New tax incentive for start-up investments: are you ready to maximise this opportunity?

New start-up tax credit at a glance

The law of 19 December 2025 amends the Income Tax Law by creating new Article 154quaterdecies, which establishes a tax credit for start-up investments. This measure aims to encourage private individuals to support innovative businesses during their early stages.

Under the new regime, Luxembourg resident individuals and non-residents assimilated to resident taxpayers will be entitled to a 20% income tax credit on direct cash investments in new fully paid-up registered shares issued by eligible start-ups. The investor must acquire the shares either at incorporation or through a capital increase and hold them for at least three years.

The credit is capped at EUR 100,000 per year per taxpayer. Any credit exceeding the EUR 100,000 annual cap is permanently lost and cannot be carried forward. If the credit (up to the EUR 100,000 cap) exceeds the taxpayer’s income tax liability for the year, the excess is non-refundable but may be carried forward to the next tax year and offset against that year’s tax liability.

The eligible investment base excludes (i) the portion exceeding a 30% ownership stake in the start-up, and (ii) amounts exceeding the threshold of EUR 1.5 million in cumulative investments by eligible investors per start-up. A minimum investment of EUR 10,000 per taxpayer per start-up is required.

Start-up eligibility conditions

To be eligible, the start-up must (i) be a capital company or a cooperative company resident in Luxembourg (fully taxable) or resident in another EEA Member State (fully taxable and with a Luxembourg permanent establishment), (ii) be less than five years old at the end of the tax year for which the credit is claimed, (iii) employ fewer than 50 people, and (iv) have an annual turnover or balance sheet total not exceeding EUR 10 million.

The employee and financial thresholds are assessed at the end of the financial year closing during the tax year for which the credit is claimed or, for newly incorporated entities, at the end of their first financial year. If the start-up is part of a group, the employee and financial thresholds apply at group level and must be certified by an independent auditor (réviseur d’entreprises agréé) or a chartered accountant, and all group entities must have been incorporated for less than five years at the end of the relevant tax year.

Crucially, the start-up must be innovative, meaning it must have at least two full-time employees and must have dedicated a minimum of 15% of its operating expenses to R&D in at least one of the three preceding fiscal years (or in its first financial year, if newly created). Eligible R&D expenses are defined in new Article 154quaterdecies, and the 15% threshold must be certified by an independent auditor (réviseur d’entreprises agréé) or a chartered accountant.

Excluded entities

Certain investees are excluded from the new start-up tax credit, notably law firms, audit and accounting firms, real estate companies, SICARs, listed entities, companies resulting from a merger or demerger, companies that have distributed dividends or reduced their capital (other than to offset losses), companies subject to EU recovery decisions for unlawful State aid and companies in difficulty as defined by EU regulation.

Investor conditions

To qualify for the tax credit, the investor must not (i) be an employee of the start-up in the year of investment (i.e. no link of subordination), (ii) be a founder of the start-up, or (iii) treat the investment as part of their commercial business assets, liberal profession assets or agricultural/forestry business assets at the time of investment or during the minimum three-year holding period.

Practical considerations

The tax credit is calculated based on the total amount invested in share capital, taking into account any share premium for this purpose and excluding equity contributions not remunerated by shares, during the tax year for which the start-up tax credit is claimed. The credit must be claimed via the Luxembourg tax assessment process (imposition par voie d’assiette). Taxpayers who are not otherwise subject to taxation by assessment may opt for it to benefit from the new tax credit and will then remain subject to taxation by assessment for the three tax years following the year in which the credit was claimed.

The investor’s tax return must include a certificate issued by the start-up within two months after payment confirming compliance with the 30% ownership threshold and the EUR 1.5 million cumulative investment cap, and a certificate issued after year-end attesting to the eligibility conditions, including the innovation and R&D criteria. In subsequent years’ returns, the taxpayer must confirm ongoing compliance with the minimum three-year holding period. If the holding period condition is breached, the credit will be clawed back unless the start-up goes bankrupt, or the investor dies, becomes disabled or becomes  permanently unable to work.

Conclusion

The new regime represents a significant opportunity for both investors and start-ups, but timing and structuring are critical.

For start-ups, it introduces a powerful tool to attract individual investors, subject to new compliance obligations. For business angels and private investors, it offers material tax savings provided the investment is properly structured and documented from the outset.