As from tax year 2026, the start-up investment tax credit offers individual investors a 20% tax credit on qualifying equity investments in innovative young companies, effective from the 2026 tax year.
Eligible investors
- Resident individual taxpayers in Luxembourg; and
- Non-resident individual taxpayers assimilated to residents.
The eligible start-up
- Form: Is a capital company or cooperative, resident in Luxembourg or another European Economic Area (“EEA”) Member State, and fully subject to tax.
- Young: Has been incorporated for less than five years at the end of the relevant tax year.
- Small: Less than 50 employees and annual turnover or total assets below EUR 10 million.
- Engaged in an innovative activity: it employs at least two full-time equivalent persons and has devoted at least 15% of its total operating expenses to research and development (“R&D”) during at least one of the last three financial years (or during its first financial year if newly incorporated). R&D expenses taken into account include staff costs allocated to R&D activities and material costs used for R&D, both calculated on a pro-rata basis where applicable.
- Certification of the R&D threshold: The 15% threshold must be certified by an approved statutory auditor or a chartered accountant.
Eligible investment
The eligible investment consists of newly issued registered shares of an eligible start-up entity, subscribed either at incorporation or during a capital increase, and fully paid up in cash by the end of the relevant tax year. The investment base includes any share premium but excludes contributions to equity not remunerated by shares (“compte 115”). Holding shares through a fiscally transparent vehicle is treated as a direct holding, proportionally to the fraction held in the net invested assets of that vehicle. A minimum investment of EUR 10,000 per taxpayer per start-up is required. The investor must hold the shares for at least three years.
The eligible investment base is reduced or excluded in the following cases: (i) the portion of the investment that would cause the investor's shareholding to exceed 30% of the paid-up share capital of the start-up entity following the investment; and (ii) amounts exceeding a cumulative cap of EUR 1,500,000 of eligible investments per start-up entity, with priority determined by the date of full payment of the shares.
Amount of the tax credit
The tax credit amounts to 20% of the eligible investment. It is capped at EUR 100,000 per taxpayer per tax year. If the credit exceeds the income tax liability for the relevant year, the non-refundable excess may be carried forward to the immediately following tax year and offset against the tax liability for that year.
Excluded companies and investors
Are expressly excluded from the scheme law firms, audit and accounting firms, real estate companies, investment companies in risk capital (sociétés d’investissement en capital à risque), listed companies, companies resulting from mergers or demergers, those that have distributed dividends or reduced their capital (except to offset losses), companies subject to a state aid recovery decision, and companies in difficulty under EU law.
On the investor side, are excluded employees of the start-up, founders and any investor recording the investment as part of professional assets.
Practical aspects
The tax credit is to be claimed through the investor's tax return. Two separate certifications are required: (i) the certification of the 15% R&D expenditure threshold by an approved statutory auditor or a chartered accountant, as referred to above; and (ii) a certificate issued by the start-up entity confirming that all other required conditions are met.
In case of failure to comply with the minimum three-year holding period, the tax credit will be clawed back, except in cases of the start-up’s bankruptcy, or the investor’s death, disability, or permanent incapacity.
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