Businesses using foreign currencies as functional and accounting currency must convert financial figures into New Taiwan Dollars (NTD) for business income tax filing, the Ministry of Finance’s Southern Area National Taxation Bureau has said, setting out exchange rate rules under IAS 21 and EAS No. 22.
Taiwan’s Ministry of Finance’s Southern Area National Taxation Bureau has reminded enterprises that maintain accounts in foreign currencies that, when filing business income tax returns, all foreign currency amounts in financial statements must be converted into New Taiwan Dollars (NTD) in accordance with Article 19, Paragraph 2 of the “Regulations Governing the Administration of Accounting Books and Supporting Documents for Profit-Seeking Enterprises by Tax Collection Authorities”.
The Bureau noted that where a business adopts a foreign currency as its functional currency and accounting currency under International Accounting Standard (IAS) 21 “The Effects of Changes in Foreign Exchange Rates” or Enterprise Accounting Standard (EAS) No. 22 “Foreign Currency Translation”, specific rules apply for exchange rate usage and the recognition of foreign exchange gains or losses when converting financial statements into TWD.
Exchange rate rules for tax reporting
According to the Bureau:
- Income, costs, expenses, and losses recorded in foreign currency must be converted into TWD using the annual average exchange rate.
- The rate is calculated based on the Bank of Taiwan’s monthly closing spot buying rate (or cash buying rate) on the last day of each month of the taxable year.
- The resulting average exchange rate must be rounded to five decimal places and used for business income tax filing.
For transactions denominated in currencies other than the accounting currency (including TWD), any foreign exchange gains or losses arising from differences between the initial booking rate and the settlement rate must be recognised as current-year exchange gains or losses under Articles 29 and 98 of the “Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax”. These amounts must also be converted into TWD using the same average exchange rate for tax reporting purposes.
Example provided by the Bureau
The Bureau illustrated the rules with a case involving Company A.
In 2025, Company A adopted the US dollar as its functional and accounting currency. Its total sales revenue for the year was USD 10 million. For its 2025 business income tax return, the company must apply the average exchange rate of TWD 31.19 per USD, calculated from the Bank of Taiwan’s monthly closing USD spot buying rates for 2025. As a result, total revenue must be reported as TWD 311,900,000.
In a separate transaction, Company A imported equipment from Europe in March 2025 valued at EUR 300,000. The transaction was initially recorded at EUR 1 = USD 1.08. However, when payment was settled in June 2025, the exchange rate had changed to EUR 1 = USD 1.13, generating a difference of USD 15,000. This amount must be recognised as a foreign exchange loss for 2025 and converted into TWD using the average USD exchange rate of 31.19, resulting in TWD 467,850.
Compliance reminder
The Bureau stressed that enterprises using foreign currency as both functional and accounting currency must accurately calculate conversion rates and properly recognise foreign exchange gains or losses in line with regulations. Businesses are also required to retain supporting documentation for exchange rate calculations and related evidence to ensure transparency, regulatory compliance, and protection of their tax-related rights and interests.
