Business units are newly given the option to keep their accounts in a foreign currency, provided that that currency is to them what is known as ‘functional currency’. What might make a company decide to change the currency in which they keep accounts?
Companies newly have the option to keep their accounts in a foreign currency (i.e., more specifically, in euros, U.S. dollars, or pound sterling), as long as the foreign currency is to them a functional currency. This term is defined as the monetary unit of account of the principal economic environment in which an economic entity operates. The concept of functional currency has its origins in the International Financial Reporting Standards (IFRS). The change of accounting currency, if desired, can only be performed as at the first day of the financial year.
It is already fairly clear who can perform the change, and what criteria apply in determining the functional currency. But why should a company decide to change its accounting currency?
The key benefit of introducing the functional currency lies in the fact that both realized and unrealized foreign exchange rate gains and losses are essentially being eliminated. The concept of foreign currencies and fx rate gains and losses remains in place. The Czech crown then works as a foreign currency. If the company belongs to an international group, introducing the same functional currency across the group makes preparing internal group reports and consolidated financial statements much easier.
However, tax laws have not adequately been adjusted to reflect the amendment to the Accounting Act. VAT records must still be kept in Czech crowns and VAT be paid in Czech crowns, and other taxes, too, are assessed and paid in the Czech national currency (notably wage tax, health insurance and social security).
The calculation of corporate income tax will be based on the earnings expressed in foreign currency. For now, public administration has not provided any form that could be filled in using foreign currency, which is why all values must be converted to Czech crowns using the balance-date exchange rate of the Czech National Bank (ČNB).
Corporate income tax can be paid in crowns or in foreign currency. Here, exchange rate differences will not result in arrears or overpayment (i.e., no claim for a refund arises either).
The same kind of currency conversion also awaits the various thresholds / criteria currently used in Czech-law taxation and accounting. If the currency in which a company does keep its accounts is not the Czech national currency, then the criteria expressed in Czech crowns e.g. for categorizing various types of company or the threshold which determines whether a company must have its financial statements audited must be converted using the foreign exchange rate for the accounting currency published by the ČNB for the last day of the immediately preceding financial year.
Source:
https://www.mfcr.cz