Russian specifics of processing currency invoices: exchange rate differences and advance payments

One of the differences that a foreign company might face while planning an international roll-out to Russia is how to treat currency invoices and prepayments of currency invoices.

Currency Invoice and further payment

According to the legislation, there are the following stages to be processed:

• When you post a currency invoice (e.g., the posting date is 05.05.2016), it should be booked in Russian rubles at the rate of Russian Central Bank at the date of the invoice.
• At the end of the month (e.g., 31.05.2016) all open payables and receivables, nominated in currency, should be revaluated at the currency rate of Central Bank at the last day of the month (that is, the difference between the rate at 05.05.2016 and 31.05.2016). At this point, the corresponding unrealized currency exchange rate differences (gains or losses) are booked.
• Then, when payment is booked, it is booked at the posting date using the currency exchange rate of Central Bank at the posting date (e.g., 07.06.2016).
• Finally, when the payment is applied to the invoice, NAV will make the following transactions:
  • Unrealized currency exchange rates will be reversed fully
  • Realized currency exchange rate difference will be posted between the rate at 05.05.2016 and the rate at 07.06.2016 (gain or loss).

However, according to Russian legislation, the real transactions should be a bit different. In particular, when the application of currency payment to invoice is made, unrealized currency exchange rate differences should not be reversed. A realized currency exchange rate difference should be calculated between the payment posting date and the last revaluation date (that is, between 31.05.2016 and 07.06.2016). This is needed in order to report correctly the annual profit tax. This is annual tax, but it is reported each quarter cumulatively during the year. Thus, there might be a case when for the first quarter you report to tax office unrealized currency exchange gain, but then the rates went up and for the fist half year you have loss cumulatively. If you reverse your previously calculated gains, they will not show up in next half-year tax report, and that could rise unneeded questions from the tax office.

Prepayment and further currency invoice

When prepayment of currency invoice is made, the stages are different:

• When you post currency prepayment, it is booked in Russian rubles at the rate of the Central Bank at the posting date (e.g., 05.05.2016). This payment is booked in NAV as a prepayment (it has prepayment tick in the ledger operations).
• At the end of the month, no revaluation is needed for prepayments. That is done according to the legislation. The automatic revaluation functionality skips the ledger operations that have "prepayment" tick fired on.
• Then, when invoice is booked, it is booked at the posting date using the currency exchange rate of Central Bank at the posting date (e.g., 07.06.2016). However, according to legislation, the invoice should be booked using the rate at the date of the prepayment (in the amount of the prepayment; if prepayment is only partially covers the invoice, then the rest of the invoice should be booked at the rate at the date of the invoice).
• So, when the payment is applied to the invoice, NAV should somehow change the rate of the posted invoice. Since there is already a posted invoice, NAV has only to post additionally correction transactions: either additional small invoice or additional small credit-memo with exactly the same accounts, to adjust the rate of the initial invoice to the rate of the prepayment. So, there will be booked two invoices with the same document number and the same posting date.

This process is valid for both vendor transactions and customer transactions. Russian localization covers the processes, described above, however standard W1 version is not processing postings of currency invoices at the rate of the prepayment.