Are there tax benefits for startups in Luxembourg?

Corporate Tax Structure

To understand the tax incentives, it is first necessary to examine the basic tax scale, which in itself constitutes a competitive advantage. In Luxembourg, corporate taxation consists of three tiers: corporate income tax (CIT), municipal business tax (MBT) and a contribution to the solidarity fund. Since 1 January 2025, tax legislation has undergone significant changes aimed at reducing the overall tax burden on businesses.

Until 2025, the standard CIT rate for companies with an income exceeding €200,000 was 17%. New legislation has lowered this threshold, making the jurisdiction more attractive for growing start-ups entering the scaling and profitability phase.

The reduction of the aggregate tax rate to 23.87% in the capital is an important signal to the market. For start-ups with low turnover (up to €175,000), the effective tax rate will be even lower, allowing them to reinvest more resources into product development in the early stages.

Simplification of the net wealth tax

Luxembourg is one of the few countries that has retained the net worth tax (NWT). However, in 2025, the system was reformed to resolve constitutional uncertainties and simplify calculations. The minimum NWT is now linked solely to the company’s total balance sheet, which facilitates financial planning for start-ups that may have significant assets (such as raised investment) but are not yet generating a profit.

• For companies with a balance sheet total of up to €350,000, the minimum NWT is €535. 1
• For companies with a balance sheet total of between €350,001 and €2,000,000, the tax amounts to €1,605.
• If the balance exceeds €2,000,000, the tax amounts to €4,815.

This reform replaces the old progressive tax scale and makes tax liabilities more predictable.

Intellectual property regime

One of the most powerful tools for tech start-ups is the ‘IP Box’ scheme. Under Article 50ter of the Income Tax Law (LITL), Luxembourg offers an 80% tax exemption on net income derived from the exploitation of certain intellectual property rights.

The tax relief does not apply to the company’s entire profit, but only to income derived from qualifying assets. These include patents, utility models and—particularly important for start-ups—software protected by copyright.

To comply with OECD international standards, Luxembourg employs the ‘Nexus approach’. The essence of this approach is that the tax benefit must be proportional to the company’s actual research and development (R&D) expenditure incurred specifically in Luxembourg.

Tax credit for investors in start-ups

On 1 January 2026, a new law (based on Bill 8526) came into force in Luxembourg, introducing a tax credit for individuals investing in young, innovative companies. This scheme is designed to encourage the inflow of private capital into the ecosystem and to support business angels.

The tax credit amounts to 20% of the total investment. This is a direct deduction from the investor’s income tax liability, rather than merely a reduction in the tax base, which makes the incentive extremely advantageous.

The investor must be a resident of Luxembourg or a non-resident treated as such. An important restriction: the tax relief does not apply to the founders of the start-up or its employees – it is designed specifically for external private investors.

Government grants and subsidies

Tax incentives are only part of the support package. Luxembourg actively employs mechanisms for direct, non-dilutive financing through its national innovation agency, Luxinnovation, and the Ministry of the Economy.

Young Innovative Enterprise (YIE) status

Companies granted this status are eligible for co-funding of up to 70% of their costs for a period of up to three years. The maximum amount of aid is capped at €1 million. To qualify for this status, companies must demonstrate the innovative nature of the project and the risk of technological failure, as well as confirm that R&D expenditure exceeds 15% of the operating budget.

The Fit 4 Start Accelerator Programme

Fit 4 Start is one of Europe’s best-known programmes for early-stage start-ups in the fields of digital technology, space and healthcare (HealthTech). Participants gain access to a grant of up to €150,000, which is paid out in stages. In addition to the funding, start-ups receive six months of intensive coaching and a free workspace in a co-working hub.

Tax incentives for investment in digital technology and the environment (ITC)

Since 2024, Luxembourg has had an updated Investment Tax Credit (ITC) scheme in place. It is aimed at companies of all sizes, but is particularly beneficial for start-ups upgrading their production facilities or implementing new IT solutions.

The new scheme provides for a tax credit of 18% on investments and operating costs related to digital transformation or the environmental transition.

To obtain this credit, you must first apply to the Ministry of Economy for a certificate of compliance. The credit is deducted from corporation tax, and any unused balance may be carried forward for the next 10 years.

Tax incentives for employees

Start-ups are often unable to pay market-rate salaries on a par with large organisations, which is why Luxembourg has introduced schemes that allow employees to take home more through tax exemptions.

The Impatriate Scheme

Since 2025, the procedure for applying this scheme has been significantly simplified. Foreign specialists employed in Luxembourg can now benefit from a 50% income tax exemption on their annual salary (up to €400,000) for a period of eight years.

The main requirement is that the employee’s salary must be at least €75,000 per year. This scheme enables start-ups to attract top talent from around the world.

Profit-sharing bonuses (Prime Participative)

Companies may pay employees bonuses linked to the financial results for the year. 50% of such a bonus is exempt from tax at the employee level. From 2025, the limit on such payments will be 30% of an employee’s annual salary (previously 25%), provided that the total amount of bonuses within the company does not exceed 7.5% of the previous year’s profit.

Industry-specific characteristics

Luxembourg is making targeted investments in specific sectors, providing additional support in those areas.

How do I claim these benefits?

Most administrative procedures in Luxembourg have been digitised. The main channel for interacting with the government is the MyGuichet.lu portal.

An important condition for receiving any form of assistance is the ‘incentive effect’: the application must be submitted before the project has actually commenced. If a company has already purchased equipment or begun development work, it loses its eligibility for a grant for that part of the project.

Furthermore, Luxembourg strictly monitors economic substance. A start-up must have a physical office, staff, and make management decisions within the country. Simply registering a registered office will not grant access to tax breaks and subsidies.