Foreign Exchange Gains & Losses: Tax Treatment

Introduction

Businesses that import or export goods, hold bank accounts abroad, or deal with suppliers/customers in foreign currencies often experience foreign exchange (FX) gains or losses. Are these amounts taxed or deductible?

This article explains how realised FX gains/losses are treated for income tax purposes in Malaysia, the official exchange rates to use for reporting, and their interaction with capital allowances and foreign source income. The objective is to give an accurate and careful picture — FX tax treatment depends on the type of transaction and the taxpayer's status.

Basic treatment: adjusted business income

In principle, in determining adjusted business income, adjustments are made to profit/loss according to the rules of ACP 1967. Realised FX gains or losses from business transactions are taken into account in this computation.

Source: RU 6/2015, §5.7 (R1).

Capital allowances: foreign loans for plant/machinery

Public Ruling No. 6/2015 (§5.7) sets out specific treatment for foreign exchange differences from foreign loans financing the purchase of plant or machinery:

• FX gains from such loans are deducted from qualifying expenditure (PYL);
• FX losses are added to qualifying expenditure (PYL);
• The taxpayer may elect for such gains/losses to be deducted from or added to the original cost of the assets.

Source: RU 6/2015, §5.7 (R1).

Official exchange rates

Exchange rates for tax purposes come from schedules prepared by the Accountant General's Department of Malaysia (JANM) based on Bank Negara Malaysia (BNM) rates.

From Year of Assessment 2018, for taxpayers other than companies, limited liability partnerships, trust bodies or cooperatives who receive income not in Ringgit Malaysia, the rate used is the monthly average rate for the month of December.

Source: Appendix C — Foreign Exchange Rates (Form Notes), HASiL (R2).

Foreign source income remitted

For foreign source income (FSI) remitted to Malaysia, the exchange rate at the date the income was remitted is used for reporting, and it relates to the claim for foreign tax credit (Form HK-8/HK-9).

Source: Form B Explanatory Notes, YA 2025, HASiL (R3).

Reporting in financial statements

In the profit and loss statement (e.g. a company's Form C), there are specific lines:

• "Foreign exchange gains" under other income;
• "Foreign exchange losses" under expenses.

Source: Example Company Return Form, HASiL (R4).

Items still awaiting official confirmation

• General features of business FX gains/losses outside the capital allowance context (e.g. trading transactions, receivables, forward contracts) — the revenue vs capital treatment was not extracted from official sources in this review; verify from relevant cases/Public Rulings before making claims.
• Unrealised FX losses (revaluation at the balance sheet date) — the "realised only" principle is confirmed specifically for PYL (R1); general applicability has not been confirmed.
• Exchange rates for income accruing in Malaysia vs received in Malaysia and company cases (accounting-period rates) — R2 only gives the rule for non-companies; the company part has not been quoted.
• Interaction of e-Invoice with exchange rates (Foreign Income / Exchange Rate in the Specific Guidelines) — not confirmed in this review.