How do I apply for a personal early tax loss carry-back?

What is an early loss carry-back?

The concept of the early loss carry-back involves offsetting an enterprise’s estimated losses for the current financial year against the previous year’s profits. This is advantageous as it reduces the amount of tax owed on the previous year’s income, improving the company’s liquidity and solvency.

How does a personal early tax loss carry-back work?

For personal income tax, the early loss carry-back takes the form of a tax exemption. In practical terms, any profits made during the 2020 assessment year (2019 tax year) can be declared fully or partially exempt if they are deducted from the estimated losses for the 2021 assessment year (2020 tax year).

This is a temporary exemption only. Any losses deducted from the profits for the 2020 tax year must be added back again for the 2021 tax year. The early loss carry-back may be applied to any loss, not just corona losses. This means there is no obligation to prove that the loss is a result of the pandemic.

Attention! It is important to estimate your expected losses for the 2020 tax year as accurately as possible. If the actual losses are revealed to be lower than the estimate, the taxes owed will increase by between 2 and 18 percent, depending on the severity of the deviation. Because achieving an accurate prediction during the year itself is no easy matter, a deviation of up to 10% is allowed. 

Who is eligible for an early loss carry-back?

Enterprises that were already considered to be in difficulties on 18 March 2020 are not eligible for an early loss carry-back. Nor may enterprises apply an early loss carry-back if they also wish to pay taxes on flat-rate bases for the 2020 tax year.

How do I apply for an early loss carry-back?

To make use of an early loss carry-back, you must select this option explicitly when you file your personal tax return. There are two possibilities:

• You have already filed your personal tax return for the 2019 tax year. Fill in Form 276 COV and submit the signed form to the tax authorities no later than 15 September 2020. 
• You have not yet filed your personal tax return for the 2019 tax year (as you have authorised an agent to handle your tax affairs). You can apply for the carry-back when you submit your personal tax return for the 2020 assessment year. This must be submitted no later than 22 October 2020.