SQUARRELThe draft 2027 budget provides for several tax changes: lower corporate income tax, loss carry-forward, investment, real estate and personal taxation. Discover the key measures and their consequences.
On 7 October 2026, the Luxembourg government tabled Bill No. 8800 on the 2027 State budget in the Chamber of Deputies. The bill provides for several significant changes to direct taxation, affecting both companies and individuals.
The main measures include a further reduction in corporate tax, the removal of the time limit on the carry-forward of tax losses, enhanced investment tax credits and an adjustment of the personal income tax scale.
Some provisions could also significantly change the taxation of real estate investments and of capital gains on movable assets.
This analysis sets out the main measures of the bill, their practical consequences and the points taxpayers should watch.
Important: as at 17 October 2026, the provisions presented are legislative proposals. Their application will depend on the final adoption of the bill, whose content may still change during the parliamentary procedure.
1. A further cut in corporate tax from 2027
The bill provides for a one-percentage-point reduction in the main corporate income tax (IRC) rates, together with an increase in the thresholds at which they apply.
What would the new tax rates be?
Rules applicable in 2026:
- Taxable income up to €175,000: rate of 14%.
- Income between €175,000 and €200,000: €24,500 plus 30% of the portion exceeding €175,000.
- Income above €200,000: rate of 16%.
Proposed rules from 2027:
- Taxable income up to €200,000: rate of 13%.
- Income between €200,000 and €250,000: €26,000 plus 23% of the portion exceeding €200,000.
- Income above €250,000: rate of 15%.
The reform would therefore not be limited to a cut in rates: it would also change the thresholds from which they apply.
What would be the practical impact for businesses?
Take two Luxembourg companies whose taxable income would remain the same in 2026 and 2027.
Example 1 — Company with taxable profit of €150,000
- IRC in 2026: €150,000 × 14% = €21,000.
- Proposed IRC for 2027: €150,000 × 13% = €19,500.
The IRC saving would be €1,500.
Example 2 — Company with taxable profit of €300,000
- IRC in 2026: €300,000 × 16% = €48,000.
- Proposed IRC for 2027: €300,000 × 15% = €45,000.
The IRC saving would be €3,000.
Also taking into account the corresponding reduction in the employment fund contribution, set at 7% of IRC, the total saving would reach €3,210, all other things being equal.
These simulations do not take into account tax credits, municipal business tax (ICC) or any tax features specific to the company.
A theoretical overall rate of 22.80% in Luxembourg City
For a company established in Luxembourg City and subject to the standard IRC rate, the overall nominal tax rate would fall from 23.87% to 22.80%.
The rate envisaged for 2027 would break down as follows:
- IRC: 15%.
- Employment fund contribution: 1.05%, i.e. 7% of IRC.
- ICC in Luxembourg City: 6.75%.
The total would therefore be 22.80%.
However, this is a theoretical overall rate, and not necessarily the effective rate borne by each company.
The actual calculation depends in particular on the taxable bases used, the allowances applicable for ICC purposes and other tax features. Net wealth tax is not included in this percentage.
In practice: the rate reduction is worth factoring into companies' tax forecasts, particularly when drawing up budgets and cash-flow projections for 2027.
2. Tax loss carry-forward: towards removal of the 17-year limit
This is one of the main structural changes proposed.
Under Luxembourg law, duly established tax losses may, subject to certain conditions, be carried forward to subsequent financial years and set off against future profits.
What do the current rules provide?
Article 114 of the income tax law distinguishes in particular between two situations:
- Losses arising from financial years closed between 1 January 1991 and 31 December 2016: may be carried forward without time limit.
- Losses arising from financial years closed after 31 December 2016: carry-forward limited to seventeen financial years.
In both cases, the deduction remains subject to the statutory conditions.
What would the reform change?
The bill provides for the removal of the seventeen-financial-year time limit from tax year 2027, for both IRC and ICC purposes.
Tax losses arising from financial years closed after 31 December 1990 could thus be carried forward without time limit, subject to the applicable conditions.
Why does this change matter?
Some businesses go through prolonged loss-making periods before returning to profit.
This is particularly the case for:
- Businesses requiring significant initial investment.
- Companies in a development phase.
- Businesses that have been through a period of restructuring.
- Activities with particularly long economic cycles.
Removing the seventeen-year limit could prevent tax losses that are still available from becoming unusable merely through the passage of time.
Caution: the reform would not remove the other conditions for loss carry-forward.
Their use would remain subject in particular to proper bookkeeping, to the losses not having been offset previously and to compliance with the rules on retaining the right to carry forward.
Restrictions that may apply to certain restructurings or changes of activity would also still need to be examined.
In practice: businesses would do well to keep rigorous track of their tax losses, distinguishing between the balances available for carry-forward for IRC and for ICC purposes.
3. Digital and green investments: enhanced investment tax credits
The bill also provides for a strengthening of the investment tax credit regime under Article 152bis of the income tax law.
Since 2024, businesses have been able, subject to certain conditions, to benefit from a tax credit for eligible investments and expenditure made as part of digital transformation or ecological and energy transition projects.
What would the new rates be?
The bill provides in particular for the following changes:
- Expenditure and investments subject to the general rate of the specific scheme: increase from 18% to 21%.
- Eligible depreciable tangible fixed assets under the specific scheme: increase from 6% to 9%.
For tangible fixed assets that also meet the conditions for the 12% overall investment tax credit, the two benefits could be combined.
The combined rate would thus rise from 18% to 21%.
Example: €100,000 investment in a machine
A company plans to acquire a depreciable tangible machine for €100,000.
Suppose this investment meets all the conditions for both the overall investment tax credit and the specific tax credit for digital transformation.
Under the current rules:
- Overall investment tax credit: €12,000.
- Specific tax credit: €6,000.
- Total tax credit: €18,000.
Under the rules proposed for 2027:
- Overall investment tax credit: €12,000.
- Specific tax credit: €9,000.
- Total tax credit: €21,000.
The theoretical additional tax benefit would therefore be €3,000.
This is a tax credit set off against tax in accordance with the statutory rules, not a subsidy automatically paid to the business.
Eligibility conditions must be checked in advance
Merely acquiring IT equipment, software or a more energy-efficient machine is not necessarily enough to qualify for this tax credit.
The project must meet the objectives set by the legislation and comply with the conditions relating to the nature of the expenditure, the investments made and their allocation.
The scheme provides in particular for an eligibility certificate procedure and the issue of a certificate by the Ministry of the Economy.
Point to note: under the current rules, only investments and expenditure made after the application for an eligibility certificate has been submitted can be taken into account for the certificate.
The order in which the steps are taken is therefore essential.
In practice: for businesses considering a significant investment, a prior tax analysis may be particularly worthwhile in order to identify the potentially applicable benefits and the necessary formalities.
4. Employment: extension of the tax credit for hiring jobseekers
The bill provides for extending until 31 December 2029 the tax credit granted, subject to certain conditions, to businesses hiring eligible jobseekers.
This scheme may allow an employer to benefit from a tax credit equal to 10% of gross monthly remuneration, for a maximum period of twelve months.
The grant of this benefit remains subject to the statutory conditions relating in particular to:
- The employee hired and their registration with ADEM (National Employment Agency).
- The duration and characteristics of the employment contract.
- Administrative formalities.
- Any rules prohibiting cumulation with certain other forms of aid.
Practical example
A company hires an eligible employee earning gross monthly pay of €3,800.
Provided all the conditions are met, the theoretical tax credit would be:
- €3,800 × 10% = €380 per month.
- €380 × 12 months = €4,560.
This benefit is separate from the tax deduction normally available for salary costs.
It applies at the level of the tax due, and not as a second deduction of the salary expense.
In practice: this extension could be factored into businesses' recruitment forecasts for future financial years, subject to first checking the eligibility of the employee and the employer.
5. Personal taxation: adjustment of the tax scale and targeted measures
The bill does not concern companies only.
It also provides for several changes of interest to employees, the self-employed, pensioners and private investors.
Adjustment of the income tax scale
From 2027, the thresholds of the progressive tax scale would be adjusted to take account of an additional index tranche, representing approximately 2.5%.
For a taxpayer in tax class 1:
- The first tax-free band would be raised from €13,230 to €13,565.
- The top marginal rate of 42% would apply above €240,803, compared with €234,870 currently.
The parameters for the other tax classes would also be adjusted as provided.
This change does not mean that every taxpayer will benefit from a uniform 2.5% reduction in their tax liability.
The tax saving will depend in particular on adjusted taxable income, tax class and individual circumstances.
Increase in the CO₂ tax credit
The maximum annual amount of the CO₂ tax credit would be raised from €216 to €240 for eligible employees, pensioners and self-employed persons.
The benefit actually granted would continue to depend on the conditions and income limits laid down by law.
Alternating custody: extension of a tax measure
The child tax credit available in certain alternating custody situations where family benefits are shared would be extended until tax year 2027.
The amount concerned is €922.50 per child, subject to the statutory conditions for granting it.
Consequences for employers
The bill also provides for adjustments to certain tax withholding regimes on remuneration, in particular for temporary agency workers.
In addition, certain separate reporting obligations relating to beneficiaries of the profit-sharing bonus scheme and of the inpatriate regime would be simplified.
However, this simplification would remove neither the substantive conditions of these regimes nor the electronic reporting obligations needed to monitor them.
6. Capital gains on movable assets: speculation period extended from 6 to 12 months
This change deserves particular attention from private investors.
Under Luxembourg tax law, certain capital gains realised on movable assets forming part of private assets may be classified as speculative gains where they arise within a specified period after acquisition.
The bill provides for extending this period from six to twelve months from tax year 2027.
A potentially significant change for investors
Take the example of a Luxembourg resident taxpayer who:
- Acquires a shareholding representing 5% of a company's capital on 1 July 2026.
- Sells this shareholding on 1 April 2027.
- Realises a capital gain on the sale.
The holding period would be nine months.
Under the rules currently applicable, such a capital gain would in principle be exempt if the shareholding is held as part of private assets and does not fall under any special tax regime.
With a speculation period extended to twelve months, the sale would take place within the new speculation period and could become taxable.
The bill does not provide for any transitional provision expressly preserving the former period for investments made in 2026.
Particular care will therefore be needed with disposals planned in 2027.
The substantial shareholdings regime remains separate
The speculation period is not the only criterion for taxation.
Capital gains on substantial shareholdings, in particular where the statutory threshold of more than 10% of the capital is reached under the conditions laid down in Article 100 LIR (Luxembourg income tax law), are subject to a special regime.
Holding securities for more than twelve months would therefore not, in itself, guarantee an exemption.
For non-resident taxpayers, any Luxembourg tax consequences must also be analysed in the light of the applicable tax treaties.
In practice: before selling securities, it is advisable to check the holding period, the percentage shareholding, the seller's country of residence and the tax provisions likely to apply.
7. Real estate investment: 6% accelerated depreciation subject to conditions
The draft budget also provides for a change to the accelerated depreciation regime applicable to certain buildings used for residential letting.
What would the new conditions be?
The main proposed changes are as follows:
- An increase in the accelerated depreciation rate from 4% to 6%.
- An extension of the eligibility period from five to six years, assessed by reference to the completion of the building.
- A restriction of the new rate to buildings whose relevant reference value, determined on completion, does not exceed €600,000.
Provisions also cover certain major renovations carried out on existing rental properties, subject to the statutory conditions.
Watch out for the €600,000 threshold
The cap is a condition for access to the new rate.
A building whose reference value exceeds €600,000 would therefore not automatically benefit from 6% depreciation on a first tranche of €600,000.
It would be necessary to examine the application of the ordinary rates or, where applicable, of the transitional provisions allowing the previous regime to be retained.
Practical example
Suppose a rental property meets the conditions for the regime and has a depreciable base of €580,000.
The annual depreciation calculated at the proposed rate of 6% would be:
€580,000 × 6% = €34,800.
By way of comparison, an annual charge calculated at 4% on the same base would amount to:
€580,000 × 4% = €23,200.
The increase in the depreciation charge would therefore be €11,600.
It should be borne in mind, however, that an increase in depreciation does not translate into a tax saving of the same amount.
The tax saving will depend in particular on the taxpayer's taxable income and applicable tax rates.
A measure envisaged from tax year 2026
Unlike most of the changes presented, this measure would apply from tax year 2026, if the law is adopted as proposed.
This feature will need to be taken into account when preparing the relevant tax returns.
8. Take care not to confuse the various reforms announced
Several tax measures have been announced alongside the presentation of the budget or are the subject of separate bills.
This distinction is important in assessing their legal scope.
The single tax class reform
The reform of personal taxation aimed at introducing a single tax class is mainly the subject of Bill No. 8676.
Its entry into force is envisaged for 1 January 2028.
It should therefore not be confused with the mere adjustment of the tax scale thresholds provided for in the 2027 draft budget.
Transfer of family businesses
The government has announced a measure to facilitate the transfer of businesses free of charge, particularly within families.
However, as at 17 October 2026, the precise details of this announced exemption remain to be defined.
It would therefore be premature to assume that a gift of a business to a child automatically benefits from a tax exemption from 2027.
Other housing measures
The planned increase in the "Bëllegen Akt" tax credit to €45,000 per purchaser, as well as certain other measures to support the property market, are the subject of separate legislative processes.
Their specific conditions and dates of application will need to be examined separately.
Finally, the draft budget, Bill No. 8800, does not provide for any change to the VAT rules.
9. What steps should be anticipated for 2027?
Even though the bill has yet to be adopted, several checks may already be useful.
For business owners and entrepreneurs
It may be advisable to:
- Review taxable profit forecasts for 2027.
- Assess the impact of the new IRC rates.
- Update the tracking of tax losses available for carry-forward.
- Check whether planned investments are eligible for tax credits.
- Anticipate any formalities required before committing to certain expenditure.
For private investors
Particular attention may be paid to:
- The timing of acquisitions and disposals of securities.
- Substantial shareholdings in companies.
- Plans to acquire buildings intended for letting.
- The conditions for applying the new depreciation regimes.
For individuals
Changes to the progressive tax scale and to tax credits may warrant updating tax simulations for 2027.
For taxpayers with income or investments in several countries, the consequences will also need to be assessed in the light of the applicable tax treaties.
In all cases, the actual application of the new provisions will depend on the version of the law finally adopted.
Conclusion: anticipate the consequences without confusing a bill with the law in force
The 2027 draft budget provides for several significant changes to Luxembourg taxation.
The planned reduction in IRC, the removal of the time limit on tax loss carry-forward and the strengthening of certain investment tax credits are particularly relevant for businesses.
At the same time, the adjustment of the income tax scale and the extension of the speculation period could change the tax position of many taxpayers.
The challenge is not only to know the new rates, but to determine whether the conditions for applying them are met and to measure their consequences in each situation.
At Squarrel, we support businesses, business owners and individuals in analysing their tax obligations and anticipating changes in Luxembourg legislation.
An individual analysis makes it possible to identify the relevant measures, check their conditions of application and assess their tax consequences.
*Article prepared on the basis of the bill tabled on 7 October 2026 and the information available as at 17 October 2026. The proposed measures may be amended during the legislative procedure. This publication constitutes general information and is no substitute for an analysis of the taxpayer's individual situation.*
This content is general. How it applies depends on your situation and the rules in force.
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