Start-up tax credit for “business angels”: legislation introduced into Luxembourg Parliament

In March 2025, the Ministers of the Economy and Finance jointly unveiled a 10-point action plan to boost Luxembourg’s start-up and scale-up ecosystem. Rooted in the national “From Seed to Scale” roadmap, this initiative signals a concrete shift in government policy from ambition towards implementation. This broad strategy has now reached the legislative stage with bill of law 8526, tabled on 4 April 2025, which introduces a new income tax credit for individuals investing in eligible start-ups.

A closer look at the Start-Up Tax Credit (new Art. 154quaterdecies Income Tax Law)

Under the proposed regime, Luxembourg-resident individuals and non-residents treated as residents 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 shares must be acquired either at incorporation or through a capital increase and held directly for at least three years.

The credit is capped at EUR 100,000 per year per taxpayer and is non-refundable, but unused amounts may be carried forward. 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.

To be eligible, a start-up must (i) be a capital company or a cooperative resident in Luxembourg or elsewhere in the EEA with a Luxembourg permanent establishment, (ii) be less than five years old, (iii) employ fewer than 50 people, and (iv) have an annual turnover or balance sheet total not exceeding EUR 10 million.

Crucially, the start-up must be innovative, meaning it must have at least two full-time employees and must have dedicated at least 15% of its operating expenses to R&D in at least one of the three preceding fiscal years (or in its first year, if newly created). These figures must also be certified. Certain types of investee are excluded from the regime, including professional firms (law, audit and accounting), real estate companies, SICARs, listed entities, companies formed through mergers/splits, those that have distributed dividends or reduced capital (other than to compensate for losses), and those subject to EU recovery decisions for unlawful State aid.

What’s next?

The bill of law will now proceed through the legislative process, with entry into force anticipated as from the 2026 tax year. Together with the upcoming tax-favourable stock option plan for employees of start-ups, designed to strengthen talent attraction and retention, and the other proposed measures, this reform sends a strong signal of Luxembourg’s commitment to making its innovation ecosystem more attractive for private investors and entrepreneurial talent alike.