Luxembourg 2027 Draft Budget Law: key tax and social measures

On 7 October 2026, the Minister of Finance presented the draft budget law for 2027 (bill n°8800, the “Draft Budget Law”) to the Luxembourg Parliament.

The Draft Budget Law continues to roll out the tax commitments of the 2023-2028 coalition agreement. For businesses, the headline measures are a further cut in the corporate income tax rate, the end of the 17-year time limit on tax losses and an increase of the investment tax credit rates. For individuals, headlines are the index of the tax scale by one additional tranche and the extension of the holding period for speculative gains. 

• Corporate Income Tax (CIT): the standard CIT rate is reduced from 16% to 15%, while the reduced rate decreases from 14% to 13%, leading to an aggregate corporate tax rate for Luxembourg City of 22.8% for FY 2027 (compared with the current rate of 23.87%);
• Investment tax credit: rates increase from 18% to 21% and from 6% to 9% for qualifying digital and green investments;
• Tax losses: the 17-year limitation on loss carryforwards is abolished;
• Speculative gains: the speculation period for movable assets, including carried interest, is extended from 6 to 12 months;
• Personal income tax: the tax scale is indexed by one additional tranche (around 2.5%); and
• Social support: a new cost-of-living allowance has been announced, along with increases in family allowances.

Corporate taxation

• CIT rates: from tax year 2027, the standard CIT rate is reduced from 16% to 15% and applies to taxable income above EUR 250,000. The reduced rate decreases from 14% to 13% for taxable income up to EUR 200,000. The intermediate band, over which the two rates are progressively aligned, is adjusted accordingly from EUR 175,000–200,000 to EUR 200,000–250,000;
• Tax losses: the 17-year limitation on the carryforward of tax losses is abolished for both CIT and Municipal Business Tax (MBT). This change also applies to losses incurred after 31 December 2016. The other conditions governing the carryforward of tax losses remain unchanged;
• Investment tax credit: companies investing in digital transformation or in their ecological and energy transition will benefit from increased rates: 21% instead of 18% for the global investment tax credit, and 9% instead of 6% for the other rate, subject to the conditions of the regime being met; and
• Hiring of unemployed persons: the related tax credit is extended by three years, until the end of 2029.

Combined measure affecting individuals and corporations 

• Accelerated depreciation for rental housing: from tax year 2026, the accelerated depreciation rate for residential rental property increases from 4% to 6%, and qualifying buildings may be up to six years old instead of five. The 6% rate applies only where the depreciation base upon completion does not exceed EUR 600,000 and is also extended to renovation costs incurred on older rental property when they exceed 20% of the building acquisition cost. Investors who do not fall within the scope of the new rules may, under transitional provisions, retain the current 4% rate; and

• Speculative gains: capital gains on movable assets, including carried interest, will be treated as speculative if realised within 12 months (instead of currently 6 months). This also applies to non-resident taxpayers investing in certain Luxembourg assets, in the absence of double tax treaty protection. 

Individual taxation

• Tax scale: for tax year 2027, the income tax brackets are adjusted to reflect one additional index tranche, corresponding to an increase of approximately 2.5%. The relief available to taxpayers in tax class 1a, notably single parents, is adjusted accordingly;
• CO2 tax credit: new amounts are introduced from tax year 2027 for employees, self-employed persons and pensioners;
• Temporary agency workers: the flat-rate regime will be limited to gross hourly wages of up to EUR 21 (currently EUR 25). The rate will be 6.5% up to EUR 19 and 8% between EUR 19 and EUR 21. Wages exceeding EUR 21 remain subject to the ordinary income tax regime;
• Alternating custody: the child tax bonus for parents sharing custody and family allowances is extended for another year, up to and including tax year 2027; and
• Employer reporting requirements: employers will no longer be required to submit to the tax authorities a list of employees receiving the profit-sharing premium or benefiting from the imnpatriate regime, as this information is already available through payroll filings.

Measures expected in 2028

• Single tax class: The Draft Budget Law confirms that the single tax class is scheduled to be introduced in2028. The detailed rules of the reform are set out in bill n° 8676; and
• Withholding tax on real estate capital gains: From tax year 2028, the related tax is expected to be withheld when the property transaction takes place, rather than upon subsequent filing and payment by the taxpayer. Further details on the practical implementation of the withholding tax are still awaited.

VAT and indirect taxes

• VAT: the Draft Budget Law does not introduce any changes to the VAT rules; but
• The Draft Budget Law increases several indirect taxes and environmental levies from 2027, including the national CO2 tax and excise duties on tobacco and alcohol, while also raising the required share of biofuels in fuel blends.

• Minimum social wage tax credit (bill n° 8775): The Crédit d'Impôt Salaire Social Minimum (CISSM) would increase from EUR 81 to EUR 179 on 1 January 2027, and to EUR 200 on 1 July 2027, also benefiting salaries of up to EUR 3,600 gross per month;
• Economic tax credit (bill n° 8775): A temporary tax credit, broadly equivalent to a one index-linked adjustment of the tax scale, would apply from 1 June to 31 December 2026. From 2027, the tax scale would be adjusted accordingly;
• Employee stock option plans (bill n° 8782): The bill intends to clarify the general Luxembourg income tax treatment applicable to employee stock option plans and introduce a dedicated tax regime for qualifying stock options granted by young innovative companies;
• Business transfers: An exemption for gifts made in connection with business transfers was also announced by Finance Minister Gilles Roth. Further details are still awaited.

Social support and families

• Cost-of-living allowance: several existing aids, including amongst others, the cost-of-living allowance and the energy premium, are announced to be merged into a single allowance along with a single application process;
• Families: expected increase of family and school allowances, and a fourth instalment is added to the birth allowance; and
• Minimum wage: the social minimum wage is expected to be revalued.

Housing

• Affordable housing: EUR 581.5 million is allocated to the special fund for affordable housing, and the Government will issue a EUR 250 million “Housing Bond” to the public. 

The reduction in the CIT rate, the removal of the time limitation on tax loss carryforwards and the increased rate for investment tax credit are expected to enhance Luxembourg’s competitiveness. For individuals, the measures primarily mitigate the effects of inflation. The broader reform introducing a single tax class is scheduled in 2028 and aims at modernising the current tax system to take into consideration changes in society. The Draft Budget Law remains subject to amendment during the legislative process, and we will provide updates on any material developments.