You invoice 4,000 dollars. The client pays forty days later. The bank credits you euros at a rate that is not the one on the day of the invoice, and charges you a fee on top. Which figure goes in your books, on your Modelo 303 and in your income tax return? It is not one figure: there are three separate decisions, and mixing them up is the source of a good share of the mismatches the Agencia Tributaria, the Spanish tax agency, detects by cross-checking bank data against returns.
Rule number one: the invoice is converted on the date the tax falls due
The Spanish VAT Act settles the matter with a single criterion: when the consideration is set in a currency other than the euro, the exchange rate in force at the time the transaction falls due (the devengo) is applied. Not the rate on the day of payment, not the rate on the day you issue the PDF if that is a different day, and certainly not the rate your bank applies.
The official reference is the one published by the relevant central bank for that date. What matters in practice is that it is a public, verifiable source used consistently: if one year you convert with one reference and the next year with another, the inconsistency shows.
Choose the reference, document it and do not change it. Note on each invoice the rate applied and the date you took it from. A book of invoices issued with an "exchange rate applied" column is worth more, in a review, than any explanation given afterwards. And avoid altogether the rate your payment gateway gives you: that rate includes its commercial margin, it is not the official rate for the day.
Rule number two: on the invoice, the VAT goes in euros
The Spanish invoicing regulations allow amounts to be expressed in any currency, but require the VAT charged to be expressed in euros. In other words: you can invoice in dollars, pounds or francs, but if the transaction carries Spanish VAT, the tax has to appear in euros on the document itself.
For an autónomo, a self-employed person, with clients abroad, most invoices in foreign currency carry no Spanish VAT, because the service is located in the client's country under the rules we go through in where each service you invoice is taxed. But the converted amount is still needed for the record book, for Modelo 349 if the transaction is intra-EU, and for the IRPF, Spanish personal income tax.
| Item on the invoice | May be in foreign currency | Has to be in euros |
|---|---|---|
| Taxable amount | Yes | Worth adding the euro equivalent |
| VAT charged, if any | No | Yes |
| Total | Yes | Worth adding the euro equivalent |
| Exchange rate applied and its date | Not compulsory, and including it saves trouble | |
Rule number three: income tax follows the accruals basis, just like VAT
Under direct assessment (the ordinary way a self-employed person's profit is measured), business income is allocated on an accruals basis: the income arises when the service is supplied and the invoice issued, not when the money comes in. So the income counted for IRPF purposes is the euro equivalent calculated on that same date, the same number you entered in the book.
That consistency is what makes the payment on account add up. On Modelo 130 income and expenses are accumulated from 1 January, and if income is converted at one rate in the book and at another on the return, the running total stops matching quarter after quarter.
So what do I do with the difference?
This is the point almost nobody resolves properly. If you invoiced 4,000 dollars worth €3,680 on the date the tax fell due and were paid when they were worth €3,610, you have a difference of €70. That difference does not correct the income: the income is still €3,680. What you have is an exchange difference, which is recorded as a financial expense or financial income in the year in which it arises.
| Item | Amount | Where it goes |
|---|---|---|
| Invoice issued: USD 4,000 at the rate on the date due | €3,680.00 | Business income |
| Actual receipt of the same amount weeks later | €3,610.00 | — |
| Negative exchange difference | €70.00 | Financial expense for the year |
| Bank fee on the transaction | €18.00 | Financial expense, separate from the difference |
It is the most common temptation: amending the invoice so that it matches what came into the account. It is not appropriate. A corrective invoice fixes errors in the transaction or in its amount, not the movement of the currency market between two dates. Correcting for this throws the book out, throws the 349 out if the transaction went on it, and leaves a trail that is hard to explain. The difference goes through the financial route, which is where it belongs.
The mistake that triggers the most requests
It is this one, and it deserves its own section: declaring as income what came into the bank account instead of the euro equivalent on the date the tax fell due. It seems the natural thing (it is, after all, the money you received) and it produces three consequences at once.
- The amount declared does not match the record book, if the book was kept properly.
- The exchange difference disappears as an item and is diluted into the income, so that when it is negative the autónomo loses an expense they were entitled to deduct.
- Invoices straddling two years change year. The December invoice paid in January ends up declared in the wrong year, and that shift is exactly what a data cross-check picks up.
The extreme case is someone working with an international payments platform: the platform keeps its commission, converts at its own rate and transfers the net amount weeks later. If the income declared is the net transfer, the gross income is being under-declared and the commission, which is a fully deductible expense, is not being deducted.
How to record it properly, in four columns
The book of invoices issued by someone who invoices in foreign currency should have at least these columns:
| Date due | Amount in foreign currency | Rate applied | Euro equivalent |
|---|---|---|---|
| 12 March | USD 4,000 | 0.9200 | 3,680.00 |
| 4 April | GBP 2,500 | 1.1650 | 2,912.50 |
| 28 June | CHF 1,800 | 1.0450 | 1,881.00 |
The figures in the table are illustrative: the real rates for each date have to be taken from the official source. What is not illustrative is the structure, which is what makes the book defensible. With those four columns, any review is answered in an afternoon; without them, each invoice has to be reconstructed one by one.
Foreign currency balances that sit still
There is one more step for someone who does not convert into euros straight away and keeps balances in dollars or pounds in an account or on a payments platform. That balance is an asset denominated in a foreign currency, and its value in euros moves on its own, without you doing anything. The question that then arises is when that change is recognised.
The short answer is that there are two different moments and they should not be mixed: the difference that arises between the date the income falls due and its receipt, which we have already seen, and the one affecting the balance that remains in foreign currency after receipt. The second has its own treatment and depends on what is done with the balance and when it is converted. If the balance is also held with a foreign institution, you need to check whether it falls within the reporting obligations, which have their own threshold and have nothing to do with VAT or bookkeeping: we go through them in the three blocks of Modelo 720. Anyone keeping large operating balances outside Spain should check this before each year-end, because the obligation arises from the position held, not from the profit.
Invoices received follow the same logic
Everything above also applies to what you buy. A dollar invoice from a foreign supplier is converted on the date it falls due, and that euro equivalent is what goes in the book of invoices received, what serves as the base for self-assessing VAT where appropriate (the mechanism is in the reverse charge) and what makes up the deductible expense for IRPF purposes. The difference between that amount and what the bank finally debits is, once again, an exchange difference.
Four habits that save you the whole problem
- Note the rate on the invoice itself, with its date and its source.
- Download the rate history at the close of each quarter: finding a rate from three years ago is harder than it looks.
- Always keep three figures apart: income due, exchange difference and bank fee. They are three items and they are treated differently.
- Do not use the gateway's rate as your tax reference. Use it to know how much you received, not to file.
We keep the books and file the returns for self-employed people who invoice in several currencies, and this is the part that most often has to be redone when a new case comes to us. If you would like us to review your books and your latest returns before someone else does, write to us through the form for self-employed people with international clients. The approach for this area is on the page on invoicing clients abroad from Spain. We do not promise that an old mismatch can be fixed at no cost: we promise to tell you what it is before anyone asks you.