For a Singapore company, a foreign exchange (FX) gain or loss is taxable or deductible only if it is revenue in nature, meaning it arises from trading transactions such as sales, purchases and operating expenses. FX differences on capital items, such as a long-term loan taken to buy a building or an investment in a subsidiary, are not taxable or deductible. Revenue FX differences recognised in the profit and loss account are generally taxable or deductible whether realised or unrealised, following section 34AB of the Income Tax Act 1947, unless the company opted out in Year of Assessment (YA) 2004. Translation differences from presenting accounts in another currency are ignored. Revaluation differences on foreign currency bank accounts are treated as capital unless the account qualifies as a “designated bank account”.
Raffles Corporate Services works with a panel of experienced Singapore law firms who offer cost-effective and efficient legal service and advice. This article is general information only and is not legal advice.
These rules come from the IRAS e-Tax Guide on the income tax treatment of foreign exchange gains or losses for businesses (sixth edition, 30 January 2026). This article explains them for directors and finance teams preparing the tax computation.
The three kinds of FX difference
| Type | Example | Tax treatment |
|---|---|---|
| Revenue | USD sales invoice settled at a different rate; USD trade payable revalued at year end | Taxable or deductible when recognised in profit and loss, realised or unrealised (unless the business opted out in YA 2004) |
| Capital | Revaluation of a foreign currency loan used to buy fixed assets or shares; FX on an investment in a subsidiary | Not taxable or deductible |
| Translation | Converting USD functional-currency accounts into SGD for presentation | Not taxable or deductible |
Whether a transaction is revenue or capital depends on its facts. A loan used to fund working capital may be revenue; the same currency loan used to buy a factory is capital. Keep loan purposes documented.
Realised versus unrealised
The general tax principle is that gains or losses are recognised only when realised. IRAS’s guide explains, however, that the Comptroller accepts the accounting treatment for revenue FX differences, so businesses do not have to separate realised from unrealised amounts. All revenue FX differences charged to profit and loss are taxable or deductible in that year. This has applied automatically to non-bank businesses since YA 2004, unless they opted out when filing the YA 2004 return. Since 12 November 2018, a business that opted out may make an irrevocable election, with the Comptroller’s approval, to adopt the accounting treatment; in the first year of election, prior unrealised revenue differences are treated as realised.
A business that kept its opt-out must track physical conversion. Even then, IRAS regards differences on sales or purchases settled in the same accounting period as realised, and treats year-end revaluation differences on trade debtors and creditors as realised in the following year.
Foreign currency bank accounts
This is where most errors occur. According to the IRAS guide, FX differences from revaluing year-end balances of foreign currency bank accounts are generally treated as capital, because the funds are capital assets of the business. There is an exception for a designated bank account used solely to receive trade receipts and pay revenue expenses in that currency: revaluation differences on it are treated as revenue, so taxable or deductible.
From YA 2020, IRAS allows the designated bank account treatment even if the account is not used solely for revenue purposes, provided capital transactions in it stay within a de minimis limit:
- no more than 12 capital transactions a year; and
- a total value of capital transactions of no more than S$500,000 a year,
counting inflows and outflows together. Examples of capital transactions include buying fixed assets, investing in shares or fixed deposits, cash pooling transfers and transfers to a non-designated account. If the limit is exceeded, or the business chooses not to track it, revaluation differences on that account are capital. Businesses that do not want to track transactions can simply treat all foreign currency account revaluations as capital.
How to prepare the tax computation
- Split the FX line in the ledger. Use separate accounts for FX on trade receivables and payables, on loans, on bank accounts and on investments.
- Classify each balance. Revenue or capital, with a short reason. Loans need their purpose; bank accounts need their designation status.
- Exclude capital and translation differences. Add back capital FX losses and deduct capital FX gains in the tax computation.
- Check the bank account test. For each designated account, count and total capital transactions for the year.
- Keep a schedule. IRAS encourages businesses to include a schedule in the tax computation itemising the transactions, assets and liabilities that gave rise to FX differences.
- Check the functional currency. Companies whose functional currency is not SGD follow additional IRAS rules for filing computations in that currency.
Corporate income tax filing basics are in our guide to Form C-S, C-S (Lite) and Form C. GST uses separate exchange-rate rules; see when a foreign-currency invoice uses a different rate from your books.
Worked example
Example only, not a client case. A trading company with SGD functional currency reports a net FX loss of S$48,000 for its financial year:
| Source | Amount (S$) | Nature | Tax treatment |
|---|---|---|---|
| Settled USD sales and purchases | (12,000) | Revenue | Deductible |
| Year-end revaluation of USD trade debtors and creditors | (9,000) | Revenue | Deductible |
| Revaluation of a USD loan used to buy warehouse equipment | (30,000) | Capital | Add back |
| Revaluation of designated USD collections account (3 capital transactions, S$80,000) | 3,000 | Revenue (within de minimis) | Taxable |
| Total | (48,000) | Net deductible: (18,000) |
The company adds back S$30,000 in its tax computation. If the collections account had been used for a S$600,000 fixed deposit placement, it would fail the value limit and the S$3,000 gain would be capital instead.
Common mistakes
- Claiming the whole FX loss line without analysing it.
- Treating intercompany loan revaluations as revenue without checking the loan’s purpose.
- Using one USD account for both trading and investments and assuming it is designated.
- Forgetting that FX on dividends receivable from an investment is linked to a capital asset.
- Not keeping the supporting schedule when IRAS asks questions.
Frequently asked questions
Do we need to tell IRAS we have a designated bank account?
Keep records showing the account’s purpose and the capital transaction count and value, and apply the treatment consistently. Check the current e-Tax Guide for any administrative steps.
Are FX gains on a foreign customer’s payment received in our overseas account taxable?
If they arise from trading, they are revenue. Whether foreign-sourced income rules apply is a separate question; see the section 13(8) foreign-sourced income exemption.
What about FX on a loan to our subsidiary?
It depends on the loan’s nature. A long-term funding loan is usually capital. Interest-free loans also affect interest deductions; see our guide to interest expense and the total asset method.
We opted out in YA 2004. Should we elect now?
It depends on your expected gains and losses and admin costs. The election is irrevocable, so model it first.
Need help with FX in your tax computation?
If your company trades in foreign currencies and you are unsure which FX differences are taxable or deductible, contact the Raffles Corporate Services tax team at [email protected] or on WhatsApp at +65 8501 7133. We prepare tax computations and Form C-S and Form C filings, and can review your FX analysis before you file. Where an issue needs specialist advice, our tax advisers will tell you so.
Kevin Yeo, Raffles Corporate Services