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The new regime postpones taxation of stock options until the shares are sold, with a reduced rate set at a quarter of the overall income tax rate.
The scheme, reserved for companies under ten years old that devote at least 15% of their operating expenses to research and development, is part of Luxembourg's broader plan to support start-ups.
The cost of the reform to public finances has not been quantified by the government, which is counting on dynamic effects to offset any potential shortfall in tax revenue.
Recruiting without being able to compete on salaries remains a constant challenge for young innovative companies facing large corporations and multinationals based in Luxembourg. To address this, Finance Minister Gilles Roth filed bill 8782 with the Chamber of Deputies, which entirely reforms the taxation of stock options.
Announced at the Nexus Luxembourg event and described as a reform "eagerly awaited by professionals in the technology sector" according to the minister's own words reported by Paperjam, this change directly affects the ability of Luxembourg start-ups to attract and retain qualified profiles.
Until now, an employee exercising an option was taxed immediately on the benefit in kind, calculated as the difference between the market value of the share and its acquisition price. For a young, unlisted company, this value is often difficult to establish, which could force the employee to pay tax before having realised any actual gain. Bill 8782 reverses this logic: no taxation will occur either when the options are granted or when they are exercised, with tax instead deferred until the shares are actually sold.
The resulting capital gain will benefit from the extraordinary income regime, taxed at a quarter of the overall income tax rate. This mechanism is directly inspired by the best-performing tech ecosystems. As Xavier Buck, a member of the Luxembourg Startups Association, already pointed out in Paperjam, Luxembourg had fallen behind countries such as the Netherlands, which had amended their legislation to allow employees to pay tax only when they sell their shares.
This new tax framework does not apply to all companies. It is reserved for structures under ten years old, employing fewer than 150 staff, with turnover or a balance sheet total below 30 million euros. These young companies must also demonstrate genuine innovation activity, devoting at least 15% of their operating expenses to research and development in at least one of the last three financial years. Real estate companies, law firms, audit or accounting firms, and companies already listed on the stock exchange are explicitly excluded from the scheme.
On the beneficiary side, only employees can claim this regime, excluding anyone who already holds more than 25% of the company's capital. An anti-abuse clause also prevents stock options from replacing part of an employee's regular pay solely to obtain a tax advantage.
This reform also echoes expectations expressed by Luxembourg's start-up ecosystem for several years. Genna Elvin, president of the PULSE federation, noted in Silicon Luxembourg that access to stock options was an essential lever to help young companies get off the ground and grow.
According to the financial note accompanying the bill, the cost of clarifying the current regime is considered neutral for state revenue. However, the new scheme reserved for young innovative companies constitutes a genuine departure from ordinary law, since employees will no longer be taxed when exercising their options but only when reselling their shares, at a significantly reduced rate. The government highlights expected "dynamic effects", particularly in terms of creating high value added jobs and diversifying the economy, according to details reported by Paperjam.
In the absence of an estimate of the number of potential beneficiaries or the resulting tax shortfall, this approach relies more on a competitiveness bet than on precise budgetary assessment. Similar criticism had already come from the Council of State and the National Council of Public Finances regarding other recent tax reforms, such as the tax credit for investors in young innovative companies, which took effect in early 2026 according to Luxtoday. The Ministry of Finance nonetheless stated that the evolution of tax revenue linked to stock options would be monitored as part of the multi-year budget, in order to adjust state forecasts if necessary.
This stock options reform is not an isolated measure. It builds on the Luxembourg "10-point action plan for start-ups" presented in 2025, as well as the new European strategy in favour of start-ups and scale-ups, notably driven by the "Blue Carpet" and "EU Inc." initiatives from the European Commission. The latter project also provides for taxing stock options only when shares are sold, a model Luxembourg is now seeking to replicate to limit the relocation of young companies to the United States or other jurisdictions considered more attractive.
Beyond the new regime for start-ups, the bill also codifies, for all companies, the tax rules applicable to stock option plans, which until now were governed mainly by administrative circulars. This inclusion in law should provide greater legal certainty for both employers and employees, and facilitate the use of these incentive mechanisms in a Luxembourg labour market that is particularly competitive for tech profiles.
For the Grand Duchy's start-ups, this stock options reform thus represents an additional tool to offset pay scales that are often less competitive than those of large financial or tech groups based in the country.
The stock options reform adds to a series of recent measures aimed at strengthening Luxembourg's entrepreneurial ecosystem, alongside the tax credit for private investors and the planned reform of carried interest.
By using tax policy to offset a structural pay disadvantage, the government is seeking to give young innovative companies the means to recruit and retain talent that might otherwise be tempted by more established tech ecosystems.
It remains to be seen, in the coming years, what real impact this new stock options regime will have on Luxembourg's attractiveness and on the country's public finances.
