Following a motto of “Fir d’Leit. Fir Opschwong” (for citizens, for economic recovery), the Luxembourg government wishes to introduce several tax measures, affecting both companies and individual taxpayers, with the aim of bringing economic success and social harmony together.
The main proposals are summarized below.
As previously alluded to by the government, the CIT rate would decrease from 14% to 13% for taxable income of up to EUR 200,000, and from 16% to 15% for taxable income above EUR 250,000.
An intermediate formula would apply to income between those thresholds.
The 17-year carry-forward limit for losses, applicable to the tax losses incurred during financial years closed after 31 December 2016, would be removed for both CIT and Municipal Business Tax purposes. As a result, the tax losses can be carried forward indefinitely, provided that they were incurred during financial years closed after 31 December 1990.
The Investment Tax Credit (ITC) rate for investments and expenses related to digital transformation or ecological and energy transition, applicable since tax year 2024, would increase from 18% to 21%.
The ITC rate for investments in eligible tangible depreciable assets for digital transformation or ecological and energy transition would increase from 6% to 9% (which, added to the 12% of ITC for global investment, would result in an aggregate rate of 21%).
This measure would be extended by three years, namely until 31 December 2029.
Eligible employers hiring qualifying registered jobseekers may receive during a period of maximum 12 months a tax credit equal to 10% of the employee’s gross monthly remuneration, deductible as operating expense, subject to certain conditions.
The following main measures would apply as from tax year 2027
The personal income tax thresholds would rise by approximately 2.5% from tax year 2027. Under the proposed schedule, the 0% rate would apply to adjusted taxable income bracket up to EUR 13,565 in tax class 1 (EUR 27,130 in tax class 2), and the 42% marginal rate would apply above EUR 240,803 in tax class 1 (EUR 481,606 in tax class 2). The parameters of tax class 1a would be adjusted accordingly.
The period during which a disposal may be classified as giving rise to a speculative gain would be increased for resident individual taxpayers and non-resident (individual or corporate) taxpayers from six to twelve months.
For non-resident taxpayers, domestic taxation of speculative gains only applies to significant participations (more than 10% of the share capital).
The Bill also provides for corresponding changes concerning carried interest.
The Bill does not provide for any grandfathering rule for speculative gains for investments made in 2026, which would then be subject to tax if they are realized in 2027 (within 12 months).
Capital gains on the disposal of shares, by resident individual taxpayers, or certain non-resident (individual or corporate) taxpayers, after 12 months (instead of 6 months currently) following their acquisition, would remain taxable in Luxembourg, in the case of a significant participation (more than 10% of the share capital).
For non-resident taxpayers, domestic taxation may however be mitigated based on the provisions of the applicable Double Tax Convention.
The credit for employees, pensioners and self-employed individuals would increase from EUR 216 to EUR 240. The formula for reducing the credit as income rises would also be adjusted.
The flat-rate tax regime would be limited to gross hourly wages of no more than EUR 21, down from EUR 25. The personal tax rate would be 6.5% for wages up to EUR 19 per hour, and 8% for wages above EUR 19 and up to EUR 21 per hour.
Above EUR 21, the ordinary personal tax schedule would apply.
The child tax credit of EUR 922.50 per child, where the family benefits are shared, would be extended through tax year 2027.
The annual tax deduction for contributions into building societies saving schemes (« épargne-logement ») would be harmonized to EUR 1,344 per tax year per member of the tax household through tax year 2027. Age-based distinctions would no longer apply.
Considering that tax authorities can already identify beneficiaries through the salary-account extracts filed electronically by employers prior to 1 March of the following tax year, no separate notification to the tax authorities would be required anymore.
Employers would nevertheless remain required to provide electronically with the information needed to verify compliance with the conditions of the participative premium regime.
As from tax year 2026, a 6% accelerated depreciation rate (4% under the current regime) should apply to the construction of buildings/parts of buildings affected to rental housing, under the following conditions:
This measure is also applicable to renovations of already existing buildings/parts of buildings affected to rental housing under the same conditions, provided that the cost of the renovations exceed 20% of the reference value of the existing building/part of building.
Other depreciation rates remain applicable to rented-out buildings acquired/completed prior to 1 January 2026, notably the rate of 4% that was previously introduced.
On a sidenote, it should be highlighted that other incentives related to housing are foreseen by bills separate from the Budget bill, for instance:
Finally, a further welcome development is the announced tax exemption for the transfer of businesses by way of gift in the direct line or to a partner.
The measure reflects the Government’s intention to facilitate the succession of family-owned SMEs, support business continuity and preserve entrepreneurial activity across generations.
As the detailed legislative framework remains pending, taxpayers should await further guidance regarding the scope, eligibility criteria and practical application of the proposed regime.
The Bill now needs to follow the usual legislative process and may therefore be amended before its final adoption.
Though mostly beneficial, the impact of the foreseen measures will need to be assessed based on each taxpayer’s situation.
Our tax experts remain at your disposal to guide you and assist you with this process.
