Single taxable event at the moment of sale: Under the proposed regime, the only point at which tax is triggered is when the employee actually sells the shares. The grant, vesting, and exercise of the option are all tax-free events. The benefit arising on exercise is valued at zero for tax purposes, meaning no tax liability arises even where the share value significantly exceeds the exercise price at that point. This eliminates the need for complex interim valuations, a longstanding practical difficulty for unlisted start-ups.

General capital gains rules do not apply: The general provisions on speculative gains and substantial participation disposals are expressly disapplied. The sale of shares acquired through the option plan is taxed exclusively under this new regime, regardless of the employee's participation percentage or how long they held the shares.

Reduced tax rate: The capital gain on disposal (sale price minus the exercise price paid by the employee) is taxed as extraordinary income at one-quarter of the employee's overall tax rate. The exercise price can be freely set by the employer, including at zero, as long as it is clearly stated in the plan. If the exercise price is zero, the full sale proceeds constitute the taxable gain.

Opt-in mechanism: The regime is elective. The employer must expressly opt in on a plan-by-plan basis. Companies that meet the eligibility criteria may still choose to apply the general regime to any given plan.

Eligibility criteria for the employer: To qualify, the issuing company must satisfy all of the following conditions, assessed as at the close of the financial year preceding the year of grant:

• Incorporated less than 10 years ago;
• Fewer than 150 full-time equivalent employees;
• Balance-sheet total or turnover not exceeding €30 million;
• R&D spending of at least 15 per cent of total expenditure;
• At least 2 full-time equivalent persons working for the company;
• Eligibility certified by an approved statutory auditor or chartered accountant;
• Activities of a genuinely innovative character;
• Not operating in certain excluded sectors (including law firms, audit/accounting firms, real estate companies, SICARs, listed entities, and entities resulting from mergers or demergers); and
• Notably, companies that have distributed dividends or reduced their share capital since incorporation are not excluded from this regime (unlike under the existing start-up tax credit regime).

• Options must be non-transferable and unlisted;
• The employee must not hold (directly or indirectly) more than 25 per cent of the capital, voting rights, or profit rights at the time of grant or during the preceding 24 months;
• Options must not replace any element of the employee's existing remuneration; and
• The employee must be a Luxembourg tax resident (or a former resident domiciled there for more than 15 years) at the time of disposal.

Employer reporting obligations: The employer must submit prescribed electronic documentation to the tax authorities by 1 March of the year following the grant or exercise. This includes, in particular, the group structure and evidence supporting the qualifying conditions. Non-compliance results in the regime not applying.

Codification of the general stock option regime: Separately, the bill codifies the general rules previously governed only by administrative practice. A distinction is drawn between freely transferable options (taxed at grant, valued using recognised methodologies such as Black-Scholes) and non-transferable options (taxed at exercise, based on the difference between market value and the exercise price). These provisions will now sit in a dedicated statutory framework, improving legal certainty. Virtual or phantom stock options are expressly excluded from both regimes.

This bill forms part of the Government's March 2025 action plan for start-ups and responds to broader EU initiatives, including the European Commission's "Blue Carpet" package and the EU Inc.  proposal, which emphasise employee equity incentives as a means of retaining talent within the Single Market.

The text of the bill can be consulted here.