Effective 1 January 2026, Luxembourg has introduced a new “start-up tax credit” aimed at encouraging private investment in early-stage companies. Eligible individual investors may claim a tax credit equal to 20% of a qualifying investment, subject to a minimum investment of EUR 10,000 and a maximum credit capped at EUR 100,000 per taxpayer per year.
A number of conditions must be fulfilled for a business to qualify as a start-up:
Investors must meet several requirements to benefit from the tax credit:
The tax credit is available to Luxembourg tax residents and to qualifying nonresidents assimilated to Luxembourg tax residents (under article 157ter of the Luxembourg Income Tax Law.) The credit must be claimed through the annual income tax return and may only offset the taxpayer’s final tax liability. Any unused amount may be carried forward to the following year.
The Minister of Finance has announced a upcoming bill addressing stock options for start-ups, further strengthening Luxembourg’s start-up ecosystem.
Sylvie Leick
BDO in Luxembourg
Conditions Applicable to Start-Ups
A number of conditions must be fulfilled for a business to qualify as a start-up:
- The entity must be incorporated as a capital company or cooperative entity (e.g. SA, Sàrl, SAS, SCA) and be established in Luxembourg, or have a Luxembourg permanent establishment if resident in another EEA country.
- The company must be less than five years old as of 31 December of the tax year for which the credit is claimed.
- The start-up must employ fewer than 50 people and have annual turnover or a balance sheet total below EUR 10 million. Additional rules apply where the start-up belongs to a group.
- The company must demonstrate its “innovative nature.” At least 15% of operating expenses must relate to R&D activities (e.g., R&D personnel costs, or equipment expenses). This threshold must have been met at least once in the three years preceding the relevant tax year and certified by an auditor or chartered accountant. Certain sectors and activities are explicitly excluded from the regime.
- At least two individuals must be working for the start-up at year-end. These individuals may include the company manager, but not external consultants.
Conditions Applicable to Investors
Investors must meet several requirements to benefit from the tax credit:
- Eligible investments include contributions made at incorporation or through subsequent capital increases. Indirect investments made through transparent entities (e.g., partnerships (SCS, SCSp), civil companies) also qualify.
- Shares must be held for at least three years following the year of investment. Early disposal may trigger a corrective tax adjustment, subject to limited exceptions.
- Founders and employees of the start-up are not eligible for the credit.
- If an investor’s participation exceeds 30% of the share capital, the tax credit is limited to the portion corresponding to a 30% participation.
- The total amount of investments benefiting from the tax credit in a single start-up may not exceed EUR 1.5 million over the company’s eligible lifetime.
Practical Aspects and Outlook
The tax credit is available to Luxembourg tax residents and to qualifying nonresidents assimilated to Luxembourg tax residents (under article 157ter of the Luxembourg Income Tax Law.) The credit must be claimed through the annual income tax return and may only offset the taxpayer’s final tax liability. Any unused amount may be carried forward to the following year.The Minister of Finance has announced a upcoming bill addressing stock options for start-ups, further strengthening Luxembourg’s start-up ecosystem.
Sylvie Leick
BDO in Luxembourg