On 7 October 2026, the Government presented the State budget for 2027, with tax measures aimed at supporting businesses with a cut in corporate tax rate and a clear orientation towards investment. Most of the measures are set out in draft law No. 8800 on the 2027 budget (the “Draft Budget Law”) filed before the Luxembourg Parliament (Chambre des Députés) on the same date. Some were only announced in the budget speech or the budget documents with separate draft legislation to follow.
Companies, enterprises and investors
Legislative measures – corporate taxation
Corporate income tax (“CIT”) rate reduction as from tax year 2027: The CIT rate will be decreased by one percentage point:
- the 14% rate, applicable to companies with a taxable profit not exceeding EUR 175,000, is lowered to 13% and now applies up to EUR 200,000 of taxable profit;
- the 16% rate, applicable to a taxable profit exceeding EUR 200,000, is lowered to 15% and now applies to a taxable profit exceeding EUR 250,000;
For a company with its registered seat in Luxembourg-City, the aggregate rate (including the employment fund surcharge and the municipal business tax) with an annual taxable profit above EUR 250,000 would be 22.80% instead of 23.87% since 2025. This follows the one-point cut applicable from tax year 2025 and is aligned with the governmental coalition programme to bring the Luxembourg CIT closer to the OECD average of 23.6% and to the EU average of 21.2% (see our Newsflash of 18 July 2024).
Unlimited carry forward of losses as from tax year 2027: The carry-forward of losses is currently limited to 17 years, except for losses of financial years closed between 1 January 1991 and 31 December 2016, which are deductible without time limit. The Draft Budget Law removes the 17-year limit, so that losses of financial years closed after 31 December 1990 can be carried forward without time limit as from tax year 2027.
Investment tax credit (“ITC”) increase as from tax year 2027: The ITC for investments and operating expenses made for the digital transformation or the ecological and energy transition of businesses (Article 152bis, § 3 of the Luxembourg income tax law or “LITL”) is granted on the basis of a certificate, provided that the conditions of the regime are met. It currently amounts to 18% of the investments and operating expenses covered by the certificate and to 6% for tangible depreciable assets; for those assets, it is added to the 12% global ITC (§ 7), where eligible, which brings the total to 18%. The Draft Budget Law intends to raise these two rates to 21% and 9% respectively, so that the total for tangible depreciable assets would reach 21% (9% plus 12%). For the conditions and the procedure, please see our Newsflash dedicated to the ITC.
Legislative measures – capital gains taxation for resident and non-resident investors
Extended holding period for capital gains on movable assets as from tax year 2027: Under Article 99bis LITL, a gain realised on assets other than real estate within six months of their acquisition is fully taxable as speculation gain. Article 100 LITL provides for a separate regime for the disposal, more than six months after acquisition, of a substantial participation, i.e. a direct or indirect holding of more than 10% in a company at any time during the five years before the disposal. The Draft Budget Law extends the six-month period to 12 months for speculation gains. It also extends to 12 months the period beyond which the carried interest linked to a participation in an alternative investment fund is no longer taxable (Article 99bis, 1a, No. 2, subject to Article 100), and for non-resident capital gains taxation on shares representing an important participation in a Luxembourg company (Article 156, No. 8, a LITL). It aligns the period in Article 100 LITL accordingly, so that the disposal of a substantial participation within 12 months by a resident taxpayer would fall under speculative gains tax regime. The budget speech presents the measure as a clearer support for long term investments instead of speculation. For Article 100, the taxation and its modalities remain unchanged.
Stock options: Draft law No. 8782, which would introduce a specific tax regime for stock option plans of young innovative companies, is still under legislative process (please see our dedicated Newsflash).
Announcement on tax-exempt business transfer
In the part of the budget speech dedicated to the support of small and medium-sized enterprises and crafts, described as the backbone of the economy, the Government announced that the transfer of a business by donation in direct line or to the partner will be tax-exempt, in order to secure the future of these businesses. Conditions and modalities remain to be specified, and the forthcoming legislative developments should be monitored as draft legislation on this specific measure is not yet available.
Individuals
Legislative measures – personal income tax
Tax scale adjusted to inflation as from tax year 2027 by one additional index bracket, which in principle means multiplying the brackets by 1.025. The scale would remain progressive from 0% to 42%: the 0% bracket would cover taxable income below EUR 13,565 (EUR 13,230 today) and the 42% rate would apply above EUR 240,803 (EUR 234,870 today). The tax scale applicable to tax class 1a is adjusted accordingly.
Increase of the CO2 tax credit (crédit d’impôt CO2, “CI-CO2”) as from tax year 2027: for employees, pensioners and self-employed persons, the CI-CO2 would rise from EUR 216 to EUR 240 per year. The full amount would be granted for gross income between EUR 936 (EUR 300 for pensioners) and EUR 40,000, then decrease gradually and no longer be granted from EUR 80,000. The parliamentary documents link the increase to the rise of the CO2 tax on 1st January 2027.
Tax credit for children in shared custody: A child tax bonus (bonification d’impôt pour enfant) may be claimed for a child living alternately with two parents who jointly exercise parental authority and both receive the family allowance; the claim is currently possible for tax years 2025 and 2026. The Draft Budget Law extends it to tax year 2027, other conditions being unchanged.
Minimum wage tax credit (crédit d’impôt salaire social minimum, “CISSM”): Draft Law No. 8775, implementing the tripartite agreement of 8 June 2026 (“Resilienzpak 2026”), would raise the CISSM from EUR 81 to EUR 179 per month from 1 January 2027, then to EUR 200 per month from 1 July 2027, for gross monthly wages between EUR 1,800 and EUR 3,000. Together with the 3.8% increase of the unskilled minimum wage on 1 January 2027, the aim is to keep the tax burden at zero for a class 1 taxpayer earning that wage and to increase their net purchasing power by about EUR 200 compared with June 2026.
Cost-of-living tax credit (crédit d’impôt conjoncture): For tax year 2026, Draft Law No. 8775 would retroactively reintroduce a temporary credit for employees, pensioners and self-employed persons for the period from 1 June to 31 December 2026. It broadly corresponds to a fictitious adjustment of the tax scale by one index bracket, ahead of the actual adjustment from 1 January 2027. For employees and pensioners, it is calculated on gross monthly income (from EUR 1,125, up to EUR 27.13 per month above EUR 14,916) and paid by the employer or the pension fund while self-employed persons receive it upon assessment.
Real estate and housing
The Draft Budget Law includes real estate measures: it increases the accelerated depreciation of rental housing from 4% to 6% under conditions, with effect from tax year 2026. Other housing measures are contained in separate draft laws: Nos. 8806, 8807 and 8836, which follow the package announced on 16 July 2026, and No. 8775, which sets a uniform ceiling of EUR 1,344 for tax deductible housing savings contributions from tax year 2027. Further measures remain at the announcement stage (8% VAT rate for social housing, Housing Bond, withholding tax on real estate capital gains).
Please see our Newsflash to real estate measures for more details.
Excise duties and carbon
Legislative measures – tobacco, alcohol, energy
The Draft Budget Law intends to introduce the following changes as from 1 January 2027:
- Tobacco: raise the legal ceilings of the autonomous excise duty for cigarettes (ad valorem part from 20% to 30%) and fine-cut tobacco (ad valorem from 10% to 20%; specific part from EUR 35 to EUR 50 per kilogram). The effective rates are set by grand-ducal regulation.
- Alcohol: raise the consumption tax on ethyl alcohol from EUR 900 to EUR 1,037.4958 per hectolitre of pure alcohol.
- CO2 tax: raise the legal ceilings to allow a maximum carbon price of EUR 55 per tonne of CO2.
- Biofuels: raise the biofuel and renewable energy obligation in transport from 9% to 9.20% for 2027, in line with the national energy and climate plan.
Announcements
- CO2 tax: the budget documents envisage a rate of EUR 50 per tonne in 2027 (EUR 45 in 2026); the European system for buildings and road transport (ETS2) is expected from 2028.
- Fuel prices: the temporary reduction of fuel prices under the Resilienzpak expires in 2027.
Takeaways
The Draft Budget Law and recent legislative measures provide for a significant enhancement of the tax environment for companies and individuals, notably with lower corporate income tax rates and an adjustment of the tax scale to inflation.
- Companies: main CIT rate would be reduced from 16% to 15% as from 2027 and the investment tax credit rates would increase, in particular for investments in digital transformation and the ecological and energy transition.
- Individuals: the tax scale would be adjusted by one additional index bracket as from tax year 2027 accompanied by several targeted measures for lower wages.
- Context: the Draft Budget Law is part of a broader set of measures, including those of the tripartite agreement of 8 June 2026 (“Resilienzpak 2026”), targeted measures for the real estate market and precedes the introduction of a single tax class planned for 2028.
- Local SMEs: announced tax-free transfer of businesses by donation in direct line or to the partner is a strategic measure to secure the future of SMEs and craft businesses. Conditions and procedures should be monitored.
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