Claiming Tax Losses in the Czech Republic in 2026: Rules and Risks

Tax losses are an important, but also high-risk, tool for tax optimisation under Czech law. If your company reported a loss in previous years, you need to know exactly until when you can claim it and what conditions must be met. In this article, we explain how losses can be claimed in 2026 in the Czech Republic, what practical risks you may face under the current legislation, and why it is essential to address the situation with experts.

Quick summary

• A tax loss is not applied automatically. You must actively declare it in the corporate income tax return under Czech law. It can be claimed in the five immediately following tax periods, or retroactively for the two immediately preceding periods.
• The Czech tax authority scrutinises loss-making companies more closely. Reporting losses over the long term may be assessed as a risk indicator and lead to a tax audit, which may also review earlier periods.
• A material change in shareholders prevents the loss from being claimed. If there is a change of more than 25% in registered capital or voting rights, the loss generally cannot be claimed unless you demonstrate that at least 80% of revenues come from the same activity.
• Waiving the right to claim the loss shortens the period for tax assessment. If you waive the right to claim the loss in the future, the time limit for tax assessment is not extended.

Tax loss 2026: Basic rules

A tax loss arises if tax-deductible expenses (costs) exceed taxable income in a given tax period. The key point is to understand that a tax loss is not automatically usable. You must actively declare it in the corporate income tax return in the Czech Republic.

In 2026, the established rules of the Czech Income Taxes 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. Backward (so-called loss carryback): in the two tax periods immediately preceding the period for which the loss was assessed. However, a limit applies here – in total, a maximum of CZK 30 million can be claimed retroactively.

Companies that are loss-making over the long term are a signal to the tax administrator for increased attention. The Czech tax authority may examine whether the company is reporting a loss artificially, for example by understating revenues or claiming non-deductible costs.

Related questions on the definition and claiming of a tax loss

1. Is a tax loss the same as an accounting loss?

No. An accounting loss is the difference between revenues and costs in the accounts. A tax loss is the result of adjusting the accounting profit/loss by items increasing and decreasing the tax base under the Czech Income Taxes Act. The results often differ (e.g., due to tax non-deductible representation/entertainment expenses).

2. Can I offset the loss against all income in the tax return?

The loss is deducted from the tax base. For individuals, a limitation applies – a business loss cannot be offset against the partial tax base from dependent activity (employment). For legal entities, it is deducted from the total tax base reduced by certain specific items.

3. What happens if I do not state the loss in the return?

If you do not report the loss in the regular tax return (i.e., you report zero or a tax base even though you were entitled to a loss), you generally lose the ability to claim it in the future unless you file an additional tax return within the statutory deadline under Czech law.

Limitation periods: Time for a tax audit

A crucial piece of information for every business is that reporting a tax loss extends the time limit for tax assessment (the limitation period). The standard period is three years. In the case of a tax loss, however, a special rule applies under Section 38r(2) of the Czech Income Taxes Act.

The time limit for assessing tax for the tax period in which the tax loss arose ends simultaneously with the time limit for assessing tax for the last tax period in which it was possible to claim that tax loss.

In practice, this means that if you report a loss for 2024 (return filed in 2025), you can claim it up to 2029. The time limit for assessing tax for 2029 will normally expire only in 2033. This means that 2024 also remains open for audit until that date.

The total period for which you must retain documents and be prepared for an audit therefore realistically approaches eight to nine years.

If you claim the loss retroactively, the time limit for tax assessment for those preceding years is extended accordingly.

Calculation of the period for claiming the loss

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

However, there is a mechanism to avoid the long limitation period, namely waiving the right to claim the loss under Section 34 of the Income Taxes Act. If, within the deadline for filing the return for the year in which the loss arose, you waive the right to claim it in subsequent periods, the time limit for tax assessment is not extended and remains the standard three-year period.

Related questions on audit time limits and claiming the loss

1. Can the Czech tax authority come for an audit in the eighth year after the loss was reported?

Yes. Thanks to the mechanism in Section 38r of the Income Taxes Act, this is legally possible under Czech legislation, because the year in which the loss arose “remains alive” for as long as the time limit for the last year in which the loss could theoretically be claimed has not expired.

2. What if I do not claim the entire loss within the first five years?

The unclaimed portion of the loss lapses after the five-year period and can no longer be used.

3. Can I spread the loss over multiple years?

Yes. You do not have to claim the loss all at once. You can allocate it in any amounts within the five-year period according to your optimisation needs.

Material change in shareholders and claiming the loss

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

A material change is considered to be a change affecting more than 25% of the registered capital or voting rights.

This may occur through the sale of an ownership interest, an increase of registered capital by a new shareholder, or other transformations. However, there is an exception: the loss may be claimed even after a material change if you prove that at least 80% of revenues from own performance and goods in the period in which the loss is claimed comes from the same activity.

The attorneys at ARROWS advokátní kancelář have extensive experience with this test, because assessing the “same activity” is not always straightforward, especially if the company has innovated or slightly changed its focus.

Related questions on a material change and maintaining the activity

1. If one shareholder holds a 50% stake and it increases to 76%, is that a material change?

Yes, a change of more than 25 percentage points is considered a material change.

2. How does the tax authority verify that the activity has been maintained?

The tax administrator analyses the revenue structure, the CZ-NACE classification, contractual documentation, and may carry out an on-site inspection to verify the actual state of the business.

3. What document confirms the activity maintenance test?

There is no official form. The burden of proof lies with the taxpayer. It is recommended to have an internal revenue analysis and a legal opinion prepared in case of a tax audit in the Czech Republic. The company may also request a binding assessment from the tax administrator (§ 38na(9) of the Income Taxes Act).

Tax audit of loss-making companies

Long-term loss-making companies are considered high-risk by the Czech Financial Administration. If a company reports a loss, but shareholders inject funds into it or the company continues operating without an apparent economic rationale, the tax administrator may suspect underreported income or the claiming of fictitious expenses.

Typical audit areas for loss-making companies:

• Transfer pricing: Whether transactions with related parties correspond to arm’s-length prices.
• Non-deductible expenses: Shareholders’ personal consumption, costs unrelated to income, insufficiently documented services.
• Underreported revenue: Unreported cash income.

ARROWS advokátní kancelář represents clients in tax audits, and prevention is key—having your evidence and documentation perfectly prepared before the audit begins.

Loss carryback

Loss carryback makes it possible to recover tax already paid. In 2026, you can carry back a tax loss incurred in that year by filing an additional tax return for 2025 and 2024 in the Czech Republic.

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

How to claim it:

1. File the regular tax return for the year in which the loss arose (e.g., 2026), in which the loss is assessed.

2. 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, and you request its refund.

Loss carryback also extends the time limit for assessing tax for the year in which the loss was claimed.

Penalties for incorrect claiming of a loss

If the Czech tax authority identifies 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 payable. It 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 in 2026.

2. Analyse ownership changes. Are you planning to sell a stake or bring in an investor? Address the impact on tax losses in advance under Czech law.

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

Conclusion

A tax loss is a valuable asset, but it comes with an administrative burden and the risk of a longer limitation period. In 2026, it is necessary to monitor not only the five-year period, but also the conditions of the activity maintenance test in the event of changes in the company.

Our Czech legal team at ARROWS advokátní kancelář is ready to assist you with an audit of your losses, preparation for a tax audit in the Czech Republic, and a binding assessment, so please do not hesitate to contact us at office@arws.cz.

FAQ – Most common legal questions

1. If I did not include the loss in my tax return, can I claim it later?

Retroactively, it can be “triggered” only by filing an additional tax return for the year in which the loss arose, and only until the time limit for assessing tax for that year expires. Without a final assessment of the loss, it cannot be claimed in subsequent years.

2. How long can I claim the loss?

For five taxable periods immediately following the period for which it was assessed.

3. Will the tax authority audit me for longer if I have a loss?

Yes. The audit period for the year in which the loss arose ends only together with the audit period for the last year in which it was possible to claim the loss. In practice, this can be up to approximately 8 years from the time the loss arose in the Czech Republic.

4. What happens if the shareholders change?

If there is a change exceeding 25% of share capital/voting rights, you lose the entitlement to the deduction unless you prove that 80% of revenue comes from the same activity (the so-called activity maintenance test under § 38na of the Income Taxes Act).

5. What penalties apply if the loss is reported incorrectly?

A penalty of 1% of the amount by which the loss was reduced may apply, or 20% of additionally assessed tax, plus late-payment interest (CNB repo rate + 8 p.p.).

6. Can I waive the right to the loss?

Yes, under § 34 of the Income Taxes Act. You must do so within the deadline for filing the return for the year in which the loss arose. The advantage is that the time limit for a Czech tax audit is not extended.

Notice: The information contained in this article is of a general informational nature only and is based on the legal framework applicable for 2026. Although we strive for maximum accuracy, legal regulations and their interpretation may change. To apply this information to your specific situation, it is necessary to contact experts at ARROWS advokátní kancelář, a Prague-based law firm (office@arws.cz). We accept no liability for any damages arising from the independent use of this information without an individual legal consultation.

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