The National Taxation Bureau of Taipei, Ministry of Finance, stated that profit-seeking enterprises may only recognize realized foreign exchange gains and losses for tax purposes. Book differences arising solely from exchange rate adjustments do not constitute actual gains or losses and therefore may not be recognized.
The Bureau explained that, pursuant to Articles 29 and 98 of the Regulations Governing Assessment of Profit-seeking Enterprise Income Tax, foreign exchange gains and losses shall be recognized as income and losses only when realized. Book differences arising solely from exchange rate adjustments are not recognized as current-year income and may not be claimed as losses. Accordingly, although foreign currency deposits must be translated at the year-end exchange rate for financial accounting purposes, with the resulting adjustments recognized as foreign exchange gains or losses, such amounts remain unrealized and therefore may not be reported as foreign exchange gains or losses when filing a profit-seeking enterprise income tax return.
The Bureau cited the following example. Company A filed its 2024 profit-seeking enterprise income tax return reporting foreign exchange losses of NT$5 million. Upon examination, the Bureau found that NT$1 million of the reported loss represented a book difference arising from the year-end translation of a foreign currency account, with no actual foreign exchange settlement having occurred. As this amount constituted an unrealized loss, it may not be recognized as a loss under the above regulations. Accordingly, the Bureau reduced the reported foreign exchange loss by NT$1 million and assessed additional income tax of NT$200,000 (NT$1 million × 20%).
The Bureau would like to remind profit-seeking enterprises to pay close attention to the relevant tax regulations when reporting foreign exchange gains and losses to avoid adjustments and additional tax assessments resulting from noncompliance.
(Contact: Ms. Yeh, Head of Profit-Seeking Enterprise Income Tax Division; Tel: 02-23113711 ext. 1273)