Luxembourg’s 2026 Budget introduces a wide-ranging package of tax reforms spanning business competitiveness, household income support, housing and green investment. Key measures include lower corporate tax rates, new incentives for start-ups and talent, targeted social credits and increased carbon taxation, alongside steps to implement the OECD’s Pillar Two minimum tax rules.
Luxembourg’s Chamber of Deputies adopted the 2026 Budget on 17 December 2025 in its first reading, setting out a broad package of tax measures aimed at strengthening household purchasing power, bolstering economic competitiveness, and accelerating the country’s energy transition.
The budgetary plan outlines a comprehensive suite of tax measures designed to support household purchasing power, enhance economic competitiveness, and facilitate the green transition.
Business and economic competitiveness
The government aims to strengthen the business environment through rate reductions and targeted credits.
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.
Talent Attraction: The impatriate worker scheme has been simplified to a flat-rate model, providing a 50% tax exemption on gross annual remuneration, capped at EUR 400,000. The participation bonus scheme was also upgraded, increasing the exempt portion to 30% of gross remuneration.
International taxation
International compliance: Luxembourg is introducing a national minimum tax in accordance with OECD/G20 Pillar 2 rules to ensure 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.
Housing and real estate tax measures
Measures in this sector focus on both immediate market revival and long-term structural changes:
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.
Interest deductibility: The maximum amount for tax-deductible interest expenses related to an owner-occupied dwelling has been increased by one-third.
Modernisation and reform: The government has introduced an accelerated depreciation rate for investments in energy efficiency and renovation. Long-term legislative goals include a property tax reform and the introduction of a land mobilisation tax to address the housing shortage.
Household and social tax measures
To support residents and the sustainability of the social security system, several measures target individual income and savings:
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.
Support for families: A tax credit of EUR 922.5 per child is established for the 2025–2026 tax years for parents in shared custody situations who do not fall under tax class 1a.
Young employee bonus: A discretionary tax bonus is introduced for workers under age 30 in their first permanent contract, which decreases as their salary increases and is capped at EUR 100,000 in remuneration.
Social security contributions: The pension insurance contribution rate will increase from 24.0% to 25.5% starting in 2026.
Environmental tax measures
Luxembourg is aligning its tax policy with climate goals and international standards:
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.
Earlier, Luxembourg’s Minister of Finance, Gilles Roth, submitted the 2026 state budget to the Chamber of Deputies on 8 October 2025, proposing a series of fiscal measures aimed at bolstering competitiveness, supporting households, and fostering innovation.
