Is it necessary to pay the single tax on the amount earned due to a more favorable exchange rate

For Ukrainian individual entrepreneurs working with foreign clients, the situation with foreign currency revenue has long become common. Payments come in dollars or euros, but entrepreneurs do not always rush to sell the currency immediately. If the exchange rate rises, after the exchange they receive more hryvnias than were credited on the day the funds were received.

Because of this, many have a practical question: is it necessary to pay the single tax on the amount earned due to a more favorable exchange rate?

An individual entrepreneur – a payer of the single tax of the third group, who receives payment from foreign contractors in foreign currency. After the funds are credited to the foreign currency account, the entrepreneur determines their income according to the requirements of the Tax Code – in hryvnia equivalent at the official exchange rate of the National Bank of Ukraine that was in effect on the day the currency was credited. However, the currency itself may remain in the account for some time. If during this period the rate changes, after selling it the entrepreneur receives a different amount of hryvnias.

This difference became the subject of an inquiry to the tax authorities: whether it should be considered new income and included in the tax base for the single tax.

How the entrepreneur's income is determined

The tax authority pointed out that the rules for single tax payers are defined by Article 292 of the Tax Code. If income is received in foreign currency, it is converted into UAH at the official exchange rate of the National Bank of Ukraine on the date the funds are received.

In other words, for the individual entrepreneur, the decisive moment is not the day of selling the currency, but the moment it is actually credited to the foreign currency account. It is then that income is formed and reflected in tax accounting.

When selling foreign currency, exchange rate differences and profit from currency sales are not included in the taxable income for the single tax by an individual entrepreneur being the third group single tax payer.

For proper accounting of currency operations, individual entrepreneurs on the single tax need to understand several key points:

• Income expressed in foreign currency is converted into UAH at the official UAH exchange rate to foreign currency set by the National Bank of Ukraine on the date the income is received (clause 292.5 of the Tax Code).
• It is also important to know that it is not necessary to recalculate the balances of foreign currency in the account at the NBU rate at the end of the reporting period. Such balances do not create additional income or expenses for the purposes of the single tax, regardless of exchange rate fluctuations.

Is it necessary to consider the exchange rate difference

The State Tax Service concluded that the Tax Code does not contain provisions obliging an individual entrepreneur to calculate exchange rate differences after selling foreign currency or include them in the income of a single tax payer. That is, if after selling dollars or euros the entrepreneur receives more hryvnias due to the exchange rate change, this by itself does not mean the emergence of new taxable income.

In other words, the positive difference between the NBU rate on the date of receipt of foreign currency revenue and the rate of its subsequent sale, according to the tax authority, does not increase the income of the single tax payer.

What about personal income tax (PIT)

The tax authority also drew attention to another provision of the Tax Code. Subparagraph 165.1.51 of Article 165 provides that income from operations with currency valuables related to the transfer of ownership rights to them is not included in the total taxable income of an individual unless otherwise explicitly provided by law.

Therefore, the consultation states that the positive difference obtained during the sale of currency is also not subject to personal income tax.

How this looks in practice

Suppose an individual entrepreneur received 1,000 US dollars from a foreign client. On the day the funds were credited, the official exchange rate of the National Bank of Ukraine was 41 UAH per dollar. Exactly 41,000 UAH is considered the entrepreneur's income for the purposes of paying the single tax.

If after some time the dollar appreciates to 42 UAH, after selling the currency the account will receive 42,000 UAH. Despite the fact that the entrepreneur actually received one thousand hryvnias more, the State Tax Service consultation states that this difference does not form new income for the single tax payer.

Why this clarification is important

For entrepreneurs working with foreign clients, the issue of exchange rate differences arises regularly, especially amid currency rate fluctuations. The position of the State Tax Service essentially confirms that the mere fact of a more favorable currency sale does not create an additional object of taxation by the single tax if the income was already determined according to the requirements of the Tax Code on the date of receipt of foreign currency revenue.

At the same time, it should be remembered that this concerns an individual tax consultation. According to paragraph 52.2 of Article 52 of the Tax Code, such consultation is individual in nature and can only be used by the taxpayer to whom it was provided.

Nevertheless, it demonstrates the official position of the controlling authority regarding the application of tax legislation norms and can serve as a guideline for other individual entrepreneurs receiving payment in foreign currency.

Subscribe to our Telegram channel t.me/sudua and to Google News SUD.UA, as well as to our VIBER and WhatsApp pages on Facebook and Instagram to stay updated on the most important events.