KPiR - other revenues. The taxpayer must also prepare an internal document to which he will attach a copy of the purchase invoice, bank statement and exchange rate table.