Luxembourg approves revised carried interest regime

On 22 January 2026, the Luxembourg parliament voted to approve Bill n° 8590 introducing a revised carried interest regime, effective as from 1 January 2026.

The law intends to enhance as well as clarify the tax treatment of carried interest for attracting alternative investment fund managers in Luxembourg and strengthening the financial sector and economy. It lays down a clear and competitive framework for the taxation of carried interest income.

The main provisions of the draft law as detailed in our previous PwC Flash remain unchanged.

There was however one amendment brought by the government after the publication of the draft law to deal with concerns raised by the State Council regarding the scope of eligible carry holders.

The initial bill proposed to extend the scope of beneficiaries beyond employees of the AIFM or management company, to include individuals performing services for the benefit of an AIFM or a management company of an AIF (directly or indirectly).

In its opinion, rendered on 21 October 2025, the State Council considered that this wording was too broad and imprecise and was thus creating legal uncertainty. The State Council requested, under threat of formal opposition, that the law be amended to more precisely define who is eligible for the revised regime.

As a result, the draft law was amended and the law, as voted, states that carry holders eligible to the tax treatment as laid down in the law are:

• Natural persons performing management functions as employees, partners, managers, or directors of AIFMs, management companies, or AIFs;
• Natural persons involved in the management of an AIF under a services agreement, whether this agreement is concluded directly or through one or more entities.

The tax treatment of carried interest will therefore require individual assessment, considering the role and functions of the carry holder, individuals performing only administrative functions being excluded from the scope of the law. Attention should also be paid to the employment structure to ensure that the individual meets those conditions of the law.