From 1 January 2028, the new federal rules extending from seven to ten years the period during which companies may offset tax losses against taxable profits will enter into force. The new rule will apply to tax loss carry-forwards from the 2020 tax period onwards. For companies that have experienced difficult years or still have tax losses that have not been fully offset, this change may have a concrete impact on tax planning for the coming financial years.
For a company, a tax loss normally represents the result of a financial year in which tax-deductible costs exceed taxable income.
A loss does not, however, necessarily mean that its tax value is lost.
Under Swiss tax law, losses may in fact be carried forward and offset against taxable profits in subsequent financial years, subject to the conditions set out in the applicable tax legislation.
To date, the standard carry-forward period has been set at seven years.
From 1 January 2028, this period will be extended to ten years.
The question that is therefore most relevant to business owners is another one:
“Does my company still have tax losses available to use and, if so, until when can I offset them?”
What changes in the offsetting of tax losses from 2028
The change introduced by the new legislation is, in principle, straightforward: companies will have more time to use tax losses carried forward.
Currently, under federal and cantonal direct tax rules, losses may be offset against profits for the seven subsequent tax years.
From 1 January 2028, this period will be extended to ten years.
The amendment was approved by Parliament and implemented through the Federal Act on the Extension of Loss Carry-Forwards; the Federal Council has set its entry into force for 1 January 2028.
The purpose of the reform is to allow companies to use carried-forward losses for a longer period, particularly in light of the economic difficulties faced by many companies during the COVID-19 pandemic. It is therefore not a new tax deduction; rather, the amendment concerns the time available to use a loss that is already eligible for tax carry-forward.
Why the reference to 2020 is important
One of the most interesting aspects of the new rules concerns their application over time: the new ten-year period will apply to loss carry-forwards arising from the 2020 tax period onwards. This means that the amendment does not only concern losses that will arise after 1 January 2028.
For some companies, it will therefore be important to review already today whether tax losses from previous financial years are still available for carry-forward.
Consider, for example, a company that recorded a loss in 2020 and progressively returned to profitability in the following years.
If the loss has not yet been fully offset, the new rules may be particularly relevant when assessing the remaining period during which it can be used.
This is precisely why the extension from seven to ten years should not be viewed solely as a future change.
For some companies, it concerns losses that are already part of their tax history.
How does tax loss carry-forward currently work?
The general principle is that losses may be offset against taxable profits in subsequent financial years, within the time limit established by law.
In simple terms:
tax loss → carry-forward → subsequent profitable years → offsetting of the loss.
The loss therefore does not necessarily have to be used in the immediately following financial year. It may be offset progressively when the company returns to generating taxable profits, always subject to the conditions laid down by the applicable legislation.
This mechanism is particularly important for SMEs that go through a temporary period of difficulty and subsequently return to profitability.
A company may have a loss-making financial year, followed by one or more weak financial years, and only achieve significant profitability several years later.
It is precisely in these situations that a longer carry-forward period can become relevant.
A practical example: from seven to ten years
Let us imagine an SME that records a tax loss of CHF 300,000 in 2020.
In the following years, the company progressively returns to profitability, but its taxable profits are not sufficient to fully offset the loss.
The possibility of using the loss in subsequent financial years may therefore become an important element of tax planning.
Under the new rules, the carry-forward period will be extended from seven to ten years for loss carry-forwards covered by the new legislation.
The benefit does not consist in receiving a refund or a tax credit.
It consists in the possibility of not losing, due to the expiry of the applicable time limit, the ability to use a loss that is still available, where that loss can be offset against future taxable profits. For this reason, a tax loss should also be considered as an element to be monitored over time and not merely as the negative result of a single financial year.
Which companies may be affected?
The amendment applies to companies subject to direct taxes and to the rules governing tax loss carry-forwards.
For a Swiss SME, the issue may therefore arise in a variety of situations:
- a company that has gone through a temporary period of difficulty;
- a company that has made significant investments before reaching the expected level of profitability;
- a company established or developed in previous years that has accumulated losses;
- a company that was affected by the pandemic and has not yet fully used the losses incurred;
- a company that expects significant growth in profits over the coming financial years.
This does not, of course, mean that every company has losses that are still available for use.
The first step must therefore be to assess the company's actual tax position and the losses that can still be carried forward.
Accounting losses and tax losses are not the same thing
An important point, particularly for business owners, is to distinguish between the accounting result and the tax loss available for carry-forward: the fact that a company closes a financial year with an accounting loss does not automatically mean that the entire amount can be carried forward for tax purposes to subsequent years; the taxable result is determined according to the rules laid down by tax legislation and may differ from the accounting result.
For this reason, when assessing the impact of the new rules, it is not sufficient to look only at the financial statements of recent years. It is, in fact, necessary to reconstruct the company's tax position and verify which losses are actually still available for offsetting.
This is particularly important when several financial years have passed since the original loss was incurred.
What should an SME review today?
The new rules will enter into force in 2028, but the review can already be carried out today. For a company that has recorded losses in recent years, it may be useful to check at least:
1. Which tax losses have been recorded
Reconstruct the financial years in which the company generated a tax-relevant loss.
2. Which losses have already been used
Determine how much of the losses has already been offset against profits in subsequent financial years.
3. Which losses are still available
Identify any remaining balance of carried-forward losses and the applicable period for their use.
4. What are the profitability prospects?
Compare the losses still available with the taxable profits the company expects to generate in future financial years.
5. Which timing rules apply?
Verify the tax period in which the loss arose and the rules applicable to its carry-forward.
This type of analysis makes it possible to turn an apparently technical legislative change into useful information for the company's planning.
The new rule does not mean “ten years for every loss”
It is important to avoid oversimplification: saying that the carry-forward period will become ten years from 2028 does not mean that any loss recorded by a company can automatically be used for ten years without further verification. The new rules apply to loss carry-forwards from the 2020 tax period onwards and must be read together with the conditions laid down by the applicable tax legislation. Furthermore, the amendment primarily concerns the duration of the carry-forward period and does not eliminate the other requirements governing the tax treatment of losses.
For this reason, the situation must be assessed on the basis of the individual company's actual tax position.
The term is not the only thing that changes: tax planning becomes even more important
At first sight, three additional years may seem like a purely technical detail. However, for a company that quickly returns to profitability, they may not make a significant difference.
For a company that, on the other hand, goes through a prolonged period of difficulty and only gradually restores its profitability, the difference can be much more significant.
The new rules therefore introduce an element of greater flexibility over time, making it even more important to connect taxation with the company's economic planning.
The question should not only be: “How much did I earn this year?”
But also: “What will my tax position be in the coming years, and which losses still available can I use?”
For an SME, this approach can help to view the tax result not as an annual snapshot, but as part of a multi-year process.
Greater flexibility for companies that have experienced difficult years
The decision to extend the carry-forward period is also linked to the economic context of recent years. The amendment implements Parliamentary Motion 21.3001, which aimed to support companies in light of the economic difficulties caused by the COVID-19 pandemic; the reference to the 2020 tax period therefore takes on particular significance.
Many companies recorded losses or significant reductions in profitability during that period and, in some cases, returning to a stable economic situation took longer.
The new rules recognise, from a tax perspective, a broader time window for recovering these losses.
Losses of foreign permanent establishments are also affected
The law also introduces a specific amendment concerning losses incurred by foreign permanent establishments.
For federal direct tax purposes, Swiss companies may deduct from taxable profits losses incurred by their foreign permanent establishments where those losses have not already been taken into account for tax purposes abroad.
The deduction is provisional and subject to the condition that the foreign permanent establishment does not generate, during the following ten years, profits that could be offset abroad against the previous loss. Otherwise, Switzerland may reverse the deduction granted. In this area, the Cantons retain, as before, a certain degree of discretion to issue their own provisions.
This is a more technical area that is primarily relevant to companies with international activities and structures. For a purely Swiss SME, the central point of the reform remains the extension from seven to ten years of the tax loss carry-forward period.
The role of the fiduciary: knowing today what may be useful tomorrow
When tax losses are discussed, the business owner's question is often very practical:
“Do I still have losses that I can use?” The answer is not necessarily found in the latest financial statements. The tax position of previous financial years needs to be reconstructed, losses already offset need to be verified, those still available need to be identified, and the period within which they can be used needs to be considered.
This is where the role of a fiduciary can become particularly valuable.
Not only in preparing the tax return, but also in assessing the company's tax position from a multi-year perspective. Knowing the amount of losses still available for carry-forward may be relevant even when the company is returning to profitability, planning investments or considering corporate transactions.
The new rules make this analysis even more relevant because they extend the time window during which losses can be used.
From 2028, more time — but the review can start today
The new period will apply to loss carry-forwards from the 2020 tax period onwards.
For companies that still have tax losses available, the amendment may provide greater flexibility in managing their tax position. The key point, however, is not to wait until 2028, but to know already today:
- which tax losses are still available;
- which losses have been used in subsequent years;
- which time limits apply;
- what their potential value may be in light of future profits.
Because a tax loss is not merely the result of a difficult financial year. When it can be used in subsequent years, it also becomes an element to be understood, monitored and integrated into the company's tax planning.
Assess your situation
The extension of the tax loss carry-forward period represents an important development for companies that still have tax losses available for carry-forward.
Fidav can support business owners in reconstructing their tax position, reviewing the losses still available and assessing their potential use in relation to the results expected in the coming financial years.
For further information or to assess your company's situation, please contact us at info@fidav.ch.
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