Luxembourg tax update: recent key developments

This Autumn brings a series of significant tax developments in Luxembourg, which could have implications for businesses, fund sponsors and investment managers operating through Luxembourg structures.

In this update, our tax lawyers highlight selected measures from the recent draft budget and review recent Luxembourg case law on the commercial nature of Luxembourg limited partnerships and explain its implications.

Draft budget law 2027

On 7 October 2026, the Luxembourg government submitted a draft law (no. 8800) to the parliament (the Draft Law), which includes a number of proposed tax measures affecting businesses and individuals. We highlight some of the key tax measures below.

Corporate income tax rate reduction

The Draft Law proposes, as from tax year 2027, a 1% reduction to the corporate income tax (CIT) rates. The standard CIT rate would decrease from 16% to 15% for taxable income above EUR 250,000, while the reduced CIT rate would decrease from 14% to 13% for taxable income up to EUR 200,000. The intermediate marginal rate of 23% would apply to taxable income between EUR 200,000 and EUR 250,001, instead of the current range of EUR 175,000 to EUR 200,001.

As a result, companies located in Luxembourg city with taxable income above EUR 250,000 would see their overall income tax rate decrease from 23.87% to 22.80%, taking into account CIT, the solidarity surcharge and municipal business tax.

Unlimited carry forward of tax losses

Another significant measure is the proposed removal of the 17-year limitation on the carry-forward of tax losses for both CIT and municipal business tax (MBT) purposes, thus providing for an unlimited use of such losses.

The change would apply to tax losses incurred during financial years closed after 31 December 2016.

Extension of the speculation period for capital gains

The Draft Law would extend the speculation period for capital gains from six to 12 months.

As a result, assets disposed of within 12 months of their acquisition would fall within the short-term capital gains regime, rather than the current six-month period. The extended period would also apply for the purposes of the relevant carried interest regime and to non-resident taxpayers where the Luxembourg capital gains rules apply.

Business investment and employment incentives

The Draft Law also strengthens existing business incentives. The investment tax credit rates for qualifying digital transformation projects and ecological and energy transition projects would increase from 18% to 21% and from 6% to 9%, respectively. In addition, the tax credit for hiring qualifying unemployed individuals would be extended until the end of 2029.

Luxembourg Administrative Court decisions

On 25 June 2026, the Luxembourg Administrative Court handed down two decisions (no. 53183C and no. 53184C) concerning limited partnerships (SCSs) established to acquire, finance and exploit rights relating to individual films.

In both cases, the corporate general partner held only 0.10% of the partnership interests. As the 5% threshold triggering statutory commerciality was not met, the Administrative Court examined whether the activities themselves constituted a commercial business under Article 14(1) of the Luxembourg income tax law, and concluded that they did. These SCSs were therefore liable to the MBT.

In reaching its decisions, the Administrative Court focused on the substance of each SCS's activities rather than its structure alone. In particular, the fact that each partnership was established for a single film and outsourced certain functions did not prevent its activities from being regarded as commercial. The Administrative Court considered the contractual arrangements, the financing and exploitation of the relevant film rights, and each SCS's involvement in the wider economic activity surrounding the projects. It also confirmed that administrative circulars and ESMA guidelines are not, in themselves, legally binding on the courts.

Key takeaway

The tax characterisation of an SCS requires a fact-specific analysis of its actual activities. A corporate general partner holding less than 5%, a single-asset strategy or the outsourcing of operational functions will not, on their own, prevent that the partnership carries on commercial activity.

How Ogier can help

These developments mark a further shift in the Luxembourg tax landscape, aimed at promoting the jurisdiction and encouraging investment. Our tax experts in Luxembourg offer tailor-made solutions to help our clients achieve their objectives. If you want to know more about any of the tax updates mentioned above, contact our team.

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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