With the increasing frequency of cross-border trade, many enterprises determine their functional currency in accordance with International Accounting Standard (IAS) 21 or Enterprise Accounting Standard No. 22, and may choose to use a foreign currency as the presentation currency for their financial statements. The Ministry of Finance specifically reminds that although enterprises record transactions in foreign currencies for financial accounting purposes, they must still “translate” their financial statements into New Taiwan Dollars (TWD) in accordance with relevant tax laws and regulations when filing Profit-seeking Enterprise Income Tax returns. 

Based on the interpretations and orders of the Ministry of Finance, the key points regarding translation and filing are summarized as follows: 

I. Reference Exchange Rate for the Translation of Financial Statements

According to Article 19 of the “Regulations Governing the Management of Accounting Books and Vouchers by Profit-seeking Enterprises by Tax Collection Authorities,” enterprises keeping books in foreign currencies shall translate all items of income, costs, expenses, and losses into TWD. The applicable standards for the exchange rate are as follows: 

1. The “Bank of Taiwan” quoted foreign exchange closing spot buying rate on the last day of each month shall be adopted (if no spot buying rate is available, the cash buying rate shall prevail). 
2. The “annual average” of the aforementioned exchange rates for the year of income must be calculated, rounded to the fifth decimal place. 
3. In practice, import and export declarations often use the 10-day exchange rates announced by the Customs Administration; however, such rates are limited to customs declaration purposes. When filing income tax returns, the aforementioned “Bank of Taiwan annual average exchange rate” must be uniformly adopted for translation. 

II. Recognition and Treatment of Exchange Gains and Losses

When an enterprise conducts transactions in a currency other than its bookkeeping currency (including TWD), differences often arise due to exchange rate fluctuations between the date the transaction is recorded and the date of actual settlement. 

1. Pursuant to Articles 29 and 98 of the “Guidelines for Examination of Profit-seeking Enterprise Income Tax,” such differences shall be recognized as “exchange gains or losses” for the current year. 
2. The aforementioned exchange gains or losses must likewise be translated into TWD for filing purposes based on the “annual average exchange rate” prescribed above. 

Conclusion 

Enterprises keeping books in foreign currencies should strictly distinguish between the “customs declaration exchange rate” and the “income tax filing average exchange rate” when filing taxes. Any exchange differences should be correctly recorded as current period gains or losses in tax accounting to comply with regulatory requirements and avoid filing errors.