Foreign Functional Currency

Dutch companies are allowed if conditions are met to calculate their fiscal profit in their functional currency other than the Euro, for instance USD (Dutch: regeling functionele valuta). The facility is meant to decrease administrative burdens of companies that work primarily with another currency than the EURO. It also prevents the realization of currency translation results which are actually not felt or perceived as such by the company. And if the company is part of a group that reports in say USD, reporting in USD by the company may have specific advantages. For instance, easy comparison between the group companies and valuation of the Dutch company at the level of its parent company.

The financial statements of a Dutch company may be expressed in a foreign currency if the business of the company or the international nature of the group to which it belongs justifies this. In that case it can adopt a currency other than Euro as functional currency for tax purposes as well as from the start of the book year following its request. The facility has to be applied for a minimum period of ten years. That is to prevent that companies switch from currencies to enjoy incidental fiscal benefits. The functional currency may only be a currency of which the exchange rate is published by the Dutch Central Bank, which includes USD. The corporate income under the facility needs to be calculated in the functional currency but must always be paid in Euros, translated against the average rate of the Euro and the functional currency of the fiscal year.

On the first day of application, the Dutch company needs to record its assets and liabilities in the functional currency at the value at which they were recorded in Euros immediately prior to the date of changeover. For the conversion, the most recent published exchange rate of the other currency before the moment of changeover applies. Currency gains on loans and borrowings can manifest when and to the extent corresponding payments are received, respectively made.

A request to apply the foreign currency (e.g. USD) as functional currency should be made with the Dutch tax authorities. If granted, the facility could be applied as from January 1 following the year in which the request was made.

Please let us know if you would like to further discuss this matter.