[For Sole Proprietors] When to Record Foreign Exchange Gains and Losses? Basics for White Return Filers (※Tax Accountant Confirmation Recommended)

Receiving payments in foreign currency from overseas clients, or paying for overseas SaaS and outsourcing costs in foreign currency.
Once foreign currency starts moving in your business, many people stumble at least once on the question: “When should I record foreign exchange gains and losses?”

Moreover, if you are filing a White Return for your first tax return, while you are not required to maintain the strictness of double-entry bookkeeping, once foreign currency is involved, it suddenly becomes difficult to understand “which rate should I use for yen conversion,” “where do I record fees,” and “how should I handle foreign currency balances.”

In this article, without being overly definitive about tax conclusions, I will organize points that are easy to get confused about in practice from the perspectives of “when gains and losses are likely to occur” and “what information should be kept in the books.”
Additionally, I will supplementarily introduce Wise Business as an option that makes it easier to keep records of foreign currency deposits, withdrawals, and exchanges (I recommend confirming tax judgments themselves with a tax accountant or your local tax office).

Premise to grasp first: Foreign exchange gains and losses are most likely to occur at the “moment of evaluating foreign currency in yen”

Broadly speaking, foreign exchange gains and losses arise because “the value of the same foreign currency changes when converted to yen.”

Situations involving foreign currency in business can be broadly divided into the following two categories.

• Receiving in foreign currency (sales, compensation, refunds, etc.)

• Paying in foreign currency (outsourcing costs, purchases, advertising costs, SaaS usage fees, etc.)

What is important here is that tax returns are filed in Japanese yen.
Therefore, yen conversion is required at some point in the books, and differences in how and when that yen conversion is performed can make “gains and losses” visible or invisible.

※The following is a general organization, and treatment may vary depending on individual circumstances (methods applied consistently, nature of transactions, bookkeeping methods, etc.). Please confirm the final judgment with a tax accountant or similar professional.

Thinking about “When to record?”: Three common points of confusion

Even with a White Return, if you keep track of “when and how much foreign currency moved” and “how much it was in yen at that time,” it will be easier to organize later.

Here, I will explain the points where gains and losses are likely to become an issue, divided into three timings.

1) When foreign currency-denominated sales or expenses occur (billing, delivery, service provision, etc.)

In cases where you bill an overseas client in foreign currency and receive payment at a later date,
the rate often differs between the “day the sale was recorded” and the “day the payment was actually received.”

This difference is a typical pattern organized as foreign exchange gains and losses.

Similarly, when you receive a foreign currency-denominated invoice and pay it at a later date,
the yen conversion amount will deviate between the “day you want to record the expense” and the “day you actually paid.”

The first thing to do in practice is to keep the following information.

• Transaction date (the day according to your recording criteria, such as the service provision date for sales or the delivery date for expenses)

• Currency and foreign currency amount

• The rate used for the yen conversion on that day (also note the source)

• Linking information such as client name and invoice number

Even with a white return, simply keeping notes makes it easier to explain things later.

2) When the actual deposit or payment is made

Deposit and payment dates are always recorded in bank or payment service statements, making them strong evidence.
On the other hand, rates are involved here as well.

For example, regarding ‘1,000 USD in sales,’ the amount that ‘actually arrived in yen’ on the deposit date depends on:

• Which rate was used for conversion (service rate, bank rate, credit card company rate, etc.)

• Whether fees were deducted

  from the amount.

For this reason, it is recommended to record at least the following separately in your books:

• Foreign currency amount (e.g., 1,000 USD)

• Yen equivalent amount (the amount received as shown on the service statement, or the conversion amount you adopted)

• Fees (remittance fees, inward remittance fees, exchange fee equivalents, etc.)

If it remains ambiguous where the fees are included, the sales and expense figures will appear misaligned, making it difficult to explain gains and losses as a result.

3) When a foreign currency balance remains at the end of the fiscal year (e.g., December 31)

You received foreign currency and held it as is without converting it to yen immediately.
Or, you prepared foreign currency in advance for payment and have some left over.
This state of ‘having foreign currency remaining at the end of the fiscal year’ is also a point that easily becomes an issue for foreign exchange gains and losses.

How to evaluate the foreign currency balance at the end of the fiscal year by converting it to yen involves tax considerations and whether you apply consistent methods, so I especially recommend checking with a tax accountant here.

However, in practice, you can make progress in organizing by just grasping these two points:

• How much foreign currency balance you have by currency at the end of the fiscal year

• Which transaction that foreign currency originated from (remaining sales deposit, remaining amount exchanged for payment, etc.)

As foreign currency balances increase, the biggest stress, even before calculating gains and losses, is ‘not being able to track the source of the balance’.

To avoid trouble with White Return filing: The minimum set of records you should have

While White Return filing often requires only simple bookkeeping, foreign currency transactions become difficult to explain without “supporting documents” and “conversion evidence.”

At a minimum, having the following four items ready will make it smooth when consulting a tax accountant later.

• Transaction evidence such as invoices, contracts, and purchase orders (showing foreign currency amounts and currency types)

• Deposit and withdrawal statements (when and how much money moved)

• Evidence of the rate used for conversion (a note on which rate was adopted)

• Breakdown of fees (where they appear on the statement)

The “basis for the rate” is a classic example of something that is hard to remember later.
Just having a note from that time significantly increases your ability to explain it.

Common pitfalls: Difficulty in understanding card payments and overseas platform statements

When paying for overseas SaaS or advertising costs with a card, the amount appears fixed in yen on the statement, but

• the payment date and the date you want to record it differ

• refunds and adjustments occur on a foreign currency basis

• fees and rates are difficult to read from the statement

Because of these reasons, rather than just exchange gains and losses, the problem of “it being difficult to obtain the basis for yen conversion in the first place” often occurs.

In this case, prioritize the “strength of the evidence” first, and

Reasons to consider Wise Business as a candidate from the perspective of record organization

The discussion so far is less about tax techniques and more about practical work to “leave records in a form that can be explained later.”

From that perspective, for business owners who handle overseas remittances or receive foreign currency on a daily basis, it is worth considering business accounts like Wise Business as a comparison candidate in addition to bank transfers and card payments.

Wise Business is a service that allows you to handle payments to overseas business partners, receive foreign currency, and manage multiple currencies all in one place.
And what is practically helpful is that you can check fees before sending money and that information is easily retained as transaction statements.

Of course, availability, supported currencies, expected arrival times, required documents, and fees vary depending on the destination country, currency, amount, and the status of identity or corporate verification.
Therefore, please consider it on the premise that you must always check the conditions on the official screen.

The concept of exchange based on the mid-market rate

What often makes yen conversion for foreign currency transactions confusing is that it is difficult to see “which rate was actually used for the conversion.”

Wise presents the concept of exchange based on the mid-market rate.
This is an image close to a design where the central exchange rate is used as a benchmark and fees are displayed separately (actual applicable rates and fees vary by condition, so they must be checked each time).

Even if which rate to adopt for tax purposes is a separate issue,
“being able to see the rate and fees separately” can be an advantage in terms of organizing records.

Business-oriented features such as invoice payments, bulk transfers, and accounting software integration

You have multiple overseas contractors, multiple suppliers, and the number of SaaS subscriptions increases every month.
When this happens, “managing ongoing payments” becomes more difficult than one-off overseas remittances.

Wise Business has features tailored for business operations, such as invoice payments, bulk transfers, and accounting software integration.
However, which features are available for your account and what format of statements are issued may be subject to official specification changes, so it is certain to check the actual screen.

By case: Situations where foreign exchange gains and losses are likely to occur and things that are easier to decide in advance

From here, I will organize “where discrepancies occur” by common business scenarios. Please read this as a practical note, not as a tax determination.

Receiving compensation in foreign currency from overseas clients

If these three points (sales recording date, deposit date, and conversion date) are inconsistent, the issues regarding gains and losses increase.

Things that are easier to decide in advance are,

• Which timing’s rate to use for yen conversion of sales (consistent application is often important)

• If you hold funds in foreign currency, the key is how to track the year-end balance
  .

Monthly payments to overseas contractors (designers, developers, translators, etc.)

• The invoice date and payment date differ

• The recording method changes depending on whether you exchange currency in advance for payment or at the time of payment

As the number of contractors increases, the task of tracking ‘which invoice a payment corresponds to’ becomes more burdensome than the exchange gains and losses themselves.
It is recommended to establish a system that links payment details with invoice numbers or project names.

Paying for inventory to overseas suppliers via cross-border e-commerce or imports

Since inventory purchases involve cost of goods sold and inventory valuation, poor records of foreign currency transactions make it difficult to reconcile later.
At the very least, it is safe to save the remittance statement, the invoice, and the fee breakdown together.

Caution: Prioritize ‘explainable records’ over searching for the ‘correct’ tax answer

Foreign exchange gains and losses is a field where the more you read online articles, the more you tend to wonder, ‘Which one is actually correct?’
The reason is that the treatment can change based on your premises (bookkeeping method, consistent application, transaction type, and foreign currency holding status).

Therefore, especially if this is your first White Return filing,

• Transaction date

• Foreign currency amount

• Yen equivalent amount

• Rate basis

• Fees

• Balance

It is realistic to prioritize creating a state where these six points can be tracked, and to confirm any confusing points with a tax accountant or the tax office consultation desk.

Checklist to confirm on the official screen first if you are using Wise Business

Whether Wise Business is a good fit depends on your remittance destinations and operations. Checking the following on the official screen before applying will make it easier to decide.

• Whether you can make payments to your destination country/currency

• Whether you can receive payments in the currency you want (e.g., availability of foreign currency account details)

• How fees are displayed (how fixed costs, variable costs, and exchange costs appear)

• Estimated arrival time (it is important to know if it can be used for urgent payments)

• Types of documents required for identity and corporate verification

• How statements are generated (transaction date, currency, fees, reference numbers, etc.) and whether the granularity is sufficient for accounting purposes

Even if checking takes only about 10 minutes, it can significantly change the burden of record-keeping throughout the year.

People who might be a good fit / People who might not be a good fit

Finally, let’s organize this from the perspective of ‘recording and managing’ foreign currency transactions.

People who might be a good fit

• You have ongoing overseas remittances or foreign currency receipts

• You have multiple contractors or business partners and want to consolidate payment management

• You want to understand rates and fees separately and keep a record of the basis for them

• You want to track foreign currency balances by currency to make year-end reconciliation easier

People who might not be a good fit

• You rarely have foreign currency transactions, such as only once a year

• Your business is primarily domestic, and foreign currency is an exception

• Your existing bank transactions and accounting flows are well-established, and the cost of changing them is high

Even if it is “not suitable” for you, checking the fees and how the statements appear on the official screen for comparison is meaningful as a basis for your decision.

Organization you can do today: The next step to avoid confusion with foreign exchange gains and losses

Finally, here are three actions you can take right now.

• List your foreign currency transactions for this year (or last year) by currency (deposits, payments, exchanges, and balances)

• For each transaction, make a note of the “basis for the yen conversion used” (which rate and which statement was used)

• If you have a foreign currency balance at the end of the period, ensure you can track the source of that balance

Furthermore, if you expect to continue receiving foreign currency or making international transfers, checking the “fee display,” “statement granularity,” and “supported currencies” on the Wise Business screen before relying solely on bank transfers or card payments may reduce the stress of record-keeping.

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