Luxembourg’s proposed 2027 Budget introduces a number of significant tax measures aimed at strengthening the country’s competitiveness, encouraging investment and simplifying certain administrative requirements.
Among the most notable proposals are a further reduction in corporate income tax, the introduction of unlimited tax loss carry-forwards, enhanced incentives for digital and sustainable investment and changes affecting the taxation of investment gains and carried interest.
Below, we consider some of the principal measures and their potential implications for companies, international groups and investors in Luxembourg.
Further Reduction in Corporate Income Tax
The proposed measures would reduce Luxembourg’s standard corporate income tax (CIT) rate by one percentage point. For companies with taxable income exceeding EUR 250,000, the CIT rate would decrease from 16% to 15%. Companies with taxable income of up to EUR 200,000 would see the applicable rate fall from 14% to 13%.
Taking the solidarity surcharge and Luxembourg City municipal business tax into account, the combined corporate tax rate for companies based in Luxembourg City would consequently decrease from 23.87% to approximately 22.80%.
This would follow the one percentage point reduction introduced in 2025 and represents a further step towards maintaining Luxembourg’s competitiveness as a jurisdiction for international businesses and investment structures.
Wider Implications for International Structures
The proposed reduction is relevant beyond the headline corporate tax rate. Certain Luxembourg tax provisions use a proportion of the domestic CIT rate when assessing the tax treatment of foreign subsidiaries.
For example, the participation exemption applicable to certain non-EU subsidiaries considers whether the subsidiary is subject to a tax comparable to Luxembourg CIT. The relevant effective tax threshold is currently 8%, representing half of the existing 16% CIT rate. If the proposed reduction is enacted, this benchmark would fall to 7.5% from the 2027 tax year.
The change could therefore have implications for the application of the participation exemption, certain withholding tax exemptions and the treatment of qualifying shareholdings for Luxembourg net wealth tax purposes.
Luxembourg’s controlled foreign company rules would also need to be considered in the context of the lower domestic tax rate, as these rules similarly reference the level of taxation that would have applied in Luxembourg.
For groups within the scope of the global minimum tax framework, the minimum effective tax rate remains 15%. The reduction in Luxembourg’s headline corporate rate would not alter that threshold. In-scope groups benefiting from exemptions or tax credits will therefore need to continue monitoring their Luxembourg effective tax position.
Unlimited Carry-Forward of Tax Losses
Another important proposal concerns the treatment of tax losses. At present, Luxembourg distinguishes between losses generated before and after 2017. Pre-2017 losses can be carried forward indefinitely, while losses arising from 2017 onwards are generally subject to a 17-year utilisation period.
The Budget proposal would remove this distinction for corporate income tax and municipal business tax purposes. As a result, losses generated from 2017 onwards would no longer expire after 17 years and could instead remain available until utilised.
The proposed change could be particularly relevant for businesses and investment structures with longer development or investment periods, where profitability may arise several years after establishment. This may include, for example, long-term investment platforms, infrastructure projects, real estate businesses and early-stage companies.
Increased Incentives for Digital and Sustainable Investment
The Budget also proposes enhanced tax incentives for qualifying expenditure connected with digital transformation and the ecological and energy transition. Under the proposed changes, the available tax credit for qualifying investments and operating expenditure would increase from 18% to 21%.
For qualifying tangible depreciable assets, the additional investment credit would rise from 6% to 9%. Together with the existing 12% global investment tax credit, this could result in a combined credit of 21% for qualifying expenditure.
The existing eligibility and certification requirements would continue to apply. For businesses considering significant investment in technology, automation, energy efficiency or environmentally focused infrastructure, the increased credits could make the Luxembourg investment tax credit regime more valuable from 2027.
Changes for Individual Investors and Carried Interest Holders
The Budget contains several proposals affecting the tax treatment of investment disposals by individuals.
Under the existing regime, gains realised by a Luxembourg tax resident on privately held investments within six months of acquisition can be treated as speculative gains and subject to progressive income tax rates. The proposal would extend this period from six months to 12 months.
Non-substantial shareholdings
For shareholdings of 10% or less, gains realised after the existing six-month period may currently fall outside Luxembourg income tax.
Under the proposed regime, investors would generally need to hold the shares for more than 12 months to benefit from this treatment. A disposal between months seven and twelve could therefore produce a different tax outcome from that applying under the current rules.
Substantial shareholdings
Different rules apply where an individual holds a substantial participation of more than 10%. Although gains on these interests may remain taxable, gains realised after the applicable speculative holding period can benefit from a reduced tax rate. Extending that period to 12 months would therefore delay the point at which this preferential treatment becomes available. The proposed changes may consequently make the timing of an investment disposal an increasingly important consideration for Luxembourg-resident individual investors.
Carried interest
The 12-month period would also be relevant to certain carried interest arrangements. Where participation-linked carried interest currently benefits from favourable treatment following a holding period exceeding six months, the proposal would extend the relevant holding period to 12 months.
Fund managers and other Luxembourg-resident individuals participating in carried interest arrangements should therefore consider the potential effect of the proposed rules on existing and future structures.
Simplification of Employer Reporting Requirements
The Budget contains a smaller but practical administrative change for employers. Employers would no longer be required to submit separate employee lists in connection with the profit-sharing bonus and Luxembourg’s impatriate regime where the necessary information is already being provided electronically through payroll reporting.
The measure is intended to reduce duplication and streamline the reporting obligations associated with these regimes.
What Happens Next?
These measures remain proposals and must proceed through Luxembourg’s legislative process before becoming law. The final legislation may therefore differ from the measures currently proposed. Businesses, investment structures and individuals potentially affected by the changes should continue to monitor the legislation as it develops and consider the implications for their Luxembourg structures and investment decisions.
