Note to reader: Starting today and at the rate of one chapter per month, we are going to detail, in collaboration with the Luxembourg Startups Association, what the Luxembourgish start-ups ecosystem expects from political parties, in the campaign for the municipal elections and legislation of 2023. Next theme will be developed on January 16, 2023.
Champagne will flow freely and smiles will light up every face. This Wednesday, December 14th, all Estonian business angels and local VCs will gather to celebrate another record year in terms of investment in start-ups, of more than 1.2 billion euros (to 1.5 billion of euros of turnover of the start-ups in question ).
The small northern country, often cited as an example for its digitized economy and, above all, very favorable to the setting up of new businesses, should emphasize a little-known statistic: it is by far the European champion (in the continental sense) in investment by business angels in relation to The country’s GDP (0.13%), ranking in which Luxembourg occupies an honest eleventh place – but below the European average, probably due to a truncated GDP due to the weight of financial services.
Estonia is not only one of the countries that tax the least on income, but also on capital income. Entrepreneurs who reinvest their profits in the development of their start-up are exempt from taxes. It remains for investors to be patient to reap the fruits of their investments.
Target, 2.5% of Luxembourgish savings
In Luxembourg, this is not the model that the new start-up federation, the Luxembourg Startups Association (LSA), led by Patrick Kersten🇧🇷 But the association is relaunching the idea of a private investment incentive: a tax subsidy for those who invest in an innovative young company, as exists in Belgium, France, the UK and in half the OECD countries in one form or another.
“Savings in Luxembourg have reached an all-time high. According to a recent estimate, the excess savings of Luxembourgers would have increased by 2 billion euros during the Covid pandemic. Since then, inflation has reappeared in Europe. With 6.9% in October 2022, this implies that 138 million of national savings disappeared this year alone”, notes the LSA. “Investment in Luxembourgish startups averaged 52 million per year between 2016-2021, for an ecosystem of more than 500 active projects. Redirecting 2.5% of Luxembourg’s surplus savings would double the amount invested in local start-ups.”
If the LSA – not to be confused with the Luxembourgish space agency – welcomes the bill that two CSV deputies, Laurent Mosar and Gilles Roth, transmitted to the Ministry of Finance on July 14, is considered “not ambitious enough. It contains the least favorable conditions for investors compared to neighboring countries.”
very low reduction
Startups.lu recommends that the reduction of 5,000 that is suggested in this proposal, “which has the merit of existing”, be “significantly increased”, since the value is “up to ten times smaller than that of our neighbors (nine times smaller in comparison with Belgium).
In fact, it’s between six and nine times less since Belgium modified its tax break in various ways. There is no longer one, but two, a tax shelter for start-ups up to 500,000 euros for companies less than five years old and a tax shelter for scale-ups (in full growth) up to 1 million euros. The investor (maximum of 100,000 euros per year and per person) obtains a tax reduction of 20% for scale-ups, 30% for start-ups or up to 45% for micro-enterprises (start-ups that have a balance sheet of less than 350,000 euros euros, a turnover without VAT of less than 700,000 euros and employed an annual average of less than ten people).
We will also have to see how start-ups will start to look at the tax shelter for video games, which the European Commission took more than two years to validate and which comes into force on 1er January, because at the time of the rise of the metaverse, these technologies and the companies that carry these projects will necessarily merge.
Pay attention to an often overlooked element, the fund freeze period. In Belgium, if an investor wants to recover his capital before four years, his taxes will be increased to recover part of the advantage obtained.
A schedule that will be difficult to meet
There is a dual scheme of the same type in France, the SME savings plan called “PEA PME” and an “IR PEA” version called “Madelin”, whose pros and cons are very well explained here🇧🇷 There are 46 devices in Europe, but the Belgian and French were the best considered in the latest analysis report of the European Commission🇧🇷
The Startups Association of Luxembourg, logically, recommends that, as in Belgium, the investor can invest in several start-ups until reaching the maximum limit and adds that the rebate rate must be among the highest in Europe, the only way to o become a marker at the service of Nation Branding and thus attract new projects.
Finally, and it will probably be much more difficult to imagine, the LSA wants this tax incentive to be on track from 2023 onwards. The governing coalition has already vetoed it, but the former finance minister, Pierre Gramegna (DP), had ruled out any major tax reform before the next government takes office next autumn. At that point, we will have to take this tax cut and go and defend it in Brussels. Of course, since there are already quite a few, this should be faster than for a new idea.
“Many countries have successfully chosen this path. Taking Belgium as an example, +70% of investors, +249% of investment for a total invested amount of 40 million euros (2018)”, says the association.