Luxembourg’s new carried interest regime

Luxembourg has introduced a new carried interest regime to allow for a clearer and more competitive framework. 

The changes were introduced by the Luxembourg law of 3 February 2026 (draft law no. 8590), which amends Article 99bis of the Luxembourg income tax law for individuals who are tax resident in Luxembourg for personal income tax purposes (the “Law”). 

The regime applies from 2026 and includes two key changes: a broader range of eligible individuals and more favourable tax treatment.  

This briefing outlines the regime's key features. 

Scope

The regime applies to Luxembourg tax residents who either: 

• perform management functions  as employees, partners, managers or directors within investment fund management entities or alternative investment funds (AIFs) 
• provide services to AIFs under a service agreement, either directly or through one or more intermediary entities 

This broadened scope expressly recognises the contribution of independent directors, consultants and investment advisory professionals. 

Carried interest categories 

The Law distinguishes between two categories of carried interest, each benefiting from specific favourable tax treatment.

• Contractual carried interest, being the remuneration paid without any equity participation in an AIF, is taxed as "extraordinary income" at one quarter of the individual’s global personal income tax rate (capped at 11.45% for the 2026 tax year). Any separate investment made by the beneficiary in the AIF remains subject to ordinary tax rules. 
  
  
• Participation‑linked carried interest, arising from a direct or indirect equity investment in an AIF (including through an SCS/SCSp or a foreign vehicle), may benefit from a full tax exemption, provided that (i) the carried interest is realised more than six months after the investment and (ii) the participation does not exceed 10% of the AIF’s equity. Failing these conditions, the income is taxable as a speculative gain or as ordinary income at progressive rates. For this specific tax regime, the usual look-through approach applied to tax-transparent fund vehicles is disregarded. The regime applies only to carried interest income and does not extend to returns derived from the individual’s ordinary investment in the AIF. 

How Ogier can help

Our tax experts in Luxembourg provide tailored and innovative solutions to help our clients achieve their objectives. To learn more about any of the carried interest updates mentioned above, contact a member of our Tax team. 

About Ogier

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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