Are you doing enough to scale your digital transformation?

Firms face a critical imperative: adapt or lag. The force of digital transformation is reshaping markets, consumer expectations and regulation. Investing in the transition is a necessity for resilience and relevance. Luxembourg-based firms can benefit from an investment tax credit to support their transition, but uptake has not been as strong as it could – and should – be. 

Digital technologies offer companies opportunities to streamline operations, improve customer experiences and unlock new business models. From AI-driven analytics, to cloud-based infrastructure, embracing digital innovation enhances efficiency, agility and competitiveness. Companies that fail to invest in these tools risk becoming obsolete in an increasingly data- and technology-driven economy.

What are the top five considerations for firms when embarking on or scaling up digital transformation?

Success in digital transformation requires more than simply upgrading systems or adopting the latest tools. It demands a comprehensive shift in how businesses operate, deliver value and engage people. Here are five critical considerations organizations must address to achieve meaningful and sustainable change, drawing insight from EY’s framework on digital transformation.

1. Embrace nonlinear value creation and organizational change
   
   Big transformations are about fundamentally reshaping how value is created. Companies must cultivate a culture that embraces fluid, nonlinear outcomes. This means engaging with the workforce to build resilience and adaptability, and getting comfortable with iterative (not once-off) improvements.
   
   
2. Close skills gaps with capacity building
   
   A technological shift can only be as successful as the people behind it. It is important to identify and address skills shortages – especially in areas like AI, cloud, data analytics and cybersecurity. Establishing clear training programs, recruiting new expertise and fostering internal mobility is imperative.
   
   
3. Build agile business and technology architecture
   
   Legacy business systems and fragmented IT landscapes can seriously hamper progress and that is why firms should adopt modular, interoperable systems that align with strategic objectives. An agile architecture speeds up deployments and accelerates innovation.
   
   
4. Leverage data as a strategic asset and embed cybersecurity
   
   Data should be treated as a core business asset. Developing robust data governance, cultivating data ownership and establishing pipelines for analytics and AI are paramount.
   
   
5. Implement clear governance and decision-making frameworks
   
   Transformations easily stall without clear accountability. It is essential to define governance structures with explicit roles, responsibilities and trade-off protocols, and ensure decisions remain aligned to value objectives and adapt to changing circumstances.

While the above forms the foundation of a successful transformation, organizations must be realistic about the financial commitment involved. The cost of digital transformation – both direct and indirect – can be steep, encompassing technology investment, talent acquisition, operational disruptions and long-term change management. Underestimating these expenses can derail progress, and the fear of cost itself can be daunting enough to delay or dilute transformation efforts. However, avoiding the transformation journey altogether can prove far more costly in the long run as competitors leap ahead and legacy systems become liabilities. 

Did you know that there is a tax credit for digital investment in Luxembourg?

To offer firms some relief, Luxembourg offers a one-of-a-kind credit for digital investment. The investment tax credit (ITC) regime – upgraded in 2023 – is designed to encourage investment in digital transformation (as well as the ecological and energy transition – not covered in this article). However, in 2024, only 72 projects have made use of the relief, of which 56 concern digital transformation.

The ITC offers an 18% tax credit for investments (capex) and operating expenses (opex) related to digital transformation, the process or innovation which involves implementing or using digital technologies. It is calculated on the acquisition or production cost of the relevant investments made during the financial year, and if the tax level is too low, unused tax relief can be deducted from taxes payable for the next 10 years.

What investments qualify?

In practice, the following are typically covered: investments in depreciable tangible assets (other than buildings), investments in software or patents (other than those acquired from related parties), expenses incurred for the use of, or the right to use, patents or software (except if granted by a related party), fees for consultancy, diagnosis and technical support services that are provided by external service providers and are unrelated to the company’s ordinary operating expenses, as well as employee costs and employee training costs in relation to staff directly involved in the company’s digital transformation. Investments and operating expenses incurred to ensure the company's compliance with regulation or legislation are explicitly excluded.

How can businesses claim the credit?

Business must submit, together with its income tax return, a certificate issued by the Ministry of the Economy attesting that the investments were actually made, the operating expenses were actually incurred during the given operating year, and the corresponding amount. The granting of this certificate is only possible on the condition that firms first obtain an “attestation of eligibility” from the Ministry. Firms can apply for this attestation via MyGuichet.lu. While the ministerial decision granting or refusing the attestation is intended to be issued as soon as possible, it can legally take up to three months following a completed application, sometimes more depending on circumstances. It is important to note that only investments and expenses that follow the date of submission of the application of the attestation can be covered by the certificate.

We encourage all to make use of this benefit

As covered in the recent EY Luxembourg Attractiveness Survey (2025), global enterprises increasingly demand efficiency, transparency, and digital-first experiences, in addition to a focus on sustainability. Looking purely at the financial industry, Luxembourg’s future competitiveness will depend a large part on its ability to operationalize innovation across the entire fund industry. Luxembourg must therefore invest deeply in scalable, end-to-end digital initiatives and infrastructure. 

There is a major opportunity here for the asset servicing industry which should not be overlooked. As the number one fund industry in Europe, Luxembourg has the potential to become a top digital hub for asset servicers. A strong digital ecosystem – with attractive incentives – is critical for asset servicers. If more servicers establish operations in Luxembourg, they will offer reliable services that draw fund managers seeking quality support.  This strengthened ecosystem will boost foreign investment, solidifying Luxembourg’s status as a leading investment management destination.

A stronger effort is needed to help more companies benefit from the ITC. The same Luxembourg Attractiveness Report suggests that the Luxembourg government should raise awareness and simplify the tax credit application process. Clearer guidelines and streamlined attestation requirements could help businesses use these incentives more effectively. At the business level, timing is a critical factor – firms must consider when to apply for the ITC as the attestation of eligibility is required prior to the investments being made or expenses being incurred. 

In conclusion, large-scale digital transformation goes beyond adopting new tools. While the costs can be significant and sometimes deter action, the greater risk lies in standing still. The ITC is therefore a welcomed initiative, but to date the uptake is not at the expected level. Enterprises are encouraged to make the most of this benefit and to consider application well ahead of the planned investment/expense as the approval timing can be longer than expected. Organizations that invest wisely and stay focused on long-term value will be far more likely to realize meaningful ROI.