Exchange Rate Difference Invoice in 18 Questions
In foreign currency transactions, an exchange rate difference may occur between the invoice date and the payment date. This page explains, in a simple way, what an exchange rate difference invoice is, how it is calculated, who should issue it, and in which cases it should be issued.
What is an exchange rate difference invoice?
When an invoice is issued in foreign currency, the exchange rate may change between the invoice date and the collection date. The invoice issued for the TRY difference arising from this change is called an exchange rate difference invoice. Foreign currency invoices are recorded in the statutory books in TRY. The foreign currency equivalent of the transaction is also included in the records. An exchange rate difference invoice is issued to close the TRY differences arising from the currency type.
How is an exchange rate difference invoice calculated?
| Date | Transaction | Foreign Currency Amount | Currency | Exchange Rate | TRY Amount |
|---|---|---|---|---|---|
| 01.10.2019 | Invoice issued to customer | 100.00 | USD | 5.6437 | 564.37 |
| 22.10.2019 | Customer payment | -100.00 | USD | 5.8124 | -581.24 |
| Balance | -16.87 |
In the example above, Company A issued an invoice to Customer B for 100 USD including VAT and received a payment of 100 USD in return. Although the account is closed in foreign currency, a credit balance of 16.87 TRY has occurred in the statutory books due to the TRY equivalent. To close the TRY balance, Company A must issue an exchange rate difference invoice to Customer B for 16.87 TRY including VAT.
Who issues the exchange rate difference invoice?
The exchange rate difference invoice is issued by the party in whose favor a TRY balance remains. In the example, since Company A collected a higher TRY equivalent than the TRY amount of the invoice it issued, Company A should issue the exchange rate difference invoice to Customer B. If the exchange rate had decreased after the invoice was issued and the TRY amount paid had remained lower than the TRY amount of the invoice, then Customer B would issue the exchange rate difference invoice to Company A.
Is it mandatory to issue an exchange rate difference invoice?
Yes. An exchange rate difference invoice must be issued to close the remaining TRY balance. It is not a correct practice to zero the TRY balance by matching the collection exchange rate with the invoice exchange rate.
What is the VAT rate on an exchange rate difference invoice?
The VAT rate applied to the original goods or service invoice is also applied to the exchange rate difference invoice. For example, if 20% VAT was applied to the goods or service invoice, 20% VAT is also applied to the exchange rate difference invoice.
| Goods / Service Invoice VAT Rate | Exchange Rate Difference Invoice VAT Rate |
|---|---|
| 20% | 20% |
| 10% | 10% |
| 1% | 1% |
| Incentivized / VAT-Free | VAT-Free |
| Withholding VAT | Withholding VAT |
How is VAT calculated on an exchange rate difference invoice?
To close the TRY balance, VAT should be calculated using the internal percentage method. In other words, the remaining TRY balance is considered to be the VAT-included amount, and the VAT-exclusive tax base is calculated accordingly. For example, if the remaining TRY balance is 120 TRY and the VAT rate is 20%, the exchange rate difference invoice will have a tax base of 100 TRY, VAT of 20 TRY, and a total amount of 120 TRY.
When should an exchange rate difference invoice be issued?
If an exchange rate difference occurs when a collection is received against a foreign currency goods or service invoice and the invoice is fully or partially closed with this payment, an exchange rate difference invoice should be issued.
What happens if an exchange rate difference invoice is not issued?
If the TRY balance is zeroed without an exchange rate difference invoice and the exchange rate difference invoice is not issued, a special irregularity penalty may be applied for each invoice that has not been issued.
To whom is the special irregularity penalty applied?
The special irregularity penalty may be applied both to the party that should have issued the exchange rate difference invoice but failed to do so, and to the party that should have received the exchange rate difference invoice but failed to receive it.
Should an exchange rate difference invoice be issued for year-end exchange rate valuation?
No. According to tax legislation, foreign currency receivables and payables are valued at the end of each period using the period-end exchange rates published by the Central Bank. Positive differences arising from this valuation are recorded under exchange rate income accounts, while negative differences are recorded under exchange rate expense accounts. There is no need to issue an exchange rate difference invoice for exchange rate income or expense arising from period-end valuation. An exchange rate difference invoice should only be issued when a payment-related TRY difference occurs.
Is an exchange rate difference invoice paid?
No. An exchange rate difference invoice is not issued for payment purposes; it is a correction invoice issued to close the TRY balance of the account. The party issuing the invoice declares the VAT on the invoice in the relevant period. The other party deducts this VAT in its own tax return.
Are exchange rate difference invoices included in Ba / Bs forms?
If the amount of the exchange rate difference invoice exceeds the relevant reporting threshold, it must be shown in Ba / Bs forms. If the total transactions with the same company exceed the reporting threshold, the relevant invoices, including the exchange rate difference invoice, are included in the reports.
When should an exchange rate difference invoice be issued for payments made by cheque?
For payments made by cheque, the exchange rate difference invoice should be issued for the TRY difference arising on the date when the cheque is actually collected and the payment is recorded in the cash or bank accounts. The date on which the cheque is issued or delivered to the other party is not sufficient as the payment date.
Should an exchange rate difference invoice be issued as a printed invoice or an e-invoice?
An exchange rate difference invoice is no different from other invoices. If the company issues invoices to its customers in paper form, the exchange rate difference invoice is also issued in paper form. If the company uses e-invoice, the exchange rate difference invoice is issued as an e-invoice.
Should an exchange rate difference invoice be issued for foreign-currency-indexed transactions?
Yes. Whether the transaction is in foreign currency or indexed to foreign currency, if a TRY balance remains in the statutory books after payment, this balance must be closed with an exchange rate difference invoice.
Can an exchange rate difference invoice be issued in foreign currency?
No. An exchange rate difference invoice is not issued in foreign currency. It is issued to zero the TRY balance in transactions where the foreign currency balance has been closed but the TRY balance has not. Therefore, the foreign currency amount of the invoice should be zero, and the TRY amount should be sufficient to close the balance.
Is an exchange rate difference invoice issued to companies abroad?
No. An exchange rate difference invoice is issued only for domestic companies. In foreign currency sales made abroad or foreign currency purchases made from abroad, even if the foreign currency balance is closed and a TRY balance remains, an exchange rate difference invoice is not issued. When the TRY balance is paid, it is closed through an exchange rate income or expense account.
What should be written in the content of the exchange rate difference invoice?
It is sufficient to write “Exchange rate difference invoice” in the description section of the invoice. If more detailed information is desired, the invoice payment for which the exchange rate difference was calculated may be added to the description. For example, the invoice date, invoice number, or payment information may be specified.
This information text has been prepared to provide general information about accounting practices. For current legislation and company-specific applications, it is recommended that you consult your certified public accountant or accounting advisor.