Luxembourg Budget 2027

On 7 October 2026, Luxembourg Finance Minister Gilles Roth presented the 2027 budget (Bill No. 8800) under the banner "Fir d'Leit. Fir Opschwong." ("For citizens. For the upswing."). Against a reduced growth at the European level and continuing geopolitical uncertainty, the Government has chosen a "counter-cyclical" approach. The 2027 budget proposal (the "Budget Bill") promises investments at record levels and support for businesses and households, while keeping public finances under control.

For businesses, the measures presented for 2027 combine a further reduction in corporate income tax, greater flexibility for tax losses and stronger incentives for digital and energy-transition investment. At the same time, the Government intends to encourage longer-term investment, including through a longer holding period for the taxation of certain capital gains on assets.

The Minister also mentioned the forthcoming stock-option framework, contained in Bill No. 8782 filed on 1 July 2026, which is expected to apply to options granted from 2027 if enacted in its current form.

Key business tax measures for 2027

A further reduction in corporate income tax

The 2027 budget proposes to decrease the corporate income tax (CIT) rate by one percentage point from tax year 2027. The standard rate would fall from 16% to 15%, while the reduced rate would decrease from 14% to 13%. The 13% rate would apply to taxable income up to €200,000 and the 15% rate above €250,000, with an intermediate formula applying between those thresholds.

For a company established in Luxembourg City, the aggregate corporate tax rate (including the employment fund surcharge and the municipal business tax, MBT) would consequently fall from 23.87% in 2026 to 22.80% in 2027. The Minister expressly presented this reduction as part of the Government's policy of keeping Luxembourg attractive for businesses, talent and investment.

Indefinite carry-forward of tax losses

The Budget Bill would abolish the current 17-year limitation applicable to the carry-forward of tax losses generated in financial years closed after 31 December 2016. The change would apply for both CIT and MBT purposes. Losses from financial years closed between 1 January 1991 and 31 December 2016 are already available for carry-forward without time limitation. As a result, from tax year 2027, losses incurred in financial years closed after 31 December 1990 would be available for indefinite carry-forward.

Stronger incentives for digital and energy-transition investment

The investment tax credit for investments and expenses linked to digital transformation and the ecological and energy transition would also be strengthened. The rate would increase from 18% to 21%. For eligible tangible depreciable assets, the specific component would rise from 6% to 9%, resulting in an aggregate rate of 21% when combined with the 12% credit for global investment.

These tax incentives are part of a wider effort to support technological and energy transition. They are combined with substantial public investment in digitalisation, data, artificial intelligence, quantum technologies and research.

A longer holding period for certain capital gains on movable assets

Alongside these taxpayer-friendly measures, the Budget Bill proposes to extend from six to twelve months the period during which capital gains on movable assets may be treated as speculative gains. It clarifies that the objective is to support "investment, not speculation", and to push forward longer-term investment.

The change is relevant for resident individual taxpayers and certain non-resident taxpayers. For non-residents, Luxembourg domestic taxation currently applies in relation with significant participations, and the application of a double tax treaty may restrict Luxembourg's taxing right. The Budget Bill does not provide in its current form for any grandfathering rule for investments made in 2026 which are realised in 2027 within the new twelve-month period.

Other measures relevant to businesses

The Budget Bill would also extend the tax credit for the hiring of qualifying registered jobseekers for three years until 31 December 2029. Subject to conditions, qualifying employers may benefit for a maximum period of twelve months from a tax credit equal to 10% of the employee's gross monthly remuneration.

The Minister also announced that transfers of businesses by gift in the direct line or to a partner would benefit from a tax exemption, with the stated objective of facilitating business succession and safeguarding the future of small and medium-sized enterprises. The detailed legislative framework for this measure remains pending and is not included in the Budget Bill.

Spotlight: a new tax framework for employee stock options

The Budget speech also highlighted the proposed introduction, from tax year 2027, of a new legal framework for stock options, particularly for innovative businesses. Bill No. 8782, introduced on 1 July 2026, pursues two related objectives: creating a specific tax regime for employee stock-option plans of young innovative companies and clarifying the ordinary tax treatment of employee option plans more generally.

Why a specific regime for young innovative companies?

The explanatory memorandum to Bill No. 8782 identifies access to talent as a particular challenge for start-ups and scale-ups. During their early and growth phases, these businesses may have limited liquidity and may be unable to offer cash remuneration comparable to that offered by established companies. Employee equity plans are therefore seen as a way to supplement remuneration and to align employees' interests with the growth of the company.

The proposal is also presented as part of a broader strategy to reinforce Luxembourg's competitiveness and to diversify the economy. It follows the start-up tax credit introduced in 2025 and refers to parallel initiatives at EU level.

How would the preferential regime work?

Under the proposed preferential regime, set out in a new article 100 bis of the Luxembourg Income Tax Law ("LITL"), the only taxable event would be the disposal of the shares acquired through the exercise of the options. Neither the grant nor the exercise would trigger any tax liability. At sale, taxable income would equal the sale price minus the amount paid by the employee to acquire the shares at exercise.

Therefore, the design postpones the effective tax charge until the employee disposes of the shares. The explanatory memorandum identifies that it should avoid a tax charge at exercise when the employee has not yet received cash as well as the difficulty and cost of valuing an unrealized gain in an unlisted young business.

Who would qualify?

The proposed regime would apply to qualifying fully taxable employer entities satisfying a series of size, age and innovation conditions.

-  It must be a fully taxable entity

-  The entity must have been incorporated for less than ten years

-  It must employ fewer than 150 employees

-  Its balance sheet total or annual turnover must not exceed €30 million

-  It must carry out an innovative activity. The Bill requires, among other things, at least two full-time equivalent persons working for the entity and R&D expenditure representing at least 15% of operating expenses in at least one of the three financial years preceding the grant date

-  Certain sectors and categories of entities, including law firms, SICARs and real estate businesses, would be excluded from the preferential regime

The plan and the employee must also meet specific conditions. The options must be non-freely negotiable and must give the employee a right to subscribe for or acquire actual equity interests in the employer or another group entity. The employee must receive employment income from the employer and must not hold, directly or indirectly, more than 25% of the capital, voting rights or profit rights of the employer or another group entity, either on the grant date or during the preceding 24 months. The options must not be granted in substitution for all or part of the employee's annual remuneration.

The ordinary regime would also be clarified

Bill No. 8782 would not only introduce the preferential regime but would also codify, under new articles 104bis and 104ter of the LITL, the ordinary treatment of employee option plans, with the stated aim of improving legal certainty and readability following the withdrawal of the former administrative circular.

Under the proposed ordinary rules, freely negotiable options would generally give rise to employment income at grant, whereas non-freely negotiable options would generally be taxed at exercise. For shares obtained on the exercise of non-freely negotiable options and subject to a qualifying lock-up period, the Bill provides for a flat-rate discount of 5% for each year of lock-up, capped at 20%, subject to the conditions and reporting requirements set forth in the Bill.

What happens next?

The 2027 Budget Bill must now proceed through the Luxembourg legislative process and may be amended before adoption. Bill No. 8782 follows a separate parliamentary track and likewise remains subject to change. Businesses should therefore monitor the final legislation and assess the potential impact of the measures relevant to their activities and remuneration arrangements ahead of 2027.