(IS): deficit carry-forward
Verified 20 February 2026 - Entreprendre Service Public / (Prime Minister), Ministry of Finance
A company subject to business tax (IS) that suffers a deficit in a fiscal year has 2 possibilities. It can carry forward the deficit to deduct it from the profits of its next fiscal year. We are talking about carry forward. It can also carry forward the deficit to the previous year to obtain a tax claim (amount due by the tax administration). Then we talk about carry-backe or carry-back.
Carry Forward
The deficit incurred during a financial year is considered as an expense deductible from the profit of the following financial years without limitation in time.
There is no need to ask for carry-forward: this scheme is automatically applied to a loss account when the income statement is made.
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General scenario
The withdrawal of the deficit for the following financial year is capped. It is limited to €1 million per year, increased by 50% the fraction of the profit above that ceiling.
Example :
Loss in N-1: €1 500 000
Excess result in N: €1 050 000
Share of N-1 to be carried forward in N: €1 000 000 + 50% x (1 050 000 - 1 000 000) = €1 025 000
€25,000 remain subject to tax on N businesses.
Share of N-1 remaining to be carried over to years after N: 1,500,000 - 1,025,000 = €475,000
Business granted debt waivers
In the case of a company which has been granted debt waivers in conciliation under an approved agreement or in safeguard proceedings, the withdrawal of the deficit shall be limited to €1 000 000 to which is added the amount of the abandoned claims.
A debt waiver is the act of a creditor who waives the right to demand payment of all or part of a debt.
If part of the deficit could not be carried over to the following financial year, it may be carried over to future financial years under the same conditions. This happens when the next year's profit is not large enough to carry forward the entire deficit or when the deduction limit has been reached.
Example :
If a company subject to the IS is in a deficit of €50,000 it may carry forward this deficit to the following financial years in 2020.
If in 2021 it makes a profit of €10,000, on which it can remove the 2020 deficit, its taxable income is zero and it does not pay IS. The deficit that remains to be carried forward to the end of the 2020 financial year is then €40,000.
If, in 2022, it achieves a profit of €60,000, its taxable income at the IS is then €20,000 (60 000 - 40 000). The deficit recorded in 2020, reduced from that already eliminated in 2021, is deducted from the 2022 profit.
Warning
the change in the tax system and the activity of the business result in the loss of the right to carry forward. For example, if a company to the commercial activity is transformed into a holding company, it changes its activity and it will not be able to remove the deficit of its previous activity on its present profit.
Carry-back
Carry-forward is permitted only on one profit, that of the previous year, and up to the smallest amount between the previous profit and €1 000 000. The option for carry-back covers all or part of the deficit, within the limit of the previous year's profit and the ceiling.
Exceptionally, the deficit generated by a financial year ended from 30 June 2020 to 30 June 2021 may be carried over to the last 3 previous financial years (i.e. to the financial years 2017, 2018 and 2019). The option may be exercised until the filing deadline of a fiscal year ended June 30, 2021 and at the latest on the assessment of the business tax due in respect of the fiscal year after the fiscal year for which the option is to be exercised.
This exceptional carry-over over over the last three financial years may even relate to profits recognized a posteriori following fiscal control. In practice, a company that received an assessment notice in 2023 for the financial years 2017, 2018 and 2019 can claim this additional deferral until 31 December 2025.
Please note
The deficit may also be carried over to profits recorded following a tax audit.
In order to opt for the carry-back of a deficit, the company must mention its request for the application of the carry-back in its income statement to the tax department of the companies of the company headquarters.
This possibility is at the line Deficit of the financial year carried back in one of the following tables:
- For the actual tax system, the table No. 2058 A
- For the simplified scheme, the table No. 2033 B
Without this reference, the deficit for the financial year is carried forward to subsequent financial years.
In addition, a Special Return No. 2039-SD must be filed with the IS balance statement. This must be done on the date of liquidation of the IS of the fiscal year in respect of which the option is exercised or on the declaration of results if the option occurs after the filing of the balance statement.
The option may not be exercised in respect of a financial year in which one of the following events occurs:
- Disposal of all the assets of the company or complete cessation of its activity
- Merging businesses
- Judgment pronouncing the judicial liquidation or judicial reorganization of the business
However, it is recognized that the acquiring company in a merger or beneficiary of a partial contribution of assets may carry forward the deficit recorded in respect of the financial year in which the operation took place.
Be careful, the basis on which the tax is levied shall be reduced by the following amounts:
- Long-term capital gains at reduced rates
- Distributions levied on profits
- Profits that led to the payment of tax by tax credits
- For the exercises closed as of december 31, 2021, profits that led to the payment of tax through tax reductions
- Exempt profits by the following schemes:
- Rural regeneration areas (ZRR) and areas France ruralities revitalization (FRR)
- Recovery of industrial business in difficulty
- Overseas Free Zones
- Urban basin to be energized (BUD)
- Buyback of a fraction of a company's capital by its employees
- Defense Restructuring Areas (DRZs)
- Arrangements for new companies
As the company has already paid the IS on the previous profitable year from which the deficit is subtracted, the carry-back results in a tax claim to the company. The amount is the excess tax on businesses after applying the carry-back of deficits.
The tax claim is not taxable for the purpose of determining the tax result for the year in respect of which it is recognized.
This claim may be used to pay the IS for the years ended within 5 years of the year of the end of the year in respect of which the option for carry-back was exercised. At the end of this five-year period, the company may request repayment of the debt that has not been deferred.
However, the time limit for repayment of that claim may be reduced where the business is the subject of safeguard, recovery or bankruptcy proceedings. In such cases, the debt may be repaid from the date of the judgment which initiated the proceedings.
Warning
The deficit can only be avoided by taxing the business itself. It is not possible to deduct it from the personal income tax return of the directors as a deduction for other income, if any.
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Determination of taxable profit