Delano: I understand that your answer is ‘yes’ to the question of introducing an incentive for people to invest in startups. Why?

Patrizia Luchetta: It’s a ‘yes’ because the life of a startup is usually supported by individuals (commonly called business angels). And, of course, it’s in the early years where the investments are the most… risky, because you don’t know if the company is going to fly or not. So I think it’s appropriate--to some extent--to incentivise investors to put money in at that early stage and then reward them as well. These tax incentives [are] actually quite common. I mean, the UK has had one for many years, other countries as well--in Luxembourg we’re lagging.

There is a proposal law (no. 8047) for such a tax deduction of up to €5k. What do you make of it? 

I honestly think it’s not enough… I actually don’t see the point of doing it just for €5k, to be honest. If you look at other countries, the thresholds are higher. [Editor’s note: as of 2023, Spain allows individuals to deduct up to €50k per year, or half of their investments in startups up to a €100k limit.]

I understand that for the government it’s also a matter of: how much is this doing to reduce our income in terms of taxes? But in this case, to me it’s not an incentive… I would honestly hope that [before voting on the law, the Luxembourg government] would raise the threshold a little bit. I mean, for me, €20k would already be a good step towards something that makes sense. 

You’ve said that such a tax incentive would work best as part of a broader set of instruments. 

Take the example of Spain… they’ve worked on different areas. One is reducing the tax rate for startups--once they start making money, obviously--so for a couple of years they have a tax deduction on corporate tax. Then there is the incentive for private investors. But also, very importantly--and this is something that Luxembourg is working on too--the fiscal treatment of stock options. Because companies, startups, don’t always have the means to pay the talent that they need at a good price. And so stock options are a way to go everywhere in the world. In Luxembourg, the regime was slashed some years ago because it was being used not necessarily by startups, but now it has become not attractive enough. 

Ideally, I mean, if you want to increase your economy by promoting startups, you really need to make it attractive for everyone. Just a fiscal deductibility for investors won’t help much if the startups don’t have a good terrain [on which] to grow and flourish.

Some 90% of startups fail before they turn five years old. Given how high that rate is, how can investors be protected?

What some countries have done--besides [offering a tax deduction on investments]--is to raise the threshold where you can offset your losses, which again will lead to a reduction in your taxation… if the company fails. That’s the way to do it. I would not say secure it completely or else, you know, the entrepreneurial spirit is gone. But the possibility to offset part of the losses would be a good way to go.