Participation exemption opt-out in Luxembourg
The participation exemption opt-out has been available since 2025, participation by participation, where loss carryforwards approach their limit.
What is the participation exemption opt-out in Luxembourg?
The participation exemption opt-out in Luxembourg is the option, available since tax year 2025, to waive the exemption of participation income where it rests on the acquisition price threshold alone: EUR 1,200,000 for participation income, EUR 6,000,000 for the gain on a disposal. The choice is made participation by participation and year by year.
The measure comes from the tax package approved by the Chamber of Deputies on 11 December 2024, the "Entlaaschtungs-Pak", enacted as the law of 20 December 2024. Its article 8 amends article 166 of the income tax law to introduce the possibility of waiving the benefit of the exemption of participation income. A Grand-Ducal regulation of the same day extends the option to income arising on the disposal of a participation exempt solely because the acquisition price is at least EUR 6,000,000.
A third layer, often overlooked, completes the picture: article 5 of the same bill allows entities covered by title II of the law to waive the 50% exemption on investment income of article 115, number 15a, likewise to be exercised for each tax year and for each participation.
The purpose stated in the parliamentary file aligns Luxembourg with the exemption regimes existing in a number of other European Union Member States and gives flexibility to taxpayers who have an interest in using their tax loss carryforwards rather than automatically benefiting from the exemption. For the mechanics of the regime, see our page on the participation exemption regime.
| Income concerned | Basis of the waiver | Condition for the option |
|---|---|---|
| Exempt participation income | Article 166 LIR, law of 20 December 2024 | Exemption obtained on the EUR 1,200,000 threshold alone |
| Income arising on a disposal | Regulation of 20 December 2024 amending that of 21 December 2001 | Exemption obtained on the EUR 6,000,000 threshold alone |
| 50% exemption on investment income | Article 115, number 15a LIR, law of 20 December 2024 | Title II entities, per participation |
Which participations open the option, and which are excluded?
The option is open in Luxembourg only to participations whose exemption is obtained through the acquisition price threshold alone. Where the conditions are met on the basis of a holding of at least 10% of the capital, the waiver cannot be exercised and the exemption continues to apply.
The dividing line follows the two thresholds of the parent-subsidiary regime, which differ by type of income. Participation income is exempt from 10% of the share capital or from an acquisition price of at least EUR 1,200,000; a gain on disposal requires 10% or EUR 6,000,000, in both cases with a holding, or an undertaking to hold, for twelve uninterrupted months.
The option therefore targets a precise profile: the minority participation with a large ticket. A 4% line acquired for EUR 2,000,000 is exempt on its dividends through the price threshold alone, and the waiver is available. A 12% line acquired for EUR 800,000 is exempt through the 10% threshold, and the option is closed to it, even where the company would have an obvious interest in it.
The governance consequence is rarely anticipated: the option is not available for a portfolio but line by line, and a restructuring that pushes one line above 10% closes it for the following years. It is one of the parameters belonging to SOPARFI taxation.
| Participation | Basis of the exemption | Waiver available? |
|---|---|---|
| 12% of the capital, acquired for EUR 800,000 | 10% of capital threshold | No |
| 4% of the capital, acquired for EUR 2,000,000 | EUR 1,200,000 threshold | Yes, for participation income |
| 3% of the capital, acquired for EUR 6,500,000 | EUR 6,000,000 threshold | Yes, for disposal income |
| 4% of the capital, acquired for EUR 900,000 | None under article 166 | Not applicable, income not exempt |
Why waive: the countdown on loss carryforwards
A Luxembourg company waives the participation exemption in order to make income taxable and absorb loss carryforwards that would otherwise expire unused. That is the reason put forward in the parliamentary file, and the Chamber of Commerce welcomed the flexibility in its opinion.
The countdown is real. Losses of financial years closed after 31 December 2016 are deductible only within the last seventeen financial years closed before the beginning of the tax year, whereas those closed between 1 January 1991 and 31 December 2016 remain deductible without any time limit. A holding incorporated after 2016 therefore has, for each vintage, a date beyond which the carryforward is worth nothing.
The example below, built by our firm with fictitious amounts, shows the typical computation: a company holds 4% of a subsidiary, acquired for EUR 2,500,000, carries EUR 1,200,000 of losses from the 2017 to 2019 financial years and receives a dividend of EUR 400,000. Left exempt, that dividend consumes nothing and the losses keep ageing; with a waiver, it enters taxable income and absorbs EUR 400,000 of carryforward.
The trade-off is therefore not "exemption against taxation", it is "losses used against losses lost". It assumes three conditions in the same year: a carryforward threatened by the time limit, participation income large enough to absorb it, and no other profit that would have consumed it anyway.
| Item | Without waiver | With waiver |
|---|---|---|
| Dividend received on the 4% line | EUR 400,000 | EUR 400,000 |
| Treatment of the dividend | Exempt | Included in taxable income |
| Loss carryforward at 1 January | EUR 1,200,000 | EUR 1,200,000 |
| Carryforward consumed in the year | EUR 0 | EUR 400,000 |
| Remaining carryforward | EUR 1,200,000, clock running | EUR 800,000 |
How the option is exercised: per participation and per tax year
The waiver is exercised in Luxembourg individually for each tax year and, for the 50% exemption of article 115, number 15a, for each participation. Where it is not exercised in accordance with those conditions, the exemption continues to apply as it stands.
There is no standing election and no multi-year commitment: the decision is taken again at each year end. A company that waived for 2025 has decided nothing for 2026, and a company that did nothing keeps the exemption with no formality.
The trace of the option sits in the corporate income tax return. The integrator documentation published by the ACD for the 2025 return provides an element for the optional waiver of the exemption of article 115, number 15a, in respect of at least one participation, and a separate element for operating expenses economically connected with exempt participation income.
We regularly see the same calendar gap in practice: the question comes up when the return is being prepared, a year after the year end, when the stock of losses and the dividend received are no longer open to discussion. Handled at the year end, it leaves time to check the basis of the exemption, the age of the carryforwards by vintage and the income expected.
What the waiver does not settle, and what we check first
Waiving the participation exemption neutralises neither the rules on deducting charges linked to the participation nor the other taxes borne by the Luxembourg company: three points should be confirmed with the Luxembourg tax administration before the option is exercised.
The first concerns charges. Those relating to exempt participation income lose, in principle, their deductible character, and the return has a dedicated line for them. Whether the waiver, by making the income taxable, restores the deductibility of the year's charges is not stated in any source we consulted, and that answer changes the outcome of the computation. The second concerns the exit: a gain on disposal remains taxable up to the charges previously deducted, a mechanism set out in our article on participation exemption recapture. The third concerns the interaction with municipal business tax and net wealth tax, which we could not verify against an official source.
Before proposing the option on an engagement, we check the actual basis of the exemption line by line, the age of the losses by vintage, the existence of income large enough to absorb, and the cost of the option if the carryforward falls short. What blocks is rarely a tax point: we regularly see loss carryforwards tracked as a single global figure, with no split by year of origin, which cannot show which vintage is approaching its limit. Rebuilding that split from the assessments and the filed accounts takes half a day to a day per structure, at the hourly rate in our pricing grid.
We therefore recommend the option only on income already acquired at the year end, never on a hoped-for distribution, and we document it in the same movement as the approval of the accounts: basis of the exemption, loss vintages, amount of income, decision taken and date.
Sources and verification
Written for Financial Services Luxembourg and reviewed before publication by Mickaël LOC, licensed accountant (authorisation 10077274). The rules, thresholds and references in this article were verified on 8 September 2026 against the official sources listed below.
The parliamentary file of bill 8414, the "Entlaaschtungs-Pak", voted on 11 December 2024, for the commentary on the articles: article 8 amends article 166 to introduce the possibility of waiving the benefit of the exemption of participation income, applicable as from tax year 2025, only where the conditions are met solely by reason of an acquisition price threshold of at least EUR 1,200,000, the waiver being exercised individually for each tax year and the exemption continuing to apply where it is not; article 5 amends article 115, number 15a, to allow title II entities to waive the 50% exemption, exercised for each tax year and for each participation; and the opinion of the Chamber of Commerce, for the purpose of using loss carryforwards. The law of 20 December 2024 and the Grand-Ducal regulation of 20 December 2024 amending that of 21 December 2001 implementing article 166, paragraph 9, number 1, both published in the Journal officiel. The ACD newsletter of 8 January 2025, for the extension of the waiver to income arising on the disposal of a participation exempt solely because the acquisition price is at least EUR 6,000,000. The ACD integrator documentation for the 2025 corporate return, for the element covering the waiver of the article 115, number 15a exemption in respect of at least one participation, and for the line on expenses economically connected with exempt participation income. The ACD page on loss carryforwards, for the seventeen-year limit on losses of financial years closed after 31 December 2016 and the unlimited carryforward of those closed between 1 January 1991 and 31 December 2016. The guichet.lu page on the parent-subsidiary regime, for the 10%, EUR 1,200,000 and EUR 6,000,000 thresholds, the twelve uninterrupted months and the loss in principle of the deductible character of charges linked to exempt income.
Four points could not be verified at that date. The exact wording of the new paragraph of article 166 and of the Grand-Ducal regulation of 20 December 2024 could not be read in the published text, legilux.public.lu not being reachable from our drafting environment: we set out their scope as described in the parliamentary file and in the ACD communication, without quoting the wording. The specific box for the article 166 waiver in the 2025 corporate return could not be identified; only the one for article 115, number 15a, was. The effect of the waiver on the deductibility of the year's charges is not stated by the sources consulted, and its interaction with municipal business tax and net wealth tax was not verified. The worked example is a construction of our firm. A reader can check these points on legilux.public.lu and with the Luxembourg tax administration for the application to their own situation.
This article sets out the law as it stands at the publication date. Thresholds, rules and calendars change, and any decision binding your structure should be verified as at the date you rely on it. Report an error to contact@financialservices.lu: the correction is dated in the article.
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