Luxembourg’s 2026 Business Angel Tax Credit

Luxembourg has adopted a new start-up tax credit that starts with the 2026 tax year. The goal is simple: mobilise private individuals to fund young, innovative companies at the seed and early growth stage, and make early rounds easier to close.

What Luxembourg adopted for 2026

Here are the measure in plain terms before you speak with your tax adviser and plan an investment.

The new start-up tax credit is set at 20% of an eligible investment and is capped at €100,000 per taxpayer per year. It applies to direct cash subscriptions to new shares issued by an eligible start-up, either at incorporation or during a capital increase.

The credit is designed for individuals and is linked to a holding requirement. In practice, the scheme targets true risk capital rather than short-term trading.

Tax credit amount and cap

The following key numbers will drive investor behaviour in 2026:

• Tax credit rate: 20% of the eligible investment.
• Annual maximum tax credit: €100,000 per taxpayer.
• Mechanics: the credit reduces Luxembourg income tax due; if the credit exceeds tax due, the excess is not paid out as cash, but can typically be carried forward under conditions described by professional updates.

Eligible investment type

We detail what “eligible” means so investors do not assume that any start-up ticket qualifies.

• Direct equity subscription in cash.
• New shares issued by the company (fully paid-up shares).
• Acquisition at incorporation or via a capital increase.

Minimum holding period

Damalion highlights the time horizon so investors structure liquidity expectations upfront.

The shares must be held at least three years. If the shares are disposed of too early, the benefit can be challenged and may need to be recaptured based on the final rules and the taxpayer’s facts.

Which start-ups qualify

The eligibility logic: Luxembourg aims to steer tax-supported capital toward early innovation, not mature SMEs.

That means to qualify, the company must be a young business with limited headcount and limited financial scale. It must also show a measurable innovation profile.

Age, size, and financial thresholds

According to data, the “early-stage” guardrails that define the target population are:

• Less than 5 years old.
• Fewer than 50 employees.
• Turnover or balance sheet total below €10 million.

Innovation test based on R&D intensity

Under the new measure, there is a core innovation filter that avoids broad dilution of the incentive.

The company must meet an innovation profile, including a benchmark that at least 15% of operating expenses are devoted to R&D. This design encourages capital to flow toward product-building companies rather than purely commercial vehicles.

Location and legal form in practice

This scheme can matter for cross-border founders operating from Luxembourg.

Professional briefings describe eligibility tied to the company being a capital company or cooperative with Luxembourg or EEA grounding and, where relevant, Luxembourg presence. Investors should validate the exact legal form, residency, and any permanent establishment conditions before wiring funds.

Who can invest and still qualify

The incentive scheme is built to attract third-party risk capital, not internal reshuffling.

The credit is targeted at individuals investing their private wealth. Founders and employees are typically excluded from benefiting for investments in their own start-up, to keep the incentive focused on external capital formation.

Investor profile

The intended user is mainly private individuals acting as business angels.

• Eligible: individuals who are Luxembourg tax residents or assimilated non-residents, as described in professional updates.
• Not the primary target: founders and employees investing in their own company for credit purposes.

Minimum ticket size

The minimum investment amount is set at €10,000 per eligible investment, based on professional summaries of the adopted framework.

Why Luxembourg is doing this now

Early-stage rounds are where many promising companies stall.

Seed and pre-Series A rounds often have a funding gap. Banks do not fund product risk. Grants help, but they do not replace patient equity. So governments try to de-risk private capital without replacing it.

Luxembourg’s ecosystem has reached a scale where targeted incentives can compound. According to Luxinnovation’s ecosystem “Facts & Figures,” Luxembourg counts 770+ startups in the ecosystem and 650+ headquartered in Luxembourg. The same resource notes 57 new startups launched in 2024 and reports that roughly half of companies created in 2024 leveraged AI.

Where the credit can move the needle by industry

There are some sectors where angel capital tends to create the highest leverage per euro invested.

In Luxembourg, early-stage deal flow often concentrates in a few clusters. Each cluster has different capital needs and different proof milestones.

Fintech and regtech

Small checks can unlock large outcomes in regulated digital finance.

Fintech and regtech teams often spend early cash on licensing, security, and compliance tooling. A €50,000 to €250,000 angel syndicate can fund audit readiness, a first enterprise integration, or a regulated proof of concept. Luxembourg’s positioning in financial services makes these ventures exportable across the EU once product-market fit is established.

Practical case: a Luxembourg-based regtech builds automated transaction monitoring for mid-tier banks. The company needs €300,000 to reach 3 pilot deployments and achieve measurable false-positive reduction. A group of six investors each invests €50,000. With a 20% credit, the after-tax cost of each ticket can be materially lower, which improves the odds that the round closes quickly and the company can focus on pilots.

Relevant ecosystem anchors include LHoFT and House of Startups.

Space, dual-use, and data infrastructure

Early-stage space ventures need patient capital and long timelines.

Space and dual-use projects tend to be milestone-driven: prototype, testing, validation, then contracts. Angel money is often used to bridge from grant-funded research to commercial traction.

Practical case: a hardware-light satellite analytics company needs €500,000 to fund data procurement and model validation over 18 months. The business sells to insurers and logistics players in France and Germany. A Luxembourg holding period of three years aligns with the longer sales cycle and supports stable governance while the company builds contracts.

Relevant ecosystem anchor: Luxembourg Space Agency.

Healthtech and digital care platforms

Healthtech needs early funding for evidence and certifications.

Healthtech firms must show clinical or operational evidence. This costs money before revenue. Early investors typically fund pilots with hospitals, device validation, and quality processes. The R&D intensity threshold can push capital toward teams that are building defensible products rather than marketing-only plays.

Practical case: a digital therapeutics start-up targets chronic care adherence and needs €400,000 for a structured pilot across two clinics. The company’s R&D spend is high by design, which can fit the innovation test. The angel round becomes more attractive when investors can factor in a credit tied to long-term holding.

Cybersecurity and enterprise software

AI and security have become central to early rounds.

Luxinnovation reports that in the first semester of 2025, AI start-ups captured 47% of the total investment amount and represented 43% of all funding rounds raised by start-ups operating in Luxembourg. This concentration matters because it signals where private capital already flows and where incentives can accelerate momentum.

Practical case: an AI-driven security analytics platform sells to Luxembourg and Belgian mid-market firms. The company raises €600,000 to hire two engineers and complete SOC 2 readiness. Investors often prefer a three-year horizon because enterprise customers renew annually and valuation inflects after retention metrics show up.

Cleantech and industrial innovation

The innovation test can steer capital into hard problems with measurable external impact.

Cleantech firms often require longer validation cycles, but they can become durable exporters once a solution is proven. Luxembourg’s ambition to diversify beyond traditional sectors means early-stage cleantech can become a policy priority. Luxinnovation reported that in 2024 it supported the submission of 124 national R&D and innovation project applications, a 68% increase compared to 2023, reflecting rising demand for innovation support in companies.

How investors can model the economics with real numbers

The simplest way to think about the tax credit: it changes the net cost of risk capital.

The credit does not guarantee success. It improves the risk-adjusted profile by lowering the after-tax cost, assuming the investor has Luxembourg income tax liability and meets the conditions.

Example 1: €10,000 minimum ticket

Here is the entry-level scenario that many new angels will test first.

• Investment: €10,000
• Tax credit (20%): €2,000
• Net after-tax cost concept: €8,000, subject to the investor’s tax situation and how the credit offsets tax due

Example 2: €250,000 ticket into a seed round

The following scenario is often used by experienced angels and some private investor clubs.

• Investment: €250,000
• Tax credit (20%): €50,000
• Cap impact: if the annual cap is €100,000, this ticket remains within the cap

Example 3: €800,000 invested across multiple start-ups

For an investor, diversification is key because early-stage portfolios behave differently than single bets.

• Total investments across the year: €800,000
• Raw 20% calculation: €160,000
• Cap effect: the tax credit is capped at €100,000 per taxpayer per year, so the effective credit rate drops as the annual invested amount rises above the level that reaches the cap

How Luxembourg’s incentive compares with nearby countries

Luxembourg’s 20% credit sits in a European landscape where several countries offer larger headline rates, but with different limits, conditions, and administrative friction.

United Kingdom: SEIS and EIS

In Europe, many angels benchmark the UK model when they assess tax-driven incentives.
The UK Seed Enterprise Investment Scheme (SEIS) provides income tax relief at 50% on eligible shares, per official UK guidance. This is a higher headline rate than Luxembourg’s 20%, but the UK scheme has its own detailed eligibility rules and administrative steps.

France: IR-PME “Madelin” and related regimes

France matters for cross-border founders and investors who operate between Paris and Luxembourg.
France’s official public guidance explains that the “Madelin” income tax reduction has annual ceilings of €50,000 for a single taxpayer and €100,000 for a couple filing jointly, and it notes a higher rate of 50% in the case of a “JEIR” regime for qualifying subscriptions over a defined period. Rules depend on the company profile and the year of subscription.

Belgium: Tax Shelter for start-ups and scale-ups

Belgium is a close reference market for Luxembourg-based angels because it offers a well-known framework for private investment into young companies.
Belgium’s public finance guidance describes a maximum annual amount of €100,000 for payments that can be considered for the reduction and explains that the cap applies across the start-up and scale-up tax shelter regimes combined. Belgium’s relief rate depends on company type and conditions, so investors should confirm eligibility before investing.

How founders can design a round that fits the credit

A tax credit works best when the round terms and documents are clean, so angels can subscribe quickly and founders can avoid avoidable delays.

Use straightforward equity subscriptions

Direct subscriptions are often easier to align with tax incentives than complex instruments.
If the incentive is built around new shares that are fully paid in cash, founders should avoid structures that look like indirect ownership or that blur the line between a subscription and a secondary purchase. Clean equity subscriptions also help later institutional rounds.

Document the innovation profile early

Investors will ask for clear support for the innovation test, including the R&D ratio.
Founders should prepare a simple pack that explains product roadmap, engineering headcount, and budget allocation. Investors will want clarity on how the company meets the innovation test and how the figures are calculated.

Plan the cap table with third-party investors in mind

The scheme is designed to support genuine third-party capital, so the cap table should stay investable.
When external angels invest, governance improves if the cap table is organised. Founders can group investors via a lead investor, an SPV that is compatible with the “direct investment” interpretation, or a shareholders’ agreement that keeps decisions efficient. Investors should confirm whether any vehicle structure affects eligibility based on the final interpretation used for the tax credit.

How investors can reduce risk beyond the tax credit

The tax credit supports the investment case, but it does not replace basic diligence.
Angels should still run a simple process that matches the ticket size. The goal is to avoid preventable mistakes while keeping speed.

Focus on three proof points

Three proof points often help investors assess early-stage survivability.

• Team execution: ability to ship and sell.
• Customer signal: pilots, LOIs, paid trials, or retention metrics.
• Unit economics direction: a credible path to gross margin and scalable distribution.

Use milestone-based tranching when possible

Milestone-based funding can work well when investors expect to hold shares for several years.
Some angels split commitments into tranches tied to product delivery or customer milestones. This reduces downside if execution stalls and keeps incentives aligned.

Key features and benefits

These takeaways summarise what matters for investors, founders, and the broader ecosystem.

• Clear incentive: 20% tax credit on eligible cash equity subscriptions in qualifying start-ups.
• Strong signal: Luxembourg aims to increase early-stage capital formation.
• Defined scope: eligibility focuses on young firms under 5 years, under 50 staff, under €10 million turnover or balance sheet.
• Innovation filter: R&D intensity threshold pushes capital toward product-driven companies.
• Long-term alignment: three-year holding period supports patient growth capital.
• Ecosystem momentum: 770+ startups in the ecosystem and growing, with AI taking a large share of rounds and amounts in 2025.

How to use this measure in a cross-border strategy

Cross-border investing is common in the region, and Luxembourg entities can be used as a stable base for EU expansion.
Many angels invest across Luxembourg, France, Belgium, and Germany. A common pattern is to invest in a Luxembourg entity that sells into neighbouring markets. This keeps corporate governance stable, gives access to Luxembourg support structures, and builds a platform that can raise institutional capital later.

Practical case: a founder team from France incorporates in Luxembourg, hires engineers locally, and sells B2B software to German Mittelstand clients. The company raises a seed round with Luxembourg-resident angels plus a few cross-border angels. The Luxembourg-resident individuals can assess whether their portion qualifies for the credit, while the company benefits from a diverse cap table and a single corporate home base.

Implementation checklist for 2026

This checklist helps founders and investors reduce friction when 2026 rounds close.

• Confirm the company meets age, size, and financial thresholds at the time of subscription.
• Confirm the innovation profile and how the R&D ratio is evidenced.
• Use a clean cash subscription to new shares that are fully paid-up within the required timing.
• Store signed subscription documents, updated share register, and proof of payment.
• Track the three-year holding period in a simple compliance file.
• Coordinate with a Luxembourg tax adviser to confirm individual eligibility and how carry-forward works in the investor’s tax situation.

Damalion can help founders to raise funds (pre-seed with technologies, seed, Series, A, B, C, Growth). We support international investors to structure the investment process around clean governance and documentation, while coordinating with Luxembourg tax and legal advisers when required. Please contact your Damalion experts now.

Frequently asked questions

Here are the most common questions investors and founders ask about the Luxembourg 2026 business angel tax credit.

Glossary: Luxembourg business angel tax credit and early-stage assets

Damalion explains the key terms used in this Luxembourg 2026 start-up tax credit context, with an accordion glossary for WordPress.