Monitoring
Keep a schedule of losses by the year they arose and of those already used: it is the basis for every assessment.
Companies · Result for the year
Carrying forward tax losses
A loss is not money lost for good: it is a credit against future profits. But it is only worth something if you know how much of it you can use each year, for how long, and what makes it disappear.
01 · How it works
What carrying forward a tax loss means
When a financial year closes with a tax loss, that loss can be set against the income of the following years. It is a fairness mechanism: the business is taxed on its result over several years, not just one.
- The loss is calculated under the tax rules, which do not match the statutory accounting result.
- For taxpayers subject to IRES (Italian corporate income tax), the carryforward is, as a rule, unlimited in time.
- Annual use is subject to a percentage limit of the taxable income for the period.
- Losses from the first years of activity have a more favourable regime.
- The rules differ between companies limited by shares, partnerships and sole traders.
- Losses must be tracked year by year in the dedicated section of the tax return.
Losses made in the first years of activity can be used without the percentage limit, provided they relate to a new productive activity. This is the relief that allows a recently started business to absorb its first profits entirely with its initial losses.
02 · The differences
Different rules for different taxpayers
The regime changes considerably depending on the legal form and the accounting regime.
| Taxpayer | Carryforward regime |
|---|---|
| Companies limited by shares | Unlimited carryforward in time, with an annual percentage limit on use |
| Partnerships | Losses are attributed to the partners on a transparency basis, with their own rules of use |
| Sole traders keeping full accounts | Carryforward under rules similar to those for companies |
| Businesses keeping simplified accounts | A specific regime, with its own carryforward criteria |
| Self-employed professionals | Losses are treated separately, with their own rules |
| Regime forfettario (flat-rate scheme) | No tax losses arise: income is determined with a fixed coefficient |
Partnerships
The loss passes to the partners.
- The loss is attributed to each partner in proportion to their share
- Each partner uses it under the rules that apply to their own position
- This applies even if the loss has not been made good
- It mirrors the transparent taxation of profits
03 · How much you can use
The annual limit on use
A loss never wipes out the whole of a year's profit: a percentage limit applies, which always leaves part of it taxable.
- Use is allowed up to a percentage of the taxable income for the period.
- The unused part can still be carried forward to later years.
- Losses from the first years are used without the percentage limit.
- As a rule, losses are used in chronological order: the oldest first.
- Under tax consolidation, group losses have their own rules.
- Losses from before joining the consolidation can be used only by the company that made them.
04 · The real risk
When tax losses are lost
The risk is not the passing of time: it is the transactions that change the shareholders or the structure of the business.
Mergers and demergers
Carrying losses forward depends on tests on equity and on the economic vitality of the company that made them.
The vitality test
It checks that the company has kept a minimum level of revenue and staff costs in the previous periods.
The equity limit
The losses that can be carried forward cannot exceed the equity shown in the latest financial statements, with the adjustments required.
Change of control
Transferring the majority of the shares, combined with a change in the business activity, removes the right to carry losses forward.
The change of control rule is an anti-avoidance provision: it targets the purchase of empty companies bought only to use their losses. It applies when the transfer of the majority is accompanied by a change in the main activity. See corporate transactions.
05 · Planning
How to plan the use of tax losses
Losses are a tax asset: they should be monitored and taken into account in decisions, not discovered after the event.
Accounting choices
Depreciation, provisions and valuations affect the result and therefore whether losses arise or are absorbed.
Deferred taxes
Losses that can be carried forward may justify recognising deferred tax assets, if there are reasonable prospects of recovering them.
Corporate transactions
Check the effect on usability first: it can change whether the whole transaction makes sense.
Consolidation
It allows one company's losses to be offset immediately against another group company's profits.
Selling the business
Losses stay with the entity that made them: they do not follow the business that is sold.
06 · Mistakes
The most frequent mistakes
They almost always concern tracking and the failure to check before a transaction.
- Not completing the losses section of the tax return: an untracked loss is hard to claim later.
- Losing track of the year the loss arose, which matters for the regime that applies.
- Not running the tests before a merger or demerger.
- Underestimating the effect of a change in the shareholders.
- Recognising deferred tax assets without reasonable certainty of recovering them.
- Leaving losses out when assessing a transaction: they have value, and must be priced.
In a sale of shares, tax losses that can be carried forward are part of the price: the buyer also acquires the right to use them, if the tests allow it. Checking whether they can be used is part of due diligence, not a detail for later.
Frequently asked
The questions that keep coming up
Do tax losses expire?
For IRES taxpayers, the carryforward is, as a rule, unlimited in time: the loss is not extinguished simply by the passing of the years.
What makes it disappear are corporate transactions that do not pass the required tests and a change of control combined with a change in activity. That is where the risk lies, not in time.
Can I wipe out my profit with past losses?
Not entirely: annual use is allowed up to a percentage of the taxable income for the period, and part of it is always taxed.
The exception is losses made in the first years of activity, relating to a new productive activity, which are used without the percentage limit.
I am buying a loss-making company: can I use its losses?
Only if the transaction passes the required tests. Transferring the majority of the shares, combined with a change in the main activity, removes the right to carry losses forward.
It is an anti-avoidance provision designed precisely to stop the purchase of empty companies solely to use their losses. The check has to be made in due diligence, before the transaction is priced.
My SNC has made a loss. What happens to it?
In partnerships such as an SNC (general partnership), the loss is attributed to the partners on a transparency basis, in proportion to their shares, whether or not it has been made good.
Each partner then uses it under the rules that apply to their own position. It is the exact mirror of the way profits are attributed.
Let's talk
Losses are lost in corporate transactions, not with the passing of time
Before a merger or a change in the shareholders, it is always worth checking what remains usable.