Exchange rate differential: IFRS recognizes it, but the Tax Authority taxes it when it occurs. Analysis of query MH-DGT-DNTI-DCN-CONS-0022-2026

By: Rebeca Sequeira

Financial Analyst – EAS LATAM

The consultation MH-DGT-DNTI-DCN-CONS-0022-2026 provides clarity on a topic especially relevant for companies that operate in dollars or other foreign currencies: the treatment of the exchange rate difference from an accounting and tax perspective does not always coincide.

In general terms, although accounting under IFRS recognizes exchange differences at the end of each period, for Income Tax purposes these should only be considered when they have actually been realized.

IFRS: Accounting recognition of exchange rate differences

According to IAS 21 – The Effects of Changes in Foreign Exchange Rates, monetary items in foreign currency — such as cash, receivables, payables or loans — must be updated to the exchange rate in effect at the end of each period.

Exchange differences resulting from this process, whether from conversion or settlement, are recognized in profit or loss. This treatment allows the financial statements to more accurately reflect the economic impact of exchange rate fluctuations.

For example, if a company maintains an account receivable in dollars and the exchange rate varies at the end of the period, that adjustment is recorded in the accounts, even if the collection has not been made.

Tax treatment in Costa Rica: realization criterion

From a tax perspective, the approach is different. The Tax Administration establishes that income or expenses from exchange rate differences should only be recognized when they have been realized, that is, when there is an actual cash flow resulting from collections, payments, or conversions.

This implies that accounting adjustments at year-end, although necessary under IFRS, do not necessarily affect the income tax base.

Furthermore, the General Directorate of Taxation warns that taxing unrealized exchange differences could imply the payment of taxes on results that have not yet materialized, which could lead to a tax burden poorly aligned with the taxpayer's economic reality.

Practical example

Suppose a company invoices USD 100,000 when the exchange rate is ₡520. At the end of the fiscal year, the account is still outstanding and the exchange rate drops to ₡500.

• Accounting (IFRS): an unrealized exchange loss is recognized.

• From a tax perspective: that loss is not deductible, since it has not been realized.

If the company subsequently collects those USD 100,000 when the exchange rate is ₡510, at that moment the exchange rate difference realized is determined, which may have tax implications.

Key aspects to consider

This criterion reinforces the importance of preparing proper tax reconciliations. Simply transferring the accounting result directly to the income tax return is not enough.

It is essential to distinguish between:

• Realized difference: may be taxable or deductible, as appropriate.

• Unrealized difference: it is maintained only at the accounting level and must be adjusted via tax reconciliation.

• Transactions with differentiated treatments (taxable, exempt or free zone): require more detailed analysis and segregation.

In companies operating under a free trade zone regime or with mixed income, this analysis becomes even more relevant, since not all exchange rate differences belong to the same tax category.

The Tax Administration's criteria allow for a clearer distinction between two areas that are often confused: accounting measurement under IFRS and the tax determination of income tax.

In practice, companies must keep detailed records of:

• as of the date of the transactions,

• the exchange rates applied,

• the times of collection or payment,

• and the reconciliation between accounting profit and taxable income.

  
  

In an environment of currency volatility, these differences can have a significant impact on the tax burden, so their proper management is key.

References

Directorate General of Taxation. Consultation MH-DGT-DNTI-DCN-CONS-0022-2026, February 25, 2026. Tax treatment of realized and unrealized exchange rate differences.

Income Tax Law, Law No. 7092: Articles 1, 5 and 27 bis.

Regulations to the Income Tax Law, Executive Decree No. 43198-H: articles 13 subsection c), 17 subsection o) and 47.

IAS 21 – Effects of changes in foreign exchange rates.