Foreign-Currency Invoices: Which Exchange Rate Goes on the Books

The date that counts

For income tax, income is recognised when the service is completed or invoiced, at the exchange rate on that date. If the client pays three weeks later and the euro has moved, the amount that reaches your account is different from the amount on your books. That difference is not an error to be corrected. It is an exchange gain or loss, recorded separately.

Which rate

For VAT purposes, the law refers to the selling rate published by the Bank of Spain, which follows the European Central Bank reference rates, on the date the tax becomes chargeable. Using the same official rate for income tax gives one consistent source for both. What should be avoided is using the rate your bank or payment platform applied, because it includes their margin and is tied to the wrong date.

The rule works in both directions. A subscription billed to you in dollars is recorded as an expense at the rate on the date of the supplier's invoice.

A routine that works

1. Note the official rate and its date on each invoice when you issue it.
2. Record the euro amount actually received when it arrives.
3. Let the difference fall into a separate line for exchange differences.
4. Keep bank or platform statements showing the conversion.

For anyone who also files in another country, such as US citizens, the other country has its own conversion rules, and the two sets of figures will not match to the cent. A clear record of the rates used is what allows them to be reconciled.

Multi-currency accounts

Many freelancers now hold dollars or pounds in a multi-currency account and convert when the rate suits them. That is perfectly acceptable, and it adds one step to the bookkeeping. The invoice is still recorded in euros at the rate on its date. The dollars received sit in the account at that euro value. When they are later converted or spent, the difference between that value and the rate obtained is a gain or loss.

In practice this means keeping, for each foreign-currency balance, a simple record of what came in, at what rate, and what went out. Without it, the year-end balance cannot be explained.

Year-end and reporting

Balances in accounts held with institutions abroad count towards the €50,000 threshold for reporting foreign accounts on form 720, valued at the 31 December rate and at the average balance for the last quarter. Some multi-currency accounts are held with institutions outside Spain even when the provider operates here, so it is worth checking where yours is.

For income tax, exchange differences on business receivables are part of the result of the activity. Gains on currency held as a personal investment are a separate category.