Employee taxation · Start-ups and scale-ups
Luxembourg employee stock options 2027: proposed taxation, eligibility and employer reporting
Who could qualify for the preferential regime?
| Proposed test | Requirement and verification |
|---|---|
| Employer | Fully taxable resident capital company or cooperative; or qualifying EEA entity with a Luxembourg permanent establishment. |
| Age | Incorporated for less than 10 years. Group membership can require group-level testing of age, headcount and financial size. |
| Headcount | Fewer than 150 employees, assessed at group level when relevant. |
| Financial size | Balance-sheet total OR turnover not exceeding €30 million; the draft uses OR, not AND. |
| Innovative workforce | At least two persons working on a full-time-equivalent basis for the entity, at the statutory reference date. |
| Research and development | Qualifying R&D expenses of at least 15% of total operating expenses in at least one of the preceding three financial years, subject to a first-year rule. |
| Eligible employee | Employment income; no direct or indirect holding of more than 25% of capital, voting rights or profit rights at grant or in the preceding 24 months. |
| Genuine equity option | Non-listed, non-freely-transferable options for real equity in the employer or group, not in substitution for annual pay. |
| Exclusions | Include specified law-firm statuses, audit and accounting businesses, certain real-estate activities, SICARs, entities traded on a regulated market and companies formed through certain mergers or divisions. |
Which thresholds require professional certification?
Under proposed Article 100bis(1)(6)(b), if the employer belongs to a group, the fewer-than-150-employees threshold and the €30 million balance-sheet-or-turnover threshold must be certified by an approved statutory auditor or Luxembourg expert-comptable. Separately, Article 100bis(1)(6)(c)(ii) requires professional certification of the 15% R&D ratio. Preparing supporting accounting records as a licensed accountant is not the same as delivering this reserved professional certification. Draft Law No. 8782, proposed Article 100bis (filed text, pages 2–4).
When are the qualifying thresholds tested?
For an existing company, age, employment and financial-size tests refer to the end of the financial year immediately before the year of grant. The R&D ratio must be met in at least one of the prior three financial years. Special testing dates apply to grants during the first financial year. Qualification is not simply reassessed whenever shares are sold: the grant-stage facts and the plan conditions must be substantiated.
How is the 15% R&D ratio calculated?
The proposed ratio is eligible R&D expense divided by total operating expenses for the relevant financial year. The draft identifies staff costs genuinely attributable to R&D and equipment used for qualifying activities, with time-based allocation when applicable. A bookkeeping account labelled 'development' is not by itself evidence that the expenditure qualifies.
Illustration: €120,000 of substantiated R&D personnel costs plus €30,000 of equipment costs, against €800,000 in operating expenses, produces €150,000 / €800,000 = 18.75%. The quantitative test would be met only if the expenses qualify and supporting records are accepted. The 15% ratio must be certified by an approved statutory auditor or Luxembourg expert-comptable; a licensed bookkeeper may prepare the underlying records but must not claim the reserved certification role.
Draft Law 8782: quantitative pre-screening
Use figures from the reference dates in the draft. For a group, age, FTE headcount and financial size must be checked at group level. The result is indicative; no data is transmitted.
- Under 10 years : Needs evidence
- Fewer than 150 FTE : Needs evidence
- Turnover OR balance sheet ≤ €30m : Needs evidence
- At least 2 entity FTE : Needs evidence
- At least 2 individual workers : Needs evidence
- R&D ≥ 15% : Needs evidence
- Ownership ≤ 25% over 24 months : Needs evidence
Complete the relevant fields. Some quantitative criteria cannot yet be evaluated. This is still draft legislation.
For groups, age, headcount and financial size must be assessed at group level. Group headcount and size must be certified by an approved statutory auditor or Luxembourg expert-comptable. R&D costs and total operating expenses must refer to the same qualifying year among the preceding three (or the special first-year period); the ratio requires separate professional certification. Software costs do not automatically qualify as R&D. No tax is calculated.
Request an accounting-readiness review
The pre-check is not a legal eligibility determination. Have your R&D evidence, group structure and proposed tax reporting reviewed with suitably qualified professionals.
When would employee stock options be taxed?
The bill distinguishes two treatments. The special regime (proposed Articles 100bis and 104ter LITL) would defer taxation until disposal of qualifying shares. The codified ordinary regime (proposed Article 104bis) would generally tax freely negotiable options at grant and non-freely negotiable options at exercise.
| Event | Proposed special regime | Proposed ordinary regime |
|---|---|---|
| Grant | No tax | Freely negotiable options generally taxed at fair value |
| Exercise | No tax | Non-freely-negotiable options generally taxed |
| Share disposal | Specific gain taxed at one-quarter of global rate | Ordinary capital-gains rules as applicable |
Worked example: 1,000 options and an exit
An employee exercises 1,000 options at €5 each and later sells the 1,000 shares at €55 each. Illustrative gain: (€55 − €5) × 1,000 = €50,000. If that employee's calculated global tax rate were 40%, one-quarter would be 10%, producing €5,000 of tax on this gain under the isolated example. The global rate is not a fixed marginal or statutory rate. Actual liabilities depend on the tax year, taxable income and any cross-border rules.
What about companies outside the start-up regime?
The draft would also codify the ordinary taxation of options: valuation at grant for freely negotiable options and at exercise for other options. Subject to conditions, shares with a qualifying lock-up could receive a 5% valuation discount per year of lock-up, capped at 20%, linked to reporting duties. The discount must not be presented as available to every plan.
Can a Luxembourg holding company issue qualifying options?
Options may relate to genuine equity in the employing entity or another group entity. A holding company, its operating subsidiaries and its founders do not automatically qualify: group-size and age rules, sector exclusions and beneficiary ownership must all be tested. A tax-transparent SCSp is not itself a qualifying capital company or cooperative employer for this purpose.
What reporting would the employer need to submit?
The employer would elect the special regime separately for each plan and electronically notify the competent Luxembourg payroll-tax office (RTS) before 1 March of the year after grant, submitting the required employee list, grant details, number of options, exercise prices and any group chart. Under the ordinary regime, the deadline depends on whether the options are freely negotiable: after grant or after exercise. Supporting documents must be retained. Failure to report could disqualify the special regime.
Which tax and legal risks remain?
Draft Law 8782 does not by itself establish an automatic social-security exemption, nor does it bring cash-settled phantom shares within the special regime. Cross-border employees require separate analysis of double-tax treaties, work periods and residence-country rules. In a Luxembourg Sàrl, share transfers can also face statutory or consent restrictions: tax deferral does not create liquidity.
Preparation checklist for a start-up
- Document the group structure, incorporation dates and direct and indirect employee ownership.
- Reconcile R&D costs to accounting ledgers and timesheets; for a group employer, also document and obtain the required professional certification of headcount and financial size.
- Verify employee status, the 24-month 25% ownership limit and the prohibition on substituting equity for annual remuneration.
- Agree genuine share acquisition terms, exercise price, leaver provisions, liquidity and transfer restrictions with qualified legal counsel.
- Prepare grant registers, payroll-tax notification records and a review process before the 1 March deadline.
- Review social-security treatment and cross-border employee taxation separately.
Frequently asked questions
Is the new Luxembourg stock-option tax regime already law?
No. As of 1 November 2026, No. 8782 is a draft law. Application to options granted from tax year 2027 is proposed, subject to the legislative process.
Will every employee pay a fixed 10.5% tax?
No. The bill refers to one-quarter of each employee's global income tax rate. The actual figure varies by individual; 10.5% is not a guaranteed statutory rate.
Can a founder holding exactly 25% qualify?
The proposal excludes direct or indirect holdings of more than 25% of capital, voting rights or profit rights at grant or during the prior 24 months. Exactly 25% alone does not prove that all the other conditions are met.
Are phantom shares covered?
No, not under the proposed special regime where they create only a contractual cash entitlement rather than ownership of genuine equity.
Can a first-year start-up qualify?
Potentially. The proposal includes special testing dates for first-year grants, but R&D, workforce, group and other criteria still require substantiation.
Can a licensed bookkeeper certify the R&D ratio?
Under the proposal, certification of the 15% ratio is reserved to an approved statutory auditor or Luxembourg expert-comptable. A licensed accountant/bookkeeper may prepare the supporting records without representing that the reserved certification is part of their licence.
Accounting and payroll support with a defined professional scope
Financial Services Luxembourg can help prepare R&D cost accounting, payroll controls and documentation for an eligibility review. The legal plan, specialised tax opinions and reserved statutory certification must be handled by appropriately qualified professionals. No tax outcome can be guaranteed before enactment and individual verification.
Accounting · Payroll and salary reporting · Outsourced CFO · Luxembourg holding company
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