Income Tax Treatment of Foreign Exchange Gains or Losses

Income Tax Treatment of Foreign Exchange Gains or Losses for Businesses IRAS e-Tax Guide 1 Published by Inland Revenue Authority of Singapore Published on 29 Jun 2012 © Inland Revenue Authority of Singapore All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording without the written permission of the copyright holder, application for which should be addressed to the publisher. Such written permission must also be obtained before any part of this publication is stored in a retrieval system of any nature. 2 Table of Contents Page 1 Aim ............................................................................................................ 3 2 At a glance ............................................................................................... 3 3 Glossary ................................................................................................... 5 4 Tax treatment of foreign

exchange differences .................................... 6 5 Accounting versus tax treatment ........................................................... 7 6 Administrative concession – To accept accounting treatment for revenue foreign exchange differences .................................................. 8 7 Administrative concession – To regard the designated bank account maintained for receiving trade receipts and paying revenue expenses as revenue in nature .............................................................. 9 8 Contact information .............................................................................. 10 9 Updates and amendments .................................................................... 11 Annex – Example to illustrate the accounting and tax treatments of foreign exchange differences arising from foreign currencies transactions ................................................................................... 12 3 Income Tax Treatment of Foreign Exchange Gains or Losses for Businesses 1 Aim 1.1 This e-Tax Guide provides details on the tax treatment of foreign exchange gains or losses for businesses (banks and businesses other than banks). This e-Tax Guide consolidates the two e-Tax guides issued previously on the income tax treatment of foreign exchange gains or losses1. 1.2 It would be relevant to businesses which have foreign exchange gains or losses. 2 At a glance 2.1 The tax treatment of foreign exchange differences is summarised in the table as follows: Nature of foreign exchange differences Revenue Capital Translation Description Foreign exchange differences arising from revenue transactions Foreign exchange differences arising from capital transactions Foreign exchange differences arising from translating financial statements prepared in the functional currency of the business to another currency for presentation purposes Whether a transaction is capital or revenue in nature depends on the facts and circumstances of each case Tax treatment All exchange differences recognised in the profit and loss account are taxable or deductible even if there is no physical conversion of the foreign currencies Not taxable or deductible Not taxable or deductible 1 This e-Tax Guide is a consolidation of two previous e-Tax guides on: a. “Treatment of foreign exchange gains or losses for banks” published on 2 Nov 1993; and b. “Income Tax Treatment of Foreign Exchange Gains or Losses for Businesses” published on 28 Nov 2003. 4 Nature of foreign exchange differences Revenue Capital Translation Condition for tax treatment The accounting treatment is consistently applied to both the foreign exchange gains and losses Not applicable Not applicable Effective date of tax treatment Banks Granted automatically since 2 Nov 1993 Non-banks Granted automatically since the Year of Assessment 2004 unless opted-out Not applicable Not applicable 2.2 Please refer to the paragraphs below for further details. 5 3 Glossary 3.1 Capital foreign exchange differences These are foreign exchange differences...

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