KPMG Outlines Key Luxembourg Tax Changes for 2026

Photo: Chronicle.lu

KPMG Luxembourg published the latest edition of its Luxembourg Tax Alert on 19 December 2025, outlining a series of tax changes set to take effect in 2026. The report summarises measures approved by Luxembourg’s tax authorities and parliament, impacting individuals, businesses and investors.

According to KPMG, the reforms underline Luxembourg’s continued commitment to maintaining a competitive and stable tax framework within the European Union.

Modernised carried interest regime

One of the most notable developments is the introduction of a new carried interest tax regime. The reform is designed to modernise the personal taxation of carried interest income earned by professionals in alternative investment funds.

Under the proposed regime, only the outperformance component of carried interest would be taxed as a speculative gain, potentially exempt from personal income tax if certain conditions are met. KPMG notes that this approach aims to clearly distinguish between standard investment returns and performance-based income, reinforcing Luxembourg’s appeal to asset management professionals.

Start-up investment tax credit

From 2026, Luxembourg will also introduce a new tax credit for individuals investing in qualifying innovative start-ups. The credit amounts to 20% of eligible investments starting from EUR 10,000, subject to a cap of EUR 1.5 million per entity and a minimum holding period of three years.

This incentive forms part of broader measures to strengthen the local start-up ecosystem and encourage long-term private investment.

Additional fiscal measures in the 2026 Budget Law

The 2026 Budget Law, adopted by the Luxembourg Parliament on 17 December 2025, includes further enhancements to tax reliefs. These include an increased maximum CO₂ tax credit for individuals and adjustments to excise duties on biofuels.

Other proposed measures cover pension reforms and incentives for investment in government defence bonds, reflecting a continued focus on social policy and targeted fiscal support.

International tax transparency and compliance

KPMG also highlights Luxembourg’s implementation of DAC9 and Pillar Two amendments in line with EU and OECD standards on tax transparency and reporting. The report confirms upcoming updates to international tax treaties and expanded compliance obligations, which are expected to affect multinational groups operating in Luxembourg.

According to International Investment experts, the 2026 tax reforms reinforce Luxembourg’s status as a leading European financial centre. By combining targeted tax incentives with alignment to global transparency standards, Luxembourg continues to balance competitiveness with regulatory certainty for investors and multinational businesses.