Key changes to the Luxembourg tax landscape in 2026

This update summarises the principal key measures introduced by the 2026 Budget Law enacted on 22 December 2025.

Individual and corporate taxation

Strengthening of tax incentives law

To support private retirement savings, the Budget Law significantly enhances the tax deductibility of pension contributions:

• The annual deduction ceiling is increased from EUR 3,200 to EUR 4,500 per taxpayer as from the 2026 tax year;
• For jointly taxed couples, this raises the total potential deduction to EUR 9,000 per year.

Tax allowance for continued professional activity before retirement

The Budget Law also introduces a new tax allowance (Abattement de Maintien dans la Vie Professionnelle (AMVP)):

• applicable to taxpayers who qualify for an early old‑age pension and voluntarily continue working until age 65;
• providing for a reduction in taxable income of up to EUR 9,000 per year (capped at EUR 750 per month).

Introduction of a tax credit for investment in innovative start‑ups

The Budget Law introduces a new Start‑up Tax Credit for individual investors:

• 20% tax credit on the amount invested;
• annual cap of EUR 100,000 per taxpayer;
• applicable to investments in qualifying innovative companies established for less than five years, employing fewer than 50 employees and with annual turnover or balance sheet total not exceeding EUR 10 million.

Modernisation of the carried interest tax regime

The Luxembourg Budget Law 2026 refers to the reform of the carried interest tax regime as part of the Government’s 2026 tax agenda. The reform itself will be implemented through a separate law. (Luxembourg reforms Carried Interest Tax Regime)

Defence Bonds

As part of the 2026 Budget measures, Luxembourg has issued dedicated defence bonds with a fixed annual interest rate of 2.25 % and a three‑year maturity. For Luxembourg‑resident individuals, interest income benefits from a full income tax exemption, making the instrument particularly attractive on an after‑tax basis. The issuance, capped at EUR 150 million, has been fully allocated in less than one day following its launch in January 2026.

International taxation and EU developments

Pillar Two – minimum effective taxation

The Budget Law reaffirms Luxembourg’s continued implementation of OECD / EU Pillar 2 rules, which introduce a 15% minimum effective tax rate for multinational and large domestic groups with consolidated revenues exceeding EUR 750 million.

As part of the operational implementation of Pillar 2, the Luxembourg Government has made available the GloBE / top‑up tax information return and clarified the related filing obligations through the Luxembourg tax authorities. The reporting process is carried out digitally via MyGuichet.lu.

Public Country‑by‑Country Reporting

In line with recent EU transparency initiatives, Luxembourg has implemented the Public Country‑by‑Country Reporting regime, requiring in‑scope multinational groups to publicly disclose key tax and financial information on a country‑by‑country basis. For calendar‑year groups, financial year 2025 represents the first reporting period, with publication obligations arising in 2026.

Conclusion

Luxembourg’s tax landscape continues to evolve through a series of targeted measures addressing retirement savings, investment incentives, environmental taxation and international tax compliance. At the same time, broader structural changes—particularly in the area of individual income taxation—are still under consideration and are expected to progress through separate legislative initiatives as policy work develops.