Luxembourg Tax Alert 2026-03

Luxembourg has enacted a 20% start‑up investment tax credit for individual investors, effective from the 2026 tax year, to channel private capital into young, innovative companies while setting clear eligibility and governance safeguards.

Under the Law of 19 December 2025, a new start‑up investment tax credit applies from the 2026 tax year. Resident individuals and eligible non-residents can claim a non-refundable 20% credit on qualifying cash subscriptions of at least €10,000 and with a maximum of €100,000 per taxpayer and per year. To qualify, the subscription must be to newly issued, fully paid-up, directly held registered shares or units of qualifying start-ups having a focus on innovation. A three-year holding period, as well as a 30% ownership cap and a ceiling of €1.5 million per entity apply.

Resident and assimilated non-resident (at least 90% of worldwide income is subject to tax in Luxembourg) individual taxpayers are eligible for the start-up tax credit for direct investments in new shares in the share capital of start-up entities, either at the time of incorporation or during a capital increase. To qualify for the credit, taxpayers must meet certain requirements and request the credit.

The measure lowers the after-tax cost of early-stage equity and can improve investor returns, while encouraging capital formation for young innovators. It will also influence deal timing (e.g., full cash payment by year-end) and governance, as start-ups must maintain eligibility and provide required confirmations.

To trigger the benefit of the new regime, one can expect that the definition of what is innovative enough and what is not will be one of the most important elements to consider.

To be considered to carry out innovative activities, an applicant must engage in an activity meeting the following criteria: (1) at least two persons working full-time for the entity at the end of the relevant financial year and (2) research and development (R&D) expenses representing at least 15% of total operating expenses (to be certified by an auditor or a chartered accountant) during at least one of the three financial years preceding the request (for existing entities) or during the first financial year (for newly established entities).

Beyond this, from a more procedural point of view, it shall be noted that, for the claim to apply in a given tax year, the subscription must be completed by year end and the start-up must issue the initial certificate within two months of the funds’ release. Investors who are not ordinarily assessed must opt in and will remain under assessment for the next three years. Unused credit is non-refundable and may be carried forward only to the following year, so early planning is advisable. It is also important to understand that the €1.5 million per‑entity cap is cumulative from incorporation and allocated by payment date, meaning early rounds and closing mechanics can constrain later investors’ eligibility.

 It should be noted finally that certain entities are not eligible for the start-up tax credit, including entities that are:

• In sectors that are considered not to have an innovative character (e.g., the construction sector);
• Venture capital companies (SICAR) ;
• Entities with securities traded on a regulated market;
• Established through a merger or division, distributed dividends or reduced share capital (except to offset losses);
• Subject to an unexecuted recovery order for illegal State aid;
• An undertaking in difficulty within the meaning of European Union legislation.

Investors should start by confirming the start-up’s age, size, and innovation profile, including any group-level tests, so there are no surprises later. With that groundwork in place, deal teams can shape allocations and closing mechanics to fit the legal rails, aiming for full cash payment by year‑end when a current‑year claim is desired. In parallel, finance and management should line up the required auditor or expert certifications and put a lightweight process in motion to issue the two statutory confirmations on time, while keeping an eye on filings and the three‑year holding clock. Taken together, these steps turn a compliance checklist into a funding advantage.

As always in tax matters, documentation will be key. Taxpayers must indeed attach specific supporting documents to their income tax return for the tax year for which the credit is claimed, including certifications by the start-up entity showing that it complies with the eligibility conditions, holding limit and investment cap.

In annual income tax returns for subsequent tax years, the taxpayer will have to provide the necessary information to verify compliance with the minimum holding period of three years. Failure to meet this minimum holding requirement will result in corrective taxation for the tax years in which the start-up tax credit was granted, except in case of bankruptcy of the entity concerned, or the taxpayer’s death, disability or incapacity to work.

We can handle every step from eligibility diagnostics and deal to cap table design. We can also model the tax credit and plan its utilization. We also cover cross-border assessments and compliant execution, including templates, filings, and tracking. Are you ready to become a business angel for the Luxembourg economy?