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Exchange rate gains USD-Euro

February 10, 2015 | 55,00 EUR | answered by Ralph J. Schnaars

Hello,

First of all, I would like to explain my situation. I am a software developer, self-employed with a business registration and no employees. I am no longer considered a small business and I still prepare my profit determination using the simplified cash basis accounting method.

Some of my foreign customers paid my invoices in December 2014 to an E-wallet in USD (similar to paypal, with no interest, not a proper bank but funds can be withdrawn to a bank account). All the mentioned amounts are still in the said E-wallet in USD.

My main question is regarding the taxation of exchange rate gains since the day of each USD payment receipt and specifically what I need to do to avoid being taxed on these gains. Here are my specific questions:

1. If I transfer the entire balance from the USD e-wallet A) to my USD bank account B) (both interest-free), can I then at any point exchange the currency on account B without any tax consequences, or do I need to wait one year from the receipt of payment from my customers, or is there a different procedure?

If exchange rate gains are clearly tax-free in my case, the remaining questions may not be relevant. Based on my research so far, it seems that the USD balance was not purchased but received as payment. The term "not acquired but received" from an older, potentially outdated document from 2004 seems to support this. However, I am not an expert and the document is not up-to-date, so the exact circumstances may differ.

2. I would like to exchange some future USD payments from customers directly to Euro without waiting, without triggering taxation on exchange rate gains on payments already received. If there is a 1-year waiting period for me, would the following plan work:
I) Transfer the current USD balance from E-wallet A to USD account B at Bank 1 (both interest-free as in 1.)
II) Open another interest-free USD account C at Bank 2
III) Transfer future payments directly from A to C with immediate exchange at Bank 2 without waiting a year. Would the **previous** transfers from A to B be free from taxation on exchange rate gains with this separation?

Does the status of the E-wallet or USD account (business/personal) play a role in these questions? Would transferring from USD e-wallet to USD bank account have any impact on deadlines?

Ralph J. Schnaars

Dear inquirer,

From your information, it appears that the USD amounts in question are payments from customers of your company.

Therefore, the income should be recorded as operating income in the accounting records when received. The time at which you can access the funds is considered the time of receipt, regardless of whether the funds are in a currency account, e-wallet, or EUR account.

For accounting purposes, the currency amounts must be converted into Euros. This is typically done using the exchange rates published by the Federal Ministry of Finance.

Transferring the funds back and forth does not result in reduced taxation, as the original income is considered operating income and should be recorded as such when received by the company.

The tax exemption you mentioned after, for example, one year applies to PRIVATE capital gains transactions (formerly known as speculative gains) and not to business transactions.

I apologize for not being able to provide you with better information on this matter.

I hope I was able to assist you with your considerations.

Kind regards,

Ralph J. Schnaars

STWB Steuerberatungsgesellschaft mbH
Direct contact +49 (0)171 525 20 42
Email mail@stwb-steuer.de