Luxembourg Carried Interest Reform: Key Changes from 2026
On 24 July 2025, the Luxembourg government submitted a draft law to Parliament that would significantly reform the country’s carried interest tax regime, with changes proposed to take effect from the 2026 tax year.
Two New Categories of Carried Interest
Contractual carried interest
Taxed at a reduced maximum rate of 11.45%
No investment in the Alternative Investment Fund (AIF) required
Participation-linked carried interest
Potentially tax-exempt if:
The individual’s stake is 10% or less
The stake is held for at least six months
Scope and Practical Impacts
The reform includes several structural changes:
Broader eligibility – now open to anyone involved in managing an AIF, not just employees
No “capital recovery” requirement – managers can receive carried interest without investors first recovering capital, enabling US-style deal-by-deal models
Applicable to all AIF structures – regardless of whether the fund is legally transparent or opaque
Purpose and Next Steps
The draft law aims to modernise and clarify the carried interest regime, aligning it with current market practices and enhancing Luxembourg’s competitiveness in fund management. If passed, the law will apply from 1 January 2026.
Action point: Affected taxpayers and fund managers should closely follow the legislative process and seek specialist tax advice to prepare for the new rules.
