Corporate Income Tax (CIT) losses – accounting rules and tax planning
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In the practice of corporation tax, a tax loss is not merely a negative result for a given tax year, but a factor that affects the amount of tax liabilities in subsequent years. However, it can only be utilised if strictly defined conditions are met.
Characteristics of a tax loss
A tax loss is the excess of tax-deductible costs over the revenue that the taxpayer has derived from a given source in a given tax year. The tax loss is deducted by completing the information on deductions from income and tax, and on tax-exempt income (revenue) – CIT-8/O, which forms an annex to the CIT-8 return.
From 1 January 2018, the subject of CIT taxation is divided into income from capital gains and income from other sources.
This division of revenue sources means that if, in the course of their business activities, a taxpayer derives income from only one of these sources and incurs a loss in the other, the income derived cannot be reduced by the loss incurred in that other source of revenue. Therefore, if the loss relates to capital gains (e.g. dividends), it cannot be deducted from income from other business activities, and vice versa.
Strategies for settling losses in 2026
Pursuant to Article 7(5) of the CIT Act, the taxpayer may choose between two methods of settling a loss:
- The classic method: Deduction over the next 5 tax years, but the amount of the reduction in any of those years may not exceed 50% of the amount of the loss.
Example: if a taxpayer incurred a loss of PLN 10 million in 2023, they may offset it over the next 5 tax years. However, for example, in 2024 they may offset only half of that loss, i.e. PLN 5 million. The taxpayer may offset the remaining 50% in subsequent tax years.
- One-off method: A one-off reduction of income by the full amount of the loss (up to a limit of PLN 5,000,000) in one of the following 5 tax years. If the loss exceeds PLN 5 million, the remaining portion is offset using the standard method (with a 50% limit) in the remaining years of that period.
The second method applies to losses arising no earlier than in 2019 and deducted for the first time from 2020 income.
Restrictions and verification
The CIT Act also regulates certain situations in which the settlement of a tax loss may be restricted. The provisions do not allow for the deduction of losses incurred by businesses undergoing transformation, merger, acquisition or division, with the exception of the transformation of a company that is a CIT taxpayer into another company that is a CIT taxpayer.
The provisions also exclude the possibility of offsetting losses arising from the sale of virtual currencies (Section 7(6) of the CIT Act).
It should be noted that the tax authorities have the right to verify the amount of the reported loss until the expiry of the limitation period for the tax liability for the year in which the loss was incurred (typically 5 years).
Tax planning – recommendations
The safe and effective use of tax losses requires a systematic approach:
- Deadline analysis : identifying and offsetting losses for which the 5-year settlement period expires earliest.
- Cost audit : verifying whether the expenses generating the loss meet the definition of tax-deductible costs (in accordance with Article 15(1) of the CIT Act).
- Assessment of the optimal approach and risks : analysing the selection of the most effective method for settling the tax loss.
Summary
Settling a tax loss for CIT purposes is not merely a matter of arithmetically reducing income. It is crucial to correctly disclose the loss and its source in the tax return, maintain the separation of revenue sources, monitor deadlines and be aware of restrictions (e.g. those related to restructuring).