Luxembourg has formally adopted its new carried interest regime on 22 January 2026, marking a key milestone in the modernisation of its tax framework for private capital and asset management.
This adoption follows the legislative process previously outlined in our earlier alert on Luxembourg's push for private capital attractiveness and competitiveness: Luxembourg's push for private capital attractiveness and competitiveness | White & Case LLP.
The revised law materially strengthens Luxembourg's position as a leading European investment platform and fund hub. Building on a long-established and sophisticated legal framework for cross-border investment structuring, the new regime introduces a clear, coherent and competitive approach to the taxation of carried interest. It significantly enhances predictability and legal certainty for asset managers.
Beyond reinforcing Luxembourg's attractiveness as a fund domicile and decision-making centre, the reform provides the stability and flexibility required for managers to structure, manage and scale their global investment platforms and worldwide operations from Luxembourg over the long term.
In Summary
The law now clearly distinguishes between two categories of carried interest:
- Contractual carried interest, granted on a purely contractual basis and not linked to a participation in the fund, which is taxed as extraordinary miscellaneous income at one quarter of the individual's overall income tax rate; and
- Equity-linked carried interest, represented by or linked to a participation in an alternative investment fund, which falls within the capital gains tax regime. In this case, an exemption may apply where the participation has been held for more than six months and represents less than 10% of the fund's share capital.
Subject to formal adoption – expected through a waiver of the second constitutional vote – the new regime will enter into force on 1 January 2026.
Clarification of the Scope of Beneficiaries
One of the most notable developments introduced during the legislative process concerns the clarification of the categories of individuals eligible to benefit from the carried interest regime.
The law now distinguishes between two clear categories:
- Individuals holding management positions within alternative investment funds, alternative investment fund managers or management companies, including employees, partners, managers and directors; and
- Service providers involved in the management of an alternative investment fund under an advisory agreement, either directly or through an intermediary structure.
In all cases, the new regime is dedicated to functions directly related to investment management, such as portfolio management and risk management, while purely administrative tasks are excluded.
This clarification provides legal certainty and supports the overall robustness of the regime.
A Strong Signal for Luxembourg's Attractiveness
By modernising its carried interest framework to reflect current market practices and international fund economics, Luxembourg sends a strong and clear signal to asset managers and sponsors. The reform reinforces the Grand Duchy's attractiveness as a hub for cross-border asset management and further consolidates its position as a leading European centre not only for fund domiciliation, but also for the effective operation and governance of global investment platforms.
Clémentine Bernard (White & Case, Trainee, Luxembourg) contributed to the development of this publication.
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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
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