Luxembourg’s 2026 Budget introduces broad tax reforms to boost business competitiveness, support households, and promote housing and green investment, including lower corporate tax rates, start-up and talent incentives, higher carbon taxes, and the implementation of Pillar 2.
Luxembourg has enacted the 2026 budget bill following its adoption by parliament. The full budget bill was published in the Official Gazette on 19 December 2025.
The government has finalised the Law of 19 December 2025, introducing targeted changes to personal income taxes and excise duties for the 2026 fiscal year, with a focus on encouraging longer professional activity and updating environmental and health-related surcharges.
Corporate income tax
From the 2025 tax year, the headline corporate tax rate is reduced from 17% to 16%. For small businesses with taxable income under EUR 175,000, the rate drops from 15% to 14%.
Start-up and investment credits
A new tax credit will be introduced for resident individuals who invest in innovative start-ups. Additionally, the plan includes a reform of the tax treatment for carried interest in alternative investment funds.
International compliance
Luxembourg is introducing a national minimum tax in line with the OECD/G20 Pillar 2 rules to ensure that large corporate groups pay an effective rate of at least 15%. The government is also transposing EU directives (DAC 8 and DAC 9) to facilitate information exchange on crypto-assets and minimum taxation.
Excise duties
Rates on tobacco products, including cigarettes and fine-cut tobacco, are set to increase.
Rental support
The tax exemption on rental income from social rental management has been increased from 75% to 90%. Employers can also provide a partially tax-exempt rental allowance to employees for their principal residence.
Retirement savings
The annual ceiling for tax-deductible payments into third-pillar retirement savings is set to increase from EUR 3,200 to EUR 4,500.
Employment incentives
A new tax allowance of EUR 750 per month will be introduced to encourage individuals who meet early retirement conditions to remain in the workforce until age 65.
CO2 taxation
The carbon tax on fossil fuels, which stood at EUR 20 per tonne in 2021, reaches EUR 40 per tonne in 2025 through annual EUR 5 increases. To mitigate this impact, the government has increased the CO2 tax credit for low-income earners.
Green energy incentives
A reduced VAT rate of 3% applies to new photovoltaic installations.
The majority of these changes, specifically the income tax adjustments and the new professional retention allowance, take effect for the 2026 tax year. However, the amendments regarding excise duties and the repeal of specific prior budget provisions take effect earlier, on 1 January 2026.
Earlier, Luxembourg’s Chamber of Deputies adopted the 2026 Budget on 17 December 2025, introducing tax measures to support household purchasing power, enhance competitiveness, and advance the energy transition.
