Business tax: deficit carry-forward

Verified 01 January 2023 - Legal and Administrative Information Directorate (Prime Minister), Ministry of Finance

A company subject to business tax (SI) that suffers a deficit in a fiscal year has 2 possibilities. It can carry forward the deficit and deduct it from its next fiscal year's profits. We're talking about carry forward. It can also carry forward the deficit to the previous year to obtain a tax claim (due from the tax administration). This is called carrybacke or carry-back.

Carry Forward

Deficit incurred during one financial year shall be considered as an expense deductible from the profit of subsequent financial years without a time limit.

There is no need to request carryforward: this scheme is applied automatically to a loss-making account at the time of the income statement.

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General case

The withdrawal of the deficit for the following financial year shall be capped. It is limited to €1 million per year, increased by 50% of the fraction of profit exceeding that ceiling.

Example :

Loss-making N-1: €1,500 000

Excess profit in N: €1,050,000

Share of N-1 to be carried forward to N: €1 000 000 + 50% x (1 050 000 - 1 000 000) = €1,025,000

€25,000 remain subject to business tax in N.

Share of N-1 remaining to be carried forward to years after N: 1 500 000 - 1 025 000 = €475,000

Business granted write-offs

For a company which has been granted write-offs in conciliation under an approved agreement or in safeguard proceedings, the withdrawal of the deficit shall be limited to €1 000 000 to which the amount of the claims waived shall be added.

A waiver of a claim is the act of a creditor which waives the right to claim payment of all or part of a debt.

If part of the deficit could not be carried over to the next financial year, it may be carried over to future financial years under the same conditions. This happens when the next fiscal year's profit is not large enough to carry forward the entire deficit or when the deduction limit has been reached.

Example :

If a company subject to SI is loss-making by €50,000 for the financial year 2020, it may carry over that deficit to subsequent financial years.

If, in 2021, it earns a profit of €10,000, on which it can remove the 2020 deficit, its taxable result is nil and it does not pay SI. The remaining deficit to be carried forward to the close of the 2020 financial year is then €40,000.

If, in 2022, it achieves a profit of €60,000, its taxable income to the SI is then €20,000 (60 000 - 40 000). The deficit recorded in 2020, reduced from the one already removed in 2021, is deducted from the 2022 profit.

Warning  

the change in the tax regime and the activity of the business results in the loss of the right to carry over. For example, if a company to the commercial activity is transformed into a holding company, it changes activity and it will not be able to eliminate the deficit of its previous activity on its present profit or loss.

Carry-back

Carry-back is allowed only on a single profit, that of the previous year, and up to the limit of the smallest amount between the previous profit and €1 000 000. The option for carry-back relates to all or part of the deficit, up to the previous year's profit and the ceiling.

Exceptionally, the deficit generated by a financial year ended from 30 June 2020 until 30 June 2021 may be carried over to the previous 3 financial years. The option may be exercised up to the filing deadline of a fiscal year ended June 30, 2021 and no later than the settlement of the business tax due for the fiscal year after the fiscal year for which the option is to be exercised.

In order to opt for the carry-back of a deficit, the company must mention its request for the application of the carry-back in its income tax return to the companies of the company headquarters.

Who shall I contact

That possibility is there Deficit for the year carried back in one of the following tables:

Without this mention, the deficit for the financial year shall be carried forward to the following financial years.

In addition, a special declaration No. 2039-SD must be filed with the SI balance statement. This shall be done on the date of liquidation of the SI of the financial year in respect of which the option is exercised or on the income statement if the option occurs after the balance sheet is filed.

Deficit carry-back

The option may not be exercised in respect of a financial year in which one of the following occurs:

  • Disposal of all assets of the company or complete cessation of its activity
  • Business Merge
  • Judgment ordering the winding up of the business or its administration by the courts

However, it is accepted that the acquiring company in the event of a merger or a beneficiary of a partial contribution of assets may carry forward the deficit established for the financial year in which the transaction took place.

Caution, the basis on which the tax is levied shall be reduced by:

Since the company has already paid the SI in the previous beneficiary year from which the deficit is deducted, the carry-back entails a tax liability to the company. Its amount is the excess tax on businesses after the application of the deficits carry-back.

The tax claim shall not be taxable for the purpose of determining the tax result for the financial year in respect of which it is established.

This claim may be used for the payment of the SI for the financial years ended during the 5 years following that of the closure of the financial year in respect of which the carry-back option was exercised. At the end of this five-year period, the company may request the repayment of the debt which has not been deferred.

However, the period for repayment of that claim may be shortened where the business is the subject of safeguard, recovery or winding-up proceedings. In such cases, repayment of the claim may be requested from the date of the judgment initiating those proceedings.

Warning  

The only way the deficit can escape is by taxing the business itself. It is not possible to subtract it from the personal income tax return of the directors as a deduction from other income, if any.