Requests For Derogation: Functional Currency For Foreign Companies In Belgium

Author:Ms Gitte de Brabander and Mathieu Loquet
Profession:TMF Group

Companies with operations in Belgium are typically required to draw up their accounting and financial statements and publish them in Euro. However in exceptional circumstances, when the currency of the primary economic environment in which the entity operates (being the 'functional currency'1) is not the Euro, a request for derogation can be filed with the FPS Economy2.

The FPS Economy makes its decision based on the advice it receives from the Commission for Accounting Standards (CAS). If approved, this derogation is granted for duration of up to three consecutive years, after which it must be renewed.

TMF Belgium recently successfully prepared and filed one such request for a client active in the aerospace industry; an industry predominantly conducted in USD. As having to use the Euro resulted in significant exchange rate differences (which create unnecessary fluctuations in the statutory accounts), the client was obviously pleased to receive a positive response from the FPS Economy.

The procedure to request a derogation is based on article 14 of the Law of 17 July 1975, derogation to keep its accounts in another currency than Euro; and article 125, §1 of the Companies Code: derogation to draw up and publish its annual accounts in another currency than Euro.

The CAS has a number of guiding advices on the request for derogation. In its advice, the CAS states that the determination of the functional currency needs to be done based on the following factors:

The currency that mainly influences sales prices for goods and services (this will often be the currency in which sales prices for its goods and services are denominated and settled). The currency of the country whose forces of competition and regulations mainly determine the sales price of the company's goods and services. The currency in which the assets from (in particular intra-group) financing services are generated, ie. at the time the issue of debt or equity instruments. The currency that mainly influences labour, material and other costs of providing goods or services (this will often be the currency in which such costs are denominated and settled). The currency in which the receipts from operational activities are usually retained. The advice states that factors 1 to 3 are considered the primary indicators, but not all three of them have to be fulfilled at once. An entity's functional currency has to reflect the underlying transactions, events...

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