A loss year isn't wasted. A year's tax loss reduces the taxable profit of the current or up to five subsequent years, starting with the oldest loss. That's why a weak year should be closed with accurate accounting, not neglected.
This page explains how carryforward works, in what order losses are deducted, when a business loses this right, what you need to keep as documentation, and what the calculation looks like in a complete example.
Read also: How is taxable income calculated?.
A tax period loss is carried over and deducted from the taxable income of the five subsequent tax periods, with the rule that the oldest loss is deducted first. The current rule applies to losses incurred in 2024 and thereafter.
Carryforward is not an election and does not require approval. It is a legal right, but to exercise it two things are required: the loss must be properly reported in the year it occurred, and there must be a record showing how much was utilized in each subsequent year.
The period is counted in tax years, beginning the year after the loss. If the loss arises in 2024, it can be utilized in 2025, 2026, 2027, 2028, and 2029. The unused portion at the end of 2029 is not carried forward.
The deduction is made only within the year's taxable profit. A carried-forward loss does not create a negative profit and is not refunded. It simply reduces the base to zero, and the remaining amount carries over to the next year.
| Characteristic | Rule |
|---|---|
| Carry-forward period | 5 consecutive tax periods |
| Order | The oldest loss is deducted first. |
| Within the year | Until the taxable profit becomes zero |
| Validity | For losses incurred from 2024 onward |
| Refund | Not provided; losses are not converted into cash. |
When losses from two or more years exist, the oldest one is always deducted first. The rule is not formal. It preserves as much value as possible for the business, because the oldest loss is the one that expires first.
The 2024 loss is 1,200,000 lek. The 2025 loss is 800,000 lek. The taxable profit for 2026 before carryforward is 1,500,000 lek. First, the entire 2024 loss of 1,200,000 lek is deducted. From the 2025 loss, 300,000 lek are deducted. Taxable profit becomes zero, tax is zero, and a carryforward of 500,000 lek remains from 2025, available through 2030.
Producing company, tax loss of 3,000,000 lek in 2024.
| Year | Taxable profit before carryforward | The wasted loss | Base after transport | The Remnant of the Loss |
|---|---|---|---|---|
| 2024 | Loss of 3,000,000 lek | zero lek | zero lek | 3,000,000 lek |
| 2025 | 800,000 lek | 800,000 lek | zero lek | 2,200,000 lek |
| 2026 | 1,500,000 lek | 1,500,000 lek | zero lek | 700,000 lek |
| 2027 | Two million lek | 700,000 lek | 1,300,000 lek | zero lek |
In 2025 and 2026 the tax is zero, because the loss offsets the entire profit. In 2027 the loss ends and 1,300,000 lek are taxed at 15%, i.e., 195,000 lek.
Without carryover, the tax for the three years would have been 800,000 + 1,500,000 + 2,000,000 = 4,300,000 base lek, or 645,000 lek in tax. With carryover, the tax is 195,000 lek. The 450,000-lekë difference is exactly 151% of the 3,000,000-lekë loss, converted into real savings.
When the profits from the following five years are not sufficient, the remaining portion of the loss is no longer carried forward.
The 2024 loss is 5,000,000 lekë. Taxable profits are zero in 2025, 500,000 lekë in 2026, 600,000 lekë in 2027, 400,000 lekë in 2028, and 700,000 lekë in 2029. A total of 2,200,000 lekë is utilized. The remaining 2,800,000 lekë expires at the end of 2029 and can no longer be deducted.
This is why the deadline is treated as a planning obligation and is not disclosed once it has expired. When a substantial loss approaches its fifth year, the timing of recognizing income and expenses under the law becomes a decision with financial consequences.
Read also: Closing the financial year and the plan for the following year.
The business's right of carry is lost when two changes occur simultaneously: when direct or indirect ownership of capital or voting rights changes by more than 50%, and when the entity's economic activity changes.
Note the word "jointly." Neither the sale of shares alone nor the expansion or change of the business's scope alone extinguishes the right. The rule is aimed at the case where a company with accumulated losses is acquired in order to use those losses in another business.
Company with carried-forward losses of 4,000,000 lek. The partner sells 70% shares, while the company continues the same retail trade activity. The loss remains carryforward because the activity did not change. If the new buyer converts the company to a construction business, both conditions are met and the right to carry forward the loss may be extinguished.
When planning a share sale, a partner admission, or a business reorientation, carried-forward losses are assessed before the transaction. After signing, the room for resolution is much narrower.
Read also: When the price transfer rules apply.
A loss in the current year reduces that year's tax and also affects the installments for the following year, because they are calculated based on the tax from the previous year. When a year ends with a loss, the installments for the next year are reduced or eliminated.
In the opposite case, when the carry-forward loss expires and the tax reverts, the installments are reinstated along with the annual obligation. This is one of the most common surprises in cash flow.
Read also: How are tax prepayments calculated?.
✔ The annual statement for the year in which the loss arose, with the amount of the tax loss.
✔ Reconciliation table from accounting profit to taxable income for the loss year.
✔ Record of losses by year, with the amount used and the remaining balance for each year.
✔ Financial statements for the loss year, filed on time.
✔ Documents of ownership changes, when available, along with the purpose of the activity.
The loss register is the most overlooked and, at the same time, the only document that quickly shows how many losses you have remaining and when they expire. It remains the same throughout the five years and is not rebuilt in March.
For up to five subsequent tax periods, with the rule that the oldest loss is deducted first. This rule applies to losses incurred in 2024 and thereafter.
The oldest loss is deducted first until it is exhausted, and then the next loss is applied. The deduction stops when the year's taxable profit reaches zero.
It is not refundable. It only reduces the taxable profits of the current year or subsequent years.
No permit is required. Carrying is a legal right, but it must be documented with the statement of the year of loss and the utilization register.
Merely selling does not extinguish the right. It is jeopardized when the change of ownership of 50% is accompanied by a change in economic activity.
The current five-year rule applies to losses from 2024 onward. For earlier losses, the treatment depends on the provisions in effect at the time they arose, so please write to us with the specific years and amounts.
The five-year carryforward is provided for by law for losses from 2024 onward. For specific guidance on interacting with the 0% regime through 2029, write to us with your case, as the details depend on your business circumstances.
Yes. Installments are calculated based on the tax from the previous year, so a year with zero tax does not create an installment obligation for the following year.
Yes, in a separate channel. The portion of interest expense that exceeds 30% of taxable EBITDA is carried forward for five years, separately from the tax loss.