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The short answer
Section 24I of the Income Tax Act makes a South African company include exchange gains in income and deduct exchange losses on its foreign currency items every year of assessment, whether realised or not and whether capital or revenue. Open naira or dollar debts and currency balances are translated at the year-end ruling rate, and the difference since the transaction date or the last year end is taxed or allowed. SARS's Interpretation Note 101 (Issue 2, 12 July 2023) is the guide.
A South African company that buys from Nigeria, sells to Nigeria or holds a naira account will have exchange differences every year. Section 24I decides how they are taxed. The rule is mechanical once you see it, and SARS explains it in Interpretation Note 101, Issue 2, dated 12 July 2023. This page summarises that note for naira and dollar items. It is information, not tax advice.
Who section 24I applies to
According to Interpretation Note 101, section 24I applies to:
- Any company, whether or not it carries on a trade.
- A trust carrying on a trade (then for all its exchange items).
- An individual who holds foreign currency or a foreign currency debt as trading stock (then for all their exchange items).
- Individuals and trusts for forward exchange contracts and foreign currency option contracts only.
- Non-residents, only for items attributable to a permanent establishment in South Africa.
So a sole trader receiving naira is generally outside section 24I unless one of those cases applies; individuals deal with currency gains under other rules (see naira exchange losses and SARS).
What counts as an exchange item
| Exchange item (s24I(1)) | Naira or dollar example |
|---|---|
| A unit of currency acquired and not disposed of | Naira or dollars held in a Nigerian or South African bank account |
| A debt incurred by or payable to the company | An unpaid invoice from a Lagos supplier; a receivable from a Nigerian client; an intercompany loan |
| An amount under a forward exchange contract | A forward to buy dollars to pay a Nigerian supplier |
| A right or obligation under a foreign currency option contract | An option bought to cap a dollar cost |
Amounts in the company's local currency are not exchange items, so the first step is identifying local currency. The note says SARS will generally accept the functional currency used in the financial statements if it is set in line with IAS 21.
How the exchange difference is worked out
Interpretation Note 101 describes the exchange difference as the foreign currency amount of the item multiplied by the change in the ruling exchange rate between a start date and an end date in the year. The start date is the transaction date or the previous year end; the end date is the realisation date or the current year end. Gains are included in income and losses deducted, whether realised or not and whether capital or revenue.
Worked example (illustrative rates)
An SA company with a 28 February year end buys equipment parts from a Lagos supplier on 1 December for ₦10,000,000, paying in May.
| Date | Rate (R per ₦1) | Rand value of ₦10m debt | Exchange difference |
|---|---|---|---|
| 1 Dec (transaction) | 0.0125 | R125,000 | |
| 28 Feb (year end, unpaid) | 0.0115 | R115,000 | R10,000 gain in year 1 |
| 15 May (paid) | 0.0110 | R110,000 | R5,000 gain in year 2 |
Because the naira weakened, the company owes fewer rand, so it has a gain: ₦10,000,000 × (0.0125 − 0.0115) = R10,000 in year 1, taxed although nothing has been paid, and ₦10,000,000 × (0.0115 − 0.0110) = R5,000 in year 2 on payment. If the naira had strengthened, the same arithmetic would give deductible losses. The rates are invented to show the method.
Naira cash held by the company
Naira in a bank account is a unit of currency. The note treats it as acquired on the transaction date and realised when disposed of, for example when converted to rand or used to pay a liability. An unconverted naira balance at year end is translated at the year-end rate, so a company that keeps working capital in Lagos will see an exchange gain or loss on it every year. Keep your revaluation schedule; see setting up a naira ledger.
Group loans and deferral
Section 24I(10A) deals with exchange differences on certain debts between companies in the same group and between connected persons, and can defer them. The rules are detailed (section 4.9 of the note); if your Nigerian subsidiary owes the South African parent, or the other way round, read that section with your adviser before assuming the year-end difference is taxed or allowed. See also year end for an SA company with Nigerian operations.
Practical points
- Use the ruling rate consistently and keep the source for each date.
- Track each open naira and dollar item separately; one netted figure cannot be tested.
- Remember that unrealised gains create tax before cash, which matters for provisional tax planning.
- Accounting and tax differences can diverge (for example on hedge accounting); reconcile them in the tax computation.
Where Pryme fits
A Pryme Business multicurrency account keeps NGN, USD, GBP and EUR balances separate, with statements per currency, which gives you clean source data for the 24I schedule. Business Swap shows the rate and the fee before you approve a conversion, so the realisation rate is on record.
Questions people ask
Does section 24I apply to unrealised forex gains?
Yes, for companies. Interpretation Note 101 says exchange differences are calculated each year whether realised or not, using the year-end rate for open items.
Is naira in a Nigerian bank account an exchange item?
Yes. A unit of foreign currency acquired and not disposed of is an exchange item for a company.
Does section 24I apply to individuals?
Generally only for forward exchange contracts and currency options, or where currency or foreign debts are held as trading stock.
Which SARS document explains section 24I?
Interpretation Note 101, Issue 2, dated 12 July 2023, on gains or losses on foreign exchange transactions.
Sources
- SARS Interpretation Note 101 (Issue 2, 12 Jul 2023): Gains or losses on foreign exchange transactions · accessed Oct 2026
- IFRS Foundation: IAS 21 The Effects of Changes in Foreign Exchange Rates · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.