Utilization of a tax loss 2026

Tax Loss 2026: Basic Rules

A tax loss arises when tax-deductible expenses (costs) exceed taxable income in a given tax period. It is crucial to understand that a tax loss is not automatically usable. You must actively declare it in your corporate income tax return.

In 2026, the established rules of the Income Tax Act continue to apply. A tax loss can be claimed in two ways:

1. Forward: in the five tax periods immediately following the period for which the loss was assessed.

2. Retroactively (loss carryback): in the two tax periods immediately preceding the period for which the loss was assessed. However, a limit applies here – a maximum of CZK 30 million can be claimed retroactively in total.

Companies with long-term losses are a signal for increased attention from the tax administrator. The Tax Office may investigate whether the company is artificially reporting a loss, for example, by under-reporting revenues or claiming non-deductible costs.

Preclusive Periods: Time for an Audit

A crucial piece of information for every entrepreneur is that reporting a tax loss extends the period for tax assessment (the preclusive period). The standard period is three years. However, in the case of a tax loss, a special rule under Section 38r(2) of the Income Tax Act applies.

The period for assessing tax for the tax period in which the tax loss was incurred ends concurrently with the period for assessing tax for the last tax period in which this tax loss could have been claimed.

In practice, this means that if you report a loss for 2024 (tax return filed in 2025), you can claim it until 2029. The period for tax assessment for 2029 will not normally expire until 2033. This means that the year 2024 also remains open for an audit until this date.

The total time you must keep records and be prepared for an audit is realistically close to eight or nine years.

If you claim a loss retroactively, the period for tax assessment for these preceding years is extended accordingly.

Calculating the Period for Claiming a Loss

A loss assessed for 2024 can be claimed in 2025, 2026, 2027, 2028, and 2029. It can be claimed retroactively (up to the CZK 30 million limit) for 2023 and 2022.

However, there is a mechanism to avoid the long preclusive period: waiving the right to claim the loss under Section 34 of the Income Tax Act. If you waive the right to claim the loss in subsequent periods within the deadline for filing the tax return for the year the loss was incurred, the period for tax assessment is not extended and remains the standard three years.

Substantial Change in Shareholders and Claiming a Loss

The Income Tax Act contains a measure against trading in so-called "empty shells" with losses. Under Section 38na of the Income Tax Act, a tax loss cannot be deducted if there has been a substantial change in the composition of persons who directly participate in the company's capital or control (voting rights).

A substantial change is defined as a change affecting more than 25% of the share capital or voting rights.

This can occur through the sale of a share, an increase in share capital by a new shareholder, or other transformations. However, there is an exception: The loss can be claimed even after a substantial change if you can prove that at least 80% of the revenue from own products and goods in the period the loss is claimed comes from the same business activity.

The lawyers at our Prague-based law firm, ARROWS, have extensive experience with this test, as assessing the "same business activity" is not always trivial, especially if the company has innovated or slightly changed its focus.

Tax Audits of Loss-Making Companies

From the perspective of the Financial Administration, companies with long-term losses are considered high-risk. If a company reports a loss, but its shareholders inject money into it or the company continues to operate without apparent economic rationale, the tax administrator may suspect under-reporting of income or the claiming of fictitious costs.

Typical areas of focus during audits of loss-making companies:

• Transfer pricing: Whether transactions with related parties correspond to market prices.

• Non-deductible costs: Personal consumption by shareholders, costs unrelated to income, insufficiently documented services.

• Under-reporting of revenues: Undeclared cash income.

ARROWS law firm represents clients in tax audits, and prevention is key – having a perfectly prepared evidentiary position before an audit even begins.

Retroactive Claiming of a Loss (Loss Carryback)

Retroactively claiming a loss allows you to recover tax that has already been paid. In 2026, you can claim a tax loss incurred in that year retroactively in an additional tax return for the years 2025 and 2024.

The maximum limit is CZK 30,000,000 in total for both retroactive periods.

Procedure for claiming:

1. You file a regular tax return for the year the loss was incurred (e.g., 2026), where you assess the loss.

2. You file an additional tax return for the previous year (e.g., 2025), where you claim this loss as an item reducing the tax base.

3. A tax overpayment arises, for which you request a refund.

Even retroactively claiming a loss extends the period for tax assessment for the year in which the loss was claimed.

Penalties for Incorrectly Claiming a Loss

If the Tax Office discovers an error in the reported loss, the consequences are governed by the Tax Code:

• Penalty: If the reported tax loss is reduced, an obligation arises to pay a penalty of 1% of the amount by which the tax loss was reduced.

• Late payment interest: If the error results in a tax underpayment, late payment interest is charged. This corresponds to the CNB repo rate increased by 8 percentage points.

Practical Steps for 2026

If your company has unclaimed losses:

1. Check the age of the losses. Losses incurred in 2020 can be claimed for the last time in the tax return for 2025 (filed in 2026). Losses from 2021 expire with the 2026 tax year.

2. Analyze ownership changes. Are you planning to sell a share or bring in an investor? Address the impact on tax losses in advance.

3. Consider waiving the loss. If the loss is marginal, it may be strategic to waive it and "close" the year to a tax audit sooner.

Conclusion

A tax loss is a valuable asset, but it carries an administrative burden and the risk of a longer preclusive period. In 2026, it is necessary to monitor not only the five-year period but also the conditions of the same business activity test during changes in the company.

The lawyers at ARROWS law firm are ready to assist you with an audit of your losses, preparation for a tax audit, and obtaining a binding ruling. Do not hesitate to contact us at konzultace@arws.cz.