In business, not every year ends in profit—and that’s perfectly normal. Especially during early growth phases, market fluctuations, or periods of heavy investment, companies may face operating losses. But what many entrepreneurs overlook is that losses can be leveraged to reduce tax burdens—not just in the present, but also in the future.
Let’s dive into how loss management works across the European Union, and how you can turn a financial setback into a long-term advantage.
What Is a Tax-Deductible Loss?
A business loss typically means your deductible expenses exceed your revenue. This might happen due to:
High startup costs
Temporary drop in sales
R&D investment
Unexpected market shifts
Macroeconomic crises (e.g., COVID-19 impact)
In many EU countries, losses can be carried forward or carried back, reducing tax obligations either for past or future years.
what many entrepreneurs overlook is that losses can be leveraged to reduce tax burdens—not just in the present, but also in the future.
Carryforward vs. Carryback
Carryforward
Most EU tax systems allow you to carry forward losses and deduct them from future profits. This means that when your business becomes profitable again, you’ll pay less tax—sometimes significantly less.
Example: You lose €100,000 in 2023. In 2024, you make €120,000. You only pay taxes on €20,000.
Countries: Germany, France, Italy, Spain, and many others allow this, with specific limits.
Carryback
In some cases, you can offset a current loss against profits from previous years and get a refund on taxes already paid.
Germany: Allows one-year carryback up to €1 million.
France: Also allows limited carrybacks under “report en arrière.”
Tip: Always work with a tax advisor to determine eligibility and filing procedures.
Strategic Use of Losses
Rather than seeing losses as pure failure, consider them an asset—if managed wisely.
If you know you’ll be running at a loss, it might be the perfect time to:
Hire and train staff
Invest in digital infrastructure
Launch new products or services
All these costs reduce your tax base, and when profits return, your tax liabilities are optimized.
Delay or Accelerate Income
In some cases, delaying invoicing to the next fiscal year (or bringing it forward) can help balance taxable income and losses.
Always align these decisions with legal and accounting best practices.
what many entrepreneurs overlook is that losses can be leveraged to reduce tax burdens—not just in the present, but also in the future.
Country-Specific Examples
Germany
Carryforward: Unlimited in time, but only €1 million can be deducted fully each year; 60% rule applies beyond that.
Carryback: Up to €1 million, one year.
France
Carryforward: Unlimited time, but deduction capped beyond €1 million.
Carryback: One-year carryback allowed, under “régime du report en arrière.”
Netherlands
Carryforward: Up to 6 years.
Carryback: One year.
Sweden
Carryforward: Unlimited.
Carryback: Generally not allowed.
Hungary
Carryforward: 5 years maximum.
Carryback: Not permitted.
Common Mistakes to Avoid
Not declaring losses properly: You must file them correctly, or they may not be accepted for future offsetting.
Mixing personal and business expenses: Only legitimate business costs are deductible.
Waiting too long: Loss carryforward and carryback often have strict deadlines and documentation rules.
Ignoring future tax planning: Your next profitable year might come faster than expected—plan accordingly.
Is It Ever Strategic to “Create” a Loss?
In some situations, businesses choose to invest heavily in marketing, development, or expansion with full knowledge it will create a short-term loss. This can be tax-smart when:
However, deliberately engineering losses must be justifiable and legal. Never manipulate books to evade tax.
what many entrepreneurs overlook is that losses can be leveraged to reduce tax burdens—not just in the present, but also in the future.
Losses in Holding Companies and Startups
Startups and holding companies (especially in real estate or SaaS) often operate at a loss in early years. This is acceptable—and even expected—if:
There’s a clear path to revenue
The losses are properly documented
There’s no abuse of transfer pricing or intra-group transactions
Final Thoughts
A financial loss is not the end—it might just be the beginning of smarter, tax-optimized business planning. With proper accounting and forward-looking strategy, you can turn losses into tax shields, making your eventual growth more profitable.
Build a Business That Lasts
If you’re running or starting a business in the EU, having a professional online presence is essential. Visit Rakuzan.eu to get help building a custom, modern business website that attracts customers and builds credibility.
Need hosting or domains? We recommend Hostinger for fast, affordable, and secure hosting tailored for European entrepreneurs.
Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or investment advice. Readers should consult with a licensed professional before making any financial or business decisions.
To provide the best experiences, we use technologies like cookies to store and/or access device information. Consenting to these technologies will allow us to process data such as browsing behavior or unique IDs on this site. Not consenting or withdrawing consent, may adversely affect certain features and functions.
Functional
Always active
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
Preferences
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics
The technical storage or access that is used exclusively for statistical purposes.The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.