For US fund managers that consider relocating talent to Europe, three Luxembourg tax regimes stand out as game changers.

New carried interest regime

Pending legislation provides a very competitive Luxembourg tax regime for carried interest derived by Luxembourg resident individuals:

  • Full exemption: Carried interest derived by Luxembourg resident individuals that is linked to a direct or indirect interest in an AIF, regardless of its legal form or jurisdiction, will be fully tax exempt, provided the interest does not exceed 10% and is held for more than 6 months.
  • Prefential taxation: Carried interest paid to Luxembourg resident individuals in the form of performance or incentive fees will be taxed at a reduced rate of approx. 11.5%.
  • Broad eligibility: The new tax regime will apply to Luxembourg resident employees and board members of an AIF or its alternative investment fund manager (𝐀𝐈𝐅𝐌), as well as individuals who are directly or indirectly at the service of an AIF(M), such as the portfolio manager, including those under contractual arrangements.

If adopted (which is expected), the new regime will apply as from 2026.

Attractive inpatriate tax regime

Luxembourg’s inpatriate regime offers a generous income tax exemption equal to 50% of the gross annual salary (excluding tax-exempt cash and in-kind benefits) for eligible professionals relocating to Luxembourg. The gross salary benefiting from this regime is capped at EUR 400,000/yr. With a simplified application process and an 8-year duration, it’s a beneficial tax regime for key executives who are relocated to Luxembourg.

Enhanced profit-sharing bonus tax regime

Luxembourg resident individuals benefit from a 50% income tax exemption in respect of certain profit-sharing bonuses. Specifically, the 50% exemption applies if (i) the profit-sharing bonuses granted to all employees do not exceed 7.5% of the employing company’s prior-year net profits and (ii) the profit-sharing bonus granted to the relevant employee does not exceed 30% of his/her annual salary. US fund managers can use this regime to incentivise their Luxembourg team in a tax-efficient manner while reinforcing alignment with fund performance.

Next steps

If you are considering expanding or setting up your fund platform in Europe, now is the time to explore Luxembourg’s opportunities. Our team can guide you through eligibility, structuring and compliance to ensure your strategy is both tax-efficient and fully compliant.

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