On 8 October 2025, the Luxembourg Minister of Finance presented the 2026 budget (the “Budget Law”) oriented towards growth and social cohesion. The Budget Law provides for significant investments in innovation and infrastructure. On the tax side, it sets the 2026 agenda and has been complemented by further announcements and legislative action.
Competitiveness
Tax credit for investment in startups by individuals
A draft law was introduced on 4 April 2025 providing for a tax credit of up to EUR 100,000 for individuals investing in innovative startups (see our article on latest developments) with entry into force planned for 2026. An additional tax measure has been announced to further stimulate investments in startups by individuals.
Overhaul of the carried interest tax regime
A draft law was introduced on 24 July 2025 enhancing the Luxembourg carried interest regime providing clearer and attractive conditions (see our previous newsflash) with entry into force planned for fiscal year 2026.
Double tax treaties network
The Government announced its intention to further develop the Luxembourg double tax treaty network to bring the Luxembourg double tax treaties to 100 (currently 86 treaties are in force).
OECD and EU initiatives
Luxembourg will continue its involvement in ongoing EU and international tax reforms including Pillar 1 and 2. The development of the EU capital markets also represents a key opportunity for Luxembourg.
New investment vehicle
The Minister of Finance has announced the introduction of a real estate investment trust.
Individuals
A single tax class for individuals
A key measure in the 2023-2028 governmental coalition program for individuals’ taxation is the introduction of a single taxation class. This would replace the current three-class system which relies on the personal situation of the taxpayer. According to current governmental plans, a draft law should be filed in 2026 with entry into force on 1 January 2028. A 20-year transition period should allow taxpayers currently benefiting from class 2 to maintain their current taxation class.
Pension system reform
On 3 September 2025, the Luxembourg government and social partners agreed on reforming certain aspects of the Luxembourg pension system. While the legal retirement age is maintained at 65, early retirement age will gradually be increased as from 2026. The reform also includes an increase of pension contributions from 24% to 25,5% as from 2026. Draft Law No. 8634 has been submitted to the Luxembourg Parliament (Chambre des Députés) on 10 October 2025 introducing amendments to the pension regime.
On 15 October 2025, the Government submitted Draft Law No. 8640 to the Luxembourg Parliament (Chambre des Députés) introducing dedicated tax measures effective from fiscal year 2026. First, an increase from EUR 3,200 to EUR 4,500 per year of the tax-deductible amount for contributions to eligible personal pension savings schemes. Second, to provide an incentive for individuals eligible for early retirement to maintain professional activity, a new tax deduction of EUR 9,000 per year (granted monthly) will be available. This tax deduction would be granted until the statutory retirement age of 65 is reached.
Other measures
The Budget Law also includes:
- The revaluation coefficients applicable to the acquisition price of certain assets upon disposal or liquidation, designed to remove monetary gains, will be updated for fiscal year 2026.
- An increase of the maximum CO2 tax credit for individuals (employees, retirees and self-employed) from EUR 192 to EUR 216 effective from fiscal year 2026.
- Excise duties on tobacco are generally increased as from 1 January 2026.
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