Sole proprietor received payment in foreign currency: do I need to sell it?

Quite often, entrepreneurs engaged in foreign economic activity have two questions:
Can I hold on to the currency that has been credited to my current account or must I sell it day by day?
Should exchange rate differences be included in income?
This is what we will discuss in this article.

Is it necessary to sell currency?

No, it is not necessary to sell foreign currency. Last year, the NBU canceled the mandatory sale of foreign currency. So now, when money comes to the current account, banks do not automatically sell it. Now you receive the entire amount in foreign currency to your current account (remember, previously banks automatically sold 30% of the amount received and left 70% in foreign currency, meaning you received part of the amount in hryvnia and part in dollars/euros/rubles, etc.)

Since there is no longer a mandatory sale of currency, you can keep money in your account until you need it. However, please note that there are certain restrictions when using funds in foreign currency:
it is prohibited to transfer currency from a business account to a personal foreign currency account (or any other account of an individual opened for personal needs); you cannot withdraw currency from a current account (receive cash). You can sell currency and then withdraw the amount you need, but in hryvnia.

Do exchange rate differences increase an entrepreneur's income?

Entrepreneurs on the single tax system and those on the general taxation system do not keep accounting records and do not apply the provisions of NAS 21 "Effect of Changes in Foreign Exchange Rates". This means that they are not required to calculate exchange rate differences and show them as income or expenses.

When entrepreneurs receive foreign currency on their current account, they must convert the amounts received into hryvnia at the NBU exchange rate on the date of receipt of the money on the account. Even if there is money left on the foreign currency account at the end of the reporting period, entrepreneurs do not need to convert it at the current rate. That is, the currency is converted into hryvnia once on the day the currency is credited to the account at the current exchange rate.

Is the exchange rate difference on the sale of foreign currency included in income?

If an entrepreneur decides to sell the currency a few days/weeks after it is credited to the account, whether or not to include the exchange rate difference in income will depend on the taxation system you are in.

Entrepreneurs on the general taxation system:

• positive exchange rate difference should be included in income (the difference between the commercial selling rate and the NBU rate on the day the money is credited to the account);
• negative exchange rate differences are not included in expenses.

According to the tax authorities, single tax entrepreneurs are not required to include positive exchange rate differences in their income. However, in order not to be penalized later for not including such a difference in the entrepreneur's income, it is better to get individual tax advice.