Marcel Muráni, Tax Advisor
Tax loss is defined in § 2 letter k) of Act No. 595/2003 Coll. on income tax as amended by later regulations (hereinafter referred to as the “Income Tax Act”) and should be understood as the difference by which tax expenses exceed taxable income, respecting the substantive and temporal connection of taxable income and tax expenses in the relevant tax period.
Tax vs. accounting loss
Tax loss needs to be distinguished from accounting loss. The fact that a taxpayer quantifies an accounting loss does not necessarily mean that they will also have a tax loss. Tax loss for the relevant tax period is determined in the tax return by adjusting the financial result or the difference between income and expenses, which can be profit or loss, by items increasing or decreasing the financial result or the difference between income and expenses. According to § 17 paragraph 2 of the Income Tax Act, these items include amounts that:
- cannot be included in tax expenses according to the income tax law or were included in tax expenses in an incorrect amount,
- are not part of the financial result but are included in the tax base according to the income tax law,
- are part of the financial result but are not included in the tax base according to the income tax law,
- increase or decrease the financial result due to a change in accounting method using international financial reporting standards.
Due to deductible and non-deductible items, it may happen that a possible accounting loss differs from the tax loss. Also worth considering is a brief consultation with an accountant, who will help you get oriented in this matter.
Required conditions for loss deduction from 2020
From the tax base of a taxpayer who is a legal entity, a tax loss shown starting from the year 2020 can be deducted as follows:
- during up to five immediately consecutive tax periods,
- in one tax period, up to 50% of the tax base,
- the period for deducting the loss begins from the tax period immediately following the tax period for which the tax loss was shown.
The tax loss shown for the relevant tax period is assessed separately when claiming the deduction, i.e., separately up to 50% of the tax base.
This means that if the deduction of tax losses shown for multiple preceding tax periods is claimed in a tax period, each deduction can be made up to 50% of the tax base, but in total, up to the amount of the tax base.
Conditions for deduction of losses shown for periods until 31 December 2019
Tax losses shown until 31 December 2019 continue to be deducted from the tax base of a taxpayer who is a legal entity under the conditions valid until 31 December 2019. In accordance with § 30 of the Income Tax Act effective until the end of 2019, a taxpayer can deduct a tax loss over four immediately consecutive tax periods following the tax period in which the tax loss was shown, evenly, i.e., up to a maximum of 1/4 for the tax period, but up to the amount of the calculated tax base.
If the tax period for which the taxpayer claims the deduction of the tax loss is shorter than a year, i.e., is less than twelve immediately consecutive calendar months for any reason (commencement of liquidation, declaration of bankruptcy, merger, consolidation, division, change of calendar year to fiscal year, etc.), the taxpayer can also claim the entire annual deduction of the tax loss according to § 30 paragraph 2 of the Income Tax Act. This means that when deducting tax losses shown until 31 December 2019, the taxpayer can claim a proportional deduction of one quarter, while when deducting tax losses shown from 1 January 2020, the deduction can be claimed for a shorter tax period up to 50% of the tax base of the respective tax period.
The deduction of tax loss in the tax return for income tax of legal entities is stated in line 410, but up to the amount of the tax base shown in line 400. The deductible amount is calculated in Table D – Records and Loss Deduction in Part III of the tax return.
Table D is also completed by the taxpayer who does not claim the deduction of tax loss in the tax period for which the tax return is filed (for example, due to the presentation of another loss), but has a claim for deduction from previous tax periods. In such a case, only rows 1 and 3 of the respective columns are filled in Table D. The tax loss shown in the tax period for which the tax return is filed is not stated in Table D because it is shown in line 400 of the tax return, and it is stated in Table D only in the following tax period.
Deduction of tax loss for micro-entrepreneurs
In accordance with § 2 letter w) of the Income Tax Act, micro-entrepreneurs are taxpayers who are natural persons with income according to § 6 paragraph 1 and 2 of the Income Tax Act and legal entities whose taxable income (revenue) for the tax period does not exceed the amount set for value-added tax registration purposes according to § 4 paragraph 1 of Act No. 222/2004 Coll. on value-added tax, i.e., currently does not exceed the amount of 49,790 euros.
An exception to the above definition is a taxpayer who:
- is a related person according to § 2 letters n) to r) of the Income Tax Act and carries out controlled transactions for this tax period,
- has been declared bankrupt, entered into liquidation, or has been granted a repayment schedule,
- whose tax period is shorter than 12 consecutive calendar months except for the taxpayer who has a shorter tax period due to death.
In accordance with § 30 paragraph 1 letter a) of the Income Tax Act, a micro-entrepreneur can claim a deduction of tax loss up to 100% of the calculated tax base. This means that they can deduct the tax loss over five immediately consecutive tax periods, in any of these five tax periods, in any amount, up to the amount of the tax base, starting from the tax period immediately following the tax period for which this tax loss was calculated.
The information above on this website is intended to give you a basic overview of tax, accounting, and legal regulations. They do not in any way serve as a guide for their application in practice, which may differ significantly from the legislation in force at the time. The information on this website does not guarantee legal, accounting, tax or other professional advice or services. As such, information should not be taken as a substitute for professional consultations with accountants, tax, legal or other advisors. EMINEO PARTNERS shall not be liable and shall not be liable for any discrepancies, omissions or results obtained from the use of this information. All information and examples are provided without any guarantee of their applicability in practice. EMINEO PARTNERS is not obliged to reflect the applicable legislation on the information and examples provided on this website.
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