Luxembourg’s new carried interest regime: taxed at about 11.5% from 2026

Country reference

• Country: Luxembourg (planned expansion country)
• Authorities: Administration des contributions directes (ACD); Ministry of Finance
• Topic: Tax treatment of carried interest
• Key date: Law of 3 February 2026; applies from tax year 2026
• Law: Law of 3 February 2026 amending the Income Tax Law (L.I.R.) and the AIFM Law of 12 July 2013

What changed

• The Chamber of Deputies adopted the reform on 22 January 2026 and the law was enacted on 3 February 2026, published in the Mémorial on 4 February 2026.
• It applies from the 2026 tax year.
• Beneficiaries now include individuals involved in managing alternative investment funds more broadly.
• The law speaks of outperformance rather than capital gains.

How carried interest is taxed

• Contractual carried interest: taxed at about 11.5%, a regime that replaces a former transitional rule and is now permanent, according to KPMG.
• Carried interest through fund units or shares: taxed by reference to holding periods, as for other participations.

Why it matters

• Luxembourg competes with Ireland, the Netherlands and the UK to host fund management teams.
• Luxembourg also has a separate tax regime for qualifying highly skilled workers moving to the country.
• The rules sit alongside the AIFMD II changes in force since April 2026.

What to do now

• Fund sponsors: review carry plans and documentation against the new conditions.
• Individuals: confirm residence, holding periods and how carry is paid.
• Take advice on interaction with tax treaties for non-resident team members.

Our take

A clear rate around 11.5% gives certainty that managers wanted. For Gulf sovereign and family capital partnering with Luxembourg managers, it supports team stability in European funds.