In a large bowl, place the butter and sugar and whisk them together using a hand mixer until you have a light and fluffy mixture, about 5 minutes.
Beat in the egg, then slowly incorporate the limoncello whilst whisking, then add lemon zest. Scrape down the sides of the bowl with a spatula and whisk until combined.
Sift the flour and baking powder into the bowl with the wet ingredients. Mix with a spatula until combined. Do not overmix. You will have a soft, slightly sticky dough. Cover the bowl and refrigerate for at least 15 minutes.
Preheat oven to 160°C/320°F or with the fan option on at 140°C/280°F. Arrange the baking tray onto the middle shelf.
Slightly wet your hands and form small balls (around 24 grams/0.8 oz each), you can also use a cookie scoop. Arrange them on a baking tray covered with parchment paper. Refrigerate for 10 minutes.
Transfer the cookie tray to the oven and bake for 12-15 minutes, or until slightly golden on top. I like to check on them a few minutes earlier to make sure they don't brown too much. The cookies may crack a bit as they puff up during the baking process, that's ok! Remember that they will be covered in glaze.
Remove the limoncello cookies from the oven, allow to cool slightly, then arrange them on a wiring rack and cool completely.
Once the cookies are cool, sprinkle them with powdered sugar, or dip the tops of the cookies in glaze and return them to the wire rack. Immediately top with lemon zest and allow the glaze to set at room temperature. Store in an airtight container in a single layer.