On 7 October 2026, the Luxembourg government submitted its draft 2027 budget law (the 'Bill') to Parliament. Alongside a broader package of measures intended to continue reinforcing Luxembourg’s attractiveness, the Bill proposes several tax changes with direct implications for businesses, investors and the alternative investment industry. Three developments stand out: a further reduction in the corporate income tax rate, the restoration of unlimited tax loss carryforwards and, less positively, a longer holding period for certain capital gains.
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1: A welcome further cut in corporate income tax
From tax year 2027, the Bill proposes a further reduction in the corporate income tax ('CIT') rates. If adopted, the combined effective tax rate for a company based in Luxembourg City (including CIT, municipal business tax ('MBT') and the solidarity surcharge) would fall to approximately 22.8%. This would mark a further step in the gradual reduction of Luxembourg’s corporate tax burden, considering the combined rate of 29.22% in 2016.
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2: A sensible return to unlimited tax loss carryforwards
The Bill proposes to restore unlimited tax loss carryforwards, giving businesses greater flexibility in the use of their accumulated tax losses. Initially, tax losses could be carried forward without any time limit, while the 2017 tax reform introduced a 17-year cap for losses incurred in financial years ending after 31 December 2016.
In practice, this limitation has not yet had any effect, as none of the losses concerned has reached the end of the 17-year period. By removing the cap for both CIT and MBT purposes and extending unlimited carryforward to losses incurred in financial years ending after 31 December 2016, the Bill would sensibly undo this aspect of the 2017 reform before it comes into play.
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3: A longer holding period for certain capital gains
The Bill would, rather less helpfully, extend from six to twelve months the holding period for determining whether gains on movable assets, (including securities) qualify as short-term speculative gains for Luxembourg-resident individuals. The twelve-month period should also apply to carried interest and to gains realised on shares when holding a substantial shareholding (over 10%) in Luxembourg companies, a change of particular relevance for non-resident investors.
The corporate participation exemption should remain unaffected, as it already requires a twelve-month holding period. The extension should therefore mainly affect Luxembourg-resident individuals and non-resident taxpayers disposing of substantial shareholdings (over 10%) in companies, particularly where no double tax treaty protection is available.
The change is particularly relevant to the alternative investment industry. Only months after the carried interest regime was reformed to enhance Luxembourg’s attractiveness to fund managers, the Bill would double the applicable holding period from six to twelve months. This proposed extension may appear somewhat at odds with the policy direction taken earlier this year and would need to be factored into the structuring of Luxembourg carried interest arrangements.
In conclusion
Overall, the Bill strengthens Luxembourg’s position for businesses while introducing a notable point of attention for individual investors and the alternative investment industry. The proposals are not yet final, but affected taxpayers should already consider the potential impact on existing and future structures.
Want to know how the proposed changes could affect your business, investments or carried interest arrangements? Contact our Tax team to discuss the potential impact.
