Luxembourg

Recent development - 2025

New tax measures to boost Luxembourg’s financial sector and start-up ecosystem

Encouraging investment in start-ups is the aim of Bill 8526, which was presented to members of the Finance Committee on Tuesday 20 May 2025.

The bill sets out the conditions under which investors may benefit from this tax measure:

• The start-up must be less than five years old, have its registered office in Luxembourg, and constitute a “permanent establishment”, meaning it must employ at least two full-time equivalent staff, but fewer than fifty. Its annual turnover must not exceed ten million euros. To ensure a degree of innovation, at least 15% of its expenditure must be dedicated to research and development. Law firms and companies operating in the real estate sector are expressly excluded from this scheme.
• The investor must hold the capital for a minimum of three years and must not have any direct employment relationship with the start-up, nor be its founder. The investment must exceed ten thousand euros but may not represent more than 30% of the start-up’s capital.
• The tax credit is set at 20% of the capital invested, capped at one hundred thousand euros per year.

This new start-up tax credit would apply as from the 2026 tax year.

In addition, the Luxembourg government is currently considering introducing a dedicated stock-option income tax regime for employees in Start-Ups and as well as a reform of the income tax regime of carried interest.

Real estate

Considering the continuous tension in relation to Luxembourg real estate, notably due to the high long-term interest rates that affect the borrowing capacity of households, the Law dated 22 May 2024 introduced new temporary measures in order to boost the housing market. These temporary measures were initially taken only for the tax year 2024. However, the following measures have been extended for an additional period of six months (i.e. until 30 September 2025).

If the deadline of 30 June 2025 is upheld, purchasers will simply need to register either a signed sales agreement or a signed reservation contract relating to a sale in future state of completion with the Administration for Registration, Estates and VAT (AED) by this date at the latest. The acquisition must then be formalised by a notarial deed executed between 1 July 2025 and 30 September 2025.

The tax measures covered by the draft law are as follows:

• A rental credit (“crédit d’impôt location”) on registration and transcription fees of 20,000 euros (EUR) maximum per individual investor (EUR 40,000 per couple investor) under specific conditions for all property acquisitions intended for rent.
• A 50% reduction in the taxable base for registration and transactions duties.
• Accelerated depreciation rate of 6% per year for the first sixth years following the building completion (“abatement immobilier spécial”) for individual who signed a deed “VEFA” (i.e., off-plan purchase) for buildings intended for rent.
• Taxation of capital gains on disposal at a quarter of the overall rate for property making part of the private wealth of the individual taxpayer.
• Exemption of capital gains in the event of transfer to properties used for social rented management or to residential buildings achieving an A+ energy rating.

The current tax credit (Bëllegen Akt) providing for an allowance on registration and transcription fees of EUR 40,000 per individual purchaser (EUR 80,000 per couple purchaser) for the acquisition of the main residence should become permanent beyond 30 June 2025, provided that Draft Bill 8540, presented to the Parliament on Tuesday 20 May 2025, is passed.

Since 1^st January 2024, passive interest in connection to the main residence are fully tax deductible within the Luxembourg personal income tax return for the year of the determination of the rental value and for the first year following the year of the determination of the rental value.

Adjustments to personal income tax (PIT) brackets

For employees, the PIT brackets have been adjusted by an equivalent of two and a half index tranches as of 2025, leading to a reduction of PIT as of 1 January 2024 (see the Taxes on personal income section).