Expected to be effective from tax year 2026, Luxembourg’s bill of law 8590, submitted on 24 July 2025, introduces a new modern tax regime for carried interest to boost attractiveness and put Luxembourg as one of the best place for the asset management industry.
Objective: Provide a modern, legally secure and internationally competitive framework for professionals managing or advising Alternative Investment Funds (AIFs), while reinforcing Luxembourg’s appeal as a front-office private equity hub aligned with global best practices.
Widened carried interest definition: Any right to participate in the fund’s “outperformance” (i.e. performance exceeding a pre-determined hurdle rate).
Widened eligibility:
– Covers any individual providing management or advisory services to an AIF or its manager, regardless of employment status.
– Available to both Luxembourg residents and newcomers, and irrespective of the AIF’s jurisdiction.
Two-tier tax treatment – not limited in time – depending on carried interest structure:
– Contractual carried interest (not linked to fund participation): Carried interest granted via contractual arrangements – without holding a share or interest in the AIF – is taxed as “speculative income” at a fixed rate equal to 1/4 of the individual’s global income tax rate, i.e. maximum around 11.45%, if the highest marginal rate applies.
– Participation-linked carried interest (via interest in AIF or look-through vehicle): Fully exempt if the participation does not exceed 10% of the entity, the interest is held for more than 6 months, and the income qualifies as a carry distribution.
Applies regardless of the source of carry allocation: Whether the payment comes from the AIF, general partner, or a management company – substance over form applies.
Clarifies treatment of tax-transparent vehicles (e.g. SCSp, SCS): Deemed opaque for the purposes of this regime.
Market-aligned features:
– Deal-by-deal distributions permitted (no requirement to return capital before carry distributions).
– No geographic restriction on AIF location or investment activity.
For detailed guidance and support, please contact our Corporate Tax Team led by Mathieu Ledoux.
Expected to be effective from tax year 2026, Luxembourg’s bill of law 8590, submitted on 24 July 2025, introduces a new modern tax regime for carried interest to boost attractiveness and put Luxembourg as one of the best place for the asset management industry.
Objective: Provide a modern, legally secure and internationally competitive framework for professionals managing or advising Alternative Investment Funds (AIFs), while reinforcing Luxembourg’s appeal as a front-office private equity hub aligned with global best practices.
Widened carried interest definition: Any right to participate in the fund’s “outperformance” (i.e. performance exceeding a pre-determined hurdle rate).
Widened eligibility:
– Covers any individual providing management or advisory services to an AIF or its manager, regardless of employment status.
– Available to both Luxembourg residents and newcomers, and irrespective of the AIF’s jurisdiction.
Two-tier tax treatment – not limited in time – depending on carried interest structure:
– Contractual carried interest (not linked to fund participation): Carried interest granted via contractual arrangements – without holding a share or interest in the AIF – is taxed as “speculative income” at a fixed rate equal to 1/4 of the individual’s global income tax rate, i.e. maximum around 11.45%, if the highest marginal rate applies.
– Participation-linked carried interest (via interest in AIF or look-through vehicle): Fully exempt if the participation does not exceed 10% of the entity, the interest is held for more than 6 months, and the income qualifies as a carry distribution.
Applies regardless of the source of carry allocation: Whether the payment comes from the AIF, general partner, or a management company – substance over form applies.
Clarifies treatment of tax-transparent vehicles (e.g. SCSp, SCS): Deemed opaque for the purposes of this regime.
Market-aligned features:
– Deal-by-deal distributions permitted (no requirement to return capital before carry distributions).
– No geographic restriction on AIF location or investment activity.
For detailed guidance and support, please contact our Corporate Tax Team led by Mathieu Ledoux.
