Background
On 4 April 2025, Draft Law No. 8526 (the “Draft Law”) was submitted to the Luxembourg Parliament (Chambre des Députés) and intends to introduce, as from fiscal year 2026, a tax credit for private individuals investing in Luxembourg startups amounting to 20% of their equity investment. Please see our previous newsletter here.
On 17 June 2025, the Luxembourg Council of State issued its opinion on this Draft Law. This opinion is important as it highlights key constitutional and practical issues in the implementation of the proposed Draft Law and brings forward substantial recommendations that may shape the final version of the law as well as future tax incentives.
Misalignment between scope and objective
The Council of State notes that the start-up tax credit as foreseen in the Draft Law is subject to a series of conditions and questions whether these requirements may be too strict for the proposed measure to effectively achieve its intended objective.
Exclusion of transparent entities
Eligibility is limited to individuals directly holding shares, excluding investments through tax transparent vehicles (e.g. partnerships, SCSps). The Council of State reminds that under Article 175 of the Luxembourg Income Tax Law (LIR), such entities are not separate taxable persons and are taxed at the level of their partners. Since both types of investors (investing directly or through tax transparent vehicles) are taxed similarly, this exclusion may breach Article 15 of the Constitution (equality before the law). The Council of State finds no objective justification for such different treatment.
Timing of capital contributions
The requirement that contributions be fully paid by year-end is considered too restrictive, especially for late-year capital increases. The Council of State suggests allowing a 12-month payment period from the subscription date.
Definition of “associated enterprises”
The proposed definition mixes elements of “related” (entreprise liée) and “associated” (entreprise associée) enterprises and is circular and unclear. The Council of State formally opposes the current drafting on grounds of legal certainty and recommends either adopting existing LIR definitions or incorporating any new concepts directly into the statutory text.
Innovation requirement
Start-ups must show R&D expenses of at least 15% of total costs, certified by a statutory auditor or accountant. The Council of State notes that Draft Law No. 8314 (on R&D and innovation aid) already defines innovative enterprises as those certified by the national agency for research, development and innovation. For simplification purposes, the Council of State proposes that entities already holding this label should be exempt from additional certification. Draft Law No. 8314 has since been enacted and published in the Official Journal on 13 June 2025.
Sectoral exclusions
The Council of State highlights inconsistent treatment between chartered accountants (excluded) and accountants (not excluded), potentially contrary to the equality principle of the Constitution.
Employee investors
The tax credit is not available to individuals employed by the start-up during the relevant tax year. The Council of State considers this rule disproportionate, as employees often play a key financial and operational role. The Council of State considers that this exclusion is insufficiently justified and may conflict with the principle of equality before the law, in accordance with Article 15 of the Constitution.
Investment ceiling
The law sets a EUR 1.5 million cap per entity on eligible private investments. The Council of State supports excluding account 115 contributions (capital contributions without issue of shares), consistent with case law (see our previous newsletter here regarding account 115 contributions not taken into account for the Luxembourg participation exemption), but recommends explicitly stating this in the law and clarifying how the cap applies once reached.
Conclusion
Following the Council of State’s opinion, the Chamber of Civil Servants and Public Employees (Chambre des fonctionnaires et employés publics) issued its opinion on 11 July 2025, and the Chamber of Trades (Chambre des métiers) on 3 October 2025.
The Draft Law is currently under review by the Finance and Budget Committee, where the Rapporteur is examining the opinions issued by the Council of State.
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