The government has tabled a draft bill that cuts the corporate income tax rate, raises the investment tax credit for digital and green projects, and removes the 17-year limit on loss carryforwards.
Luxembourg’s government presented the 2027 State Budget draft bill (draft Budget Law No. 8800) to parliament yesterday, 7 October 2026. It proposes a reduction in the corporate income tax (IRC) rate and a new income tax table.
The bill also increases the investment tax credit for digital and green transition projects and removes the 17-year time limit on loss carryforwards. Excise duties on alcohol and tobacco and the national CO2 tax would rise from 2027. The government further outlined plans for individual taxation under a single tax class and a withholding tax on real estate capital gains in 2028.
Corporate taxation
IRC rates
Under the bill, the top IRC rate falls from 16% to 15% for taxable income above EUR 250,000. The lower rate drops from 14% to 13% for taxable income up to EUR 200,000. The intermediate bracket covers income between EUR 200,000 and EUR 250,001, calculated as EUR 26,000 plus 23% of income above EUR 200,000.
Investment tax credit
The investment tax credit under Article 152bis of the Income Tax Law (LIR) is also enhanced. The global credit rate for investments and operating expenses dedicated to digital transformation or the ecological and energy transition rises from 18% to 21%. This combines the 9% rate for depreciable tangible assets with the 12% global credit rate. The credit rate for operating expenses on digital or green transition projects increases from 6% to 9%.
Loss carryforwards
The 17-year limit on loss carryforwards is removed for losses incurred after 31 December 2016. It applies to both the IRC and the municipal business tax (Impôt commercial communal, ICC).
Hiring credit
The tax credit for hiring unemployed individuals is extended for three years, through 31 December 2029.
Personal taxation
Income tax scale
From tax year 2027, the personal income tax scale (IRPP) under Article 118 LIR is adjusted for inflation by adding one index tranche, a linear multiplier of about 1.025 across the brackets. Parameters for taxpayers in Class 1a are adjusted accordingly.
Tax credits
The maximum CO2 tax credit (CI-CO2) for employees, self-employed persons and pensioners rises to EUR 240 per year from EUR 216, starting in 2027. The child tax credit for parents sharing custody with split family allowances (Article 123bis LIR) is extended through tax year 2027.
Temporary agency workers
For temporary agency workers (salariés intérimaires) under Article 137 LIR, the maximum gross hourly wage eligible for flat-rate taxation is lowered from EUR 25 to EUR 21. A two-tier flat rate is introduced: 6.5% for hourly wages up to EUR 19, and 8% for hourly wages between EUR 19 and EUR 21.
Rental housing
Under Article 32ter LIR, the accelerated depreciation rate for newly built rental housing increases from 4% to 6%. This applies where the base calculation value of the whole building does not exceed EUR 600,000 and completion was less than six years earlier.
The 6% rate also applies to major renovation expenses on older rental property if the expenses exceed 20% of the acquisition or cost price and the total building cost is EUR 600,000 or less. Transitional rules keep the 4% rate for older acquisitions, and for properties above EUR 600,000 acquired or built during 2026.
Short-term capital gains
Articles 99bis, 100 and 156 LIR extend the holding period that defines short-term speculative gains on movable assets, including carried interest, from six months to 12 months. This applies to both residents and non-residents.
Participative bonus reporting
Under Article 115 LIR, employers will no longer have to submit a separate nominative list of employees receiving a participative bonus (prime participative). The Direct Tax Administration will retrieve the data automatically through electronic salary accounts.
Other tax measures
Excise duties
Excise duty rates rise on 1 January 2027 for alcohol, cigarettes, fine-cut tobacco, cigars, cigarillos and heated tobacco products. The minimum excise on cigarettes is raised to EUR 165 per 1,000 pieces, and on fine-cut tobacco to EUR 85 per kg.
National CO2 tax
The national CO2 tax increases from EUR 45 to EUR 50 per tonne of CO2 in 2027.
Multi-year roadmap
The bill also sets out a multi-year roadmap. Work continues towards individual taxation under a single tax class from 2028, and a withholding tax mechanism on real estate capital gains is planned for the same year. Together with the 2027 measures, these signal the government’s aim to ease the burden on businesses and households while tightening taxes on tobacco, alcohol and carbon.
