2026 tax package introduces startup credits and social security increases
23 December 2025
At a glance
The Luxembourg Parliament adopted the 2026 State budget, marking a key step in the implementation of tax and social security measures effective from 2026. Following the State Council’s waiver of a second constitutional vote, the budget bill was formally enacted on 22 December 2025.
Alongside the budget, several related bills introducing tax and social security measures were approved in a first round of votes. Together, these measures aim to support purchasing power and strengthen the long-term sustainability of the social security system. Here is a snapshot of the main changes expected to apply as from 2026.
A closer look
On 17 December 2025, The Luxembourg parliament adopted, in a first vote, several bills including tax measures that would be effective as from 2026 as the State Council waived the obligation for a second vote on 19 December 2025 (Bill n°8526 creating a tax credit for investments in startups, Bill n°8546 on administrative cooperation, Bill n°8600 on the budget, Bill n°8633 on defense bonds, Bill n°8634 on pensions, and Bill n°8640 on certain tax adjustments linked to the pension reform). The budget bill (Bill n°8600) was subsequently voted and enacted on 22 December 2025. The draft bill on the carried interest regime has not been voted yet given the time needed to better define the potential beneficiaries, further to the request from the State Council. However, it is expected to be voted at the very beginning of 2026 and to still apply for fiscal year 2026, as initially foreseen.
The bills outline key fiscal and social security measures aimed at supporting purchasing power and ensuring the long-term sustainability of the social security system. Below is a summary of the main changes expected to apply as from 2026.
Taxation–Key measures for 2026
- Individual taxation: Preparatory work is continuing on the potential introduction of individual taxation, with a short-term objective of moving towards a single tax class as from the 2028 tax year. A draft bill is expected in 2026.
- A new tax credit for individuals investing in startups is introduced as from 2026. It amounts to 20% of the eligible investment and the tax credit cannot exceed EUR 100,000 per tax year. However, in case the amount of tax credit exceeds the taxes due, the unused portion of the cap may be carried forward. The conditions and mechanism are further described below.
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Startup tax credit |
Cumulative conditions |
Exclusions/limitations |
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Eligible startup entities |
An entity is eligible if: · It is a capital or cooperative company; · It has been established for less than five years; · It employs at least two but fewer than 50 employees; · Its annual turnover or balance sheet totals less than EUR 10 million; · It is a fully taxable resident of Luxembourg or of the European Economic Area (EEA). Additional conditions apply for EEA entities; and · 15% or more of its total operating expenses are incurred for research and development (R&D) in at least one of the three fiscal years before the tax year of the tax credit request. |
The following entities are not eligible: · Law firms, audit firms, accounting firms; · Companies primarily engaged in real estate, investment companies in risk capital (SICARs), listed entities, and those formed by merger or demerger of companies as defined in the Merger Directive; · Entities that have distributed dividends or reduced capital (except to offset losses); · Entities subject to unresolved EU recovery orders regarding state aid; and · Entities classified as “enterprises in difficulty” under EU Regulation 651/2014. A specific certification must be obtained from an approved auditor or chartered accountant regarding the number of employees and turnover/total balance sheet when the startup is part of a group of companies. |
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Eligible investments |
· The investment must be made through the acquisition of new, fully paid-up, nominative shares or units in the startup’s capital, either at incorporation or during a capital increase; · The investment must be held directly (or through tax transparent vehicles, proportionally); and · The minimum eligible investment per entity is EUR 10,000 per tax year.
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· Eligible investment must be capped at a 30% ownership threshold and a total of EUR 1.5 million per startup entity; · Only investments in share capital and share premium may be taken into account; and · Each investment must be held for a minimum of three years. |
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Eligible investors |
Eligible investors include only: · Luxembourg resident individuals; and · Luxembourg nonresident individuals who qualify for the assimilation as also qualifying (article 157ter Luxembourg Income Tax Law (LITL)) |
Employees and founders of the startup do not qualify (the government has announced that a draft bill regarding stock options for startups should be proposed to the Parliament in Q1 2026). |
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Compliance requirements |
· A certificate must be issued by the startup regarding the ownership cap and minimum investment threshold within two months; and · An additional certificate must be issued by the startup after year end to confirm that eligibility requirements are met for the full tax year. |
The minimum 15% of expenses incurred in R&D must be certified by an approved auditor or chartered accountant. |
- A new tax exemption on interests earned from certain state-issued bonds is introduced as from 2026. Interest received by Luxembourg resident individuals on qualifying government bonds is exempt from personal income tax, including under the 20% final withholding tax regime (so-called RELIBI law). To qualify, both the characteristics of the bond and the status of the bondholder must meet specified conditions.
On the bond side, the exemption is limited to bonds (i) issued in the legal form of a bond; (ii) issued by a sovereign state that, at the time of issuance, has the highest credit rating according to at least two major international rating agencies (Moody’s, S&P, Fitch, DBRS Morningstar, Scope Ratings, or Credit Reform Rating); (iii) denominated in euro; (iv) issued and subscribed between 15 January and 15 February 2026 (inclusive); and (v) with a three-year maturity. The regime is not restricted to Luxembourg state bonds; any state bond meeting these criteria may benefit.
On the investor side, the exemption is limited to Luxembourg tax resident individuals investing within the management of their private wealth. Legal entities, nonresident individuals, and resident individuals holding the bonds in the context of a professional activity (commercial, agricultural, forestry, or liberal professions) are excluded.
- Third-pillar pension contributions: The annual tax-deductible ceiling for contributions made under the private old-age pension scheme (third pillar) is increased from EUR 3,200 to EUR 4,500, with the aim of encouraging private retirement savings.
- Incentives to remain in employment until statutory retirement age: A new tax allowance is introduced for individuals who are eligible for early retirement but choose to remain in employment until the statutory retirement age of 65. Under this scheme, referred to as the employment retention rebate (“abattement de maintien dans la vie professionnelle”), eligible taxpayers may benefit from a reduction of up to EUR 9,000 per year (i.e., a maximum of EUR 750 per month) in their taxable income, provided they voluntarily defer retirement despite being entitled to it.
- The list of employees having benefited from the profit-sharing bonus (“prime participative”) will no longer have to be communicated to the tax authorities after each payment during a tax year but only once a year before 1 March of the year following the payment.
- A taxpayer separated from their partner with children in alternate residence may now request a tax credit (new article 123bis 1a LITL). Such taxpayer must share the parental authority and benefit from the family allowances.
Energy and environmental taxation
- As part of the implementation of Luxembourg’s updated National Energy and Climate Plan (NECP), the carbon tax rate is increased by EUR 5 per tonne of CO₂. Revenues generated from the carbon tax will continue to be allocated to climate protection and energy transition measures, as well as to social compensation measures for low-income households.
To help mitigate the potential impact of the carbon tax on low- and middle-income individuals, the CO₂ tax credit (CI-CO₂) is increased by EUR 24, raising the maximum total credit from EUR 192 to EUR 216 as from 1 January 2026.
- Moreover, the depreciation rate is increased from 6% to 10% for certain eligible investments regarding sustainable energy renovation in real estate used for rental accommodation to the extent they have been completed less than nine years ago (article 32 ter (3) LITL). A specific definition of eligible investment is included in the law and notably refers to those who could have benefited from financial support pursuant to article 4 of the law dated 23 December 2016 and to those who would benefit pursuant to article 3 of the new law derived from draft Bill n°8585.
Social security–Key measures
- Statutory retirement age: Maintained at 65 years.
- Early retirement conditions: As from 1 July 2026, early retirement at age 60 will require a gradual extension of the mandatory contribution period by a total of eight months. This will be implemented as one additional month in 2026 and 2027, and two additional months per year from 2028 to 2030, while retaining the current early retirement conditions from age 57.
- Contribution rates: The social security contribution rate for pension will increase from 24.0% to 25.5%, corresponding to an increase from 8.0% to 8.5% per party (employee, employer, and state) as from 2026 and until 2032.
- The pension system is scheduled for a further review in 2030.
Exchange of information
- In line with several laws already adopted to improve communications between tax and administrative bodies, another exchange of information is implemented between the Luxembourg direct tax authorities and the real estate tax authorities (“Administration du cadastre et de la topographie”). The purpose of this change is to anticipate the real estate tax reform and to give to the real estate tax authorities the means to update the land register.
- An amendment to the law of 25 November 2014 regarding the exchange of information on request relating to tax matters (as amended) is made to accommodate the situation of lawyers pursuant to a decision from the European Court of Justice (C-432/23). The amendment limits the possibility of an injunction decision in certain cases.
Miscellaneous
- The law regarding private wealth management companies (SPFs) has been adapted to the evolution of the company law; SPFs may now be organized as simplified joint-stock companies (“sociétés par actions simplifiées”).
Julien Lamotte
