Draft Bill on Employee Share Schemes for Young Innovative Companies

Background

The Luxembourg Ministry of Finance has presented a draft bill intended to strengthen Luxembourg’s attractiveness and international competitiveness as a location for innovative young companies, by means of a special tax-privileged employee share scheme designed to attract and retain highly qualified professionals.

Key Point

The draft bill provides for a tax benefit for qualifying employee stock option plans: in principle, no tax is triggered on the grant, vesting or exercise of the options. It is only on the subsequent disposal of the shares acquired that the capital gain – the sale price less the exercise price – is taxed at one quarter of the individual’s overall tax rate.

Requirements

The tax benefit requires the employer to be a fully taxable corporation or cooperative with its registered office or a permanent establishment in Luxembourg, in existence for less than ten years, employing fewer than 150 staff, and having neither a balance sheet total nor an annual turnover exceeding €30 million. In addition, at least two full-time equivalents must be employed, and in at least one of the three preceding financial years research and development expenditure must have amounted to at least 15 % of operating expenses. For companies belonging to a group, certain size criteria must be assessed at group level and confirmed by an expert-comptable or an approved statutory auditor (réviseur d’entreprises agréé).

Eligible employees are those who receive wages from the company and who, at the time the options are granted and during the preceding 24 months, have not held, directly or indirectly, more than 25 % of the capital, voting rights or profit-sharing rights of the employer or of a group company. Furthermore, the options must be granted in addition to regular remuneration and may neither replace nor reduce it.

Other Option Plans

For option plans that do not meet the requirements of the special regime, the draft bill provides for taxation under the general rules: the benefit in kind is subject to the regular progressive income tax rate – for freely tradable options at the time of grant, and for non-freely tradable options at the time of exercise.

Status

This is currently only a draft bill; the legislative process has not yet been completed. Regardless of when the law ultimately enters into force, it is intended to apply retroactively to all options granted from the 2027 tax year onward.

Practical Relevance

Employers who meet the requirements set out above should align future option plans with the planned statutory provisions at an early stage. In cross-border situations, the tax rules of each state concerned, as well as the provisions of the relevant double tax treaty, must also be taken into account.

Please get in touch with us to find the most favourable arrangement for you.

As of 02 September 2026