Foreign currency transactions: exchange differences, FX revaluation and accounting entries

In the records of a business working in foreign currency, you meet three different dates and three different rates: the day the invoice is issued, the day the money changes hands and the period end. Each follows a separate rule.

1. Invoice day: recording

A foreign-currency invoice is recorded in the books by converting it into TRY at the rate on the date it is issued. In practice the CBRT foreign exchange buying rate is used; for consistency it is important to choose a single rate type within the company and apply it the same way every month. Showing both the foreign-currency amount and the TRY equivalent and the rate used on the invoice prevents disputes later.

2. Day of collection or payment: exchange difference

Suppose the invoice is USD 10,000, the rate on the invoice day TRY 41.20 and the rate on the day of collection TRY 41.90.

For the seller: a favourable exchange difference on collection is income. Because this difference counts as an increase in the price of the original transaction, it is subject to VAT and the seller issues an exchange difference invoice to the buyer. The VAT rate of the original transaction applies to the exchange difference invoice. For the calculation: Exchange difference invoice

For the buyer: if the rate rose at payment, the unfavourable exchange difference is an expense; the VAT on the exchange difference invoice from the seller can be deducted.

If the rate fell, the situation is reversed: the seller has an unfavourable exchange difference. In this case, whether the buyer issues a price difference invoice to the seller is assessed according to the contract and practice between the parties.

3. Period end: FX revaluation

At year end (and at the end of provisional tax periods), open foreign-currency items on the balance sheet are revalued:

• Foreign-currency cash and bank accounts,
• Foreign-currency receivables and payables,
• Foreign-currency loans, advances given and received.

Under the Tax Procedure Law, these items are valued at the CBRT foreign exchange buying rate on the valuation date; the resulting difference is that period's profit or loss. The valuation difference requires no invoice and creates no VAT, because no consideration changes hands. Period-end rates on the site in a single table: Period-end valuation rates · Calculation: FX revaluation

Precious metals such as gold and silver are also valued at the exchange price: Precious metal revaluation

Accounts

Finance expense restriction: Finance expense restriction

Common mistakes

1. Issuing an exchange difference invoice for the period-end valuation. The valuation difference is not subject to an invoice.
2. Not invoicing the exchange difference on collection. An exchange difference in the seller's favour must be documented with an invoice including VAT.
3. Valuing advances incorrectly. Valuation of order advances received and given may lead to different results depending on the nature of the advance; choose a consistent method and document it.
4. Mixing different rate types. Inconsistencies such as using the banknote rate for recording and the foreign exchange buying rate for valuation make reconciliation difficult.

Legal basis: Tax Procedure Law No. 213 arts. 215, 280; VAT Law No. 3065 arts. 24 and 35; VAT General Implementation Communiqué.