A bit more than a year has passed since Luxembourg introduced the new investment tax credit regime aimed at supporting digital transformation. What began as a bold policy move has, today, proven to be a resounding success. Designed to encourage companies to invest in digital tools and technologies, the tax credit has become a key enabler of innovation and competitiveness across sectors.

A timely boost for digitalisation

Announced as part of the 2023 tax reform package and effective since the 2024 tax year, the regime provides for an 18% tax credit for qualifying investments (capex) and operating expenses (opex) in digital transformation projects. It includes hardware and software acquisitions, cybersecurity infrastructure, and investments in automation or digital process improvements. This forward-looking measure arrived at a time when many Luxembourg businesses were recognising the need to accelerate their digitalisation efforts but lacked the financial flexibility to do so. The investment tax credit offered a clear incentive and an opportunity to act.

Strong uptake across industries

Sixteen months on, the feedback from the market is highly positive. A significant number of Luxembourg companies have already benefited from the regime, using it to support projects ranging from driving value chain efficiency, innovating in organisational models through digital and reducing cyber risks. “We have seen growing interest from clients across financial services, manufacturing, and logistics,” notes Nenad Ilic, Tax Partner and FS Tax Leader at PwC Luxembourg. “The tax credit has been instrumental in helping companies justify and prioritise digital investments that might otherwise have been postponed.”

Beyond tax relief – A strategic lever

While the fiscal benefit is undoubtedly attractive, the real value of the investment tax credit lies in its strategic impact. It has helped elevate digital transformation to a boardroom priority. Companies are no longer viewing technology upgrades as discretionary expenses but as essential, long-term investments in resilience and growth. Patrice Witz, Technology Partner and Digital Leader at PwC Luxembourg, adds: “This regime is a game changer for businesses aiming to innovate and to embrace digital at a deeper and more strategic level. It helps unlock strategic discussions and encourages organisations to step up their efforts in critical areas and adopt a more proactive stance on digitalisation.” Moreover, the scheme aligns well with Luxembourg’s broader ambition in regards of the acceleration of digital innovation in Europe and globally. Incentivising private sector investment in cutting-edge technologies strengthens the country’s position as a digitally advanced, future-ready economy. 

Looking Ahead

As the investment tax credit regime enters its second year, the outlook remains promising. While there is ongoing discussion around eligibility criteria and simplifying application processes – especially for smaller businesses – the overall response has been overwhelmingly positive. One year on, its success is clear.

Now is the perfect time for companies to review their project pipelines and identify eligible projects for the coming year. Scoping and budgeting these projects not only ensure compliance but also provide clarity on the strategic value of your digital investments. If needed, seeking expert guidance can help navigate this process effectively and optimise the benefits for your business.

by Nenad Ilic, Tax Partner and Patrice Witz, Advisory Partner, PwC Luxembourg