On 22 January 2026, the Luxembourg Parliament adopted the bill (8590) reforming the Luxembourg carried interest regime, introducing parallel regimes for two categories of carried interest, depending on whether the entitlement arises purely on a contractual basis or is closely linked to an investment in the fund. The new rules will apply as from the 2026 tax year.

The enacted law largely confirms the policy direction previously announced when the bill of law was initially published (see our earlier publication here). The reform renders the taxation of carried interest granted in the context of alternative investment funds (AIFs) more attractive. 

Where the carried interest is purely contractual, i.e. neither closely linked to nor represented by a direct or indirect investment in the AIF, the corresponding income is treated as extraordinary income and taxable at only one quarter of the taxpayer’s average progressive income tax rate. This treatment is merely conditional on the income properly qualified as carried interest (i.e., being a participation in the “extra performance” of the fund beyond the usual hurdle return allocated to investors).

By contrast, carried interest that is closely linked to, or represented by, a direct or indirect investment in the AIF, including so‑called “carried invest” structures, is treated as a speculative gain. Such income is, if realised after a minimum six‑month holding period (and provided the carry holder holds less than 10% in the AIF, which is typically the case), not subject to Luxembourg income tax. This treatment remains subject to the application of anti‑abuse provisions, i.e., the participation should be sufficiently substantial both in terms of volume and holding period.

The law additionally confirms that carried interest received through transparent vehicles, including entities falling within the scope of Article 175 of the Luxembourg income tax law and from AIFs organised as SCS(p)s or FCPs, retains its qualification as a speculative gain irrespective of the nature of the underlying income realised by the fund.

Compared to the initial bill of law, the enacted text introduces an important clarification by explicitly defining, at statutory level, the category of eligible individuals for purely contractual carried interest. In addition to employees and managers, the regime expressly covers individuals who provide services related to the management of AIFs, including where services are rendered under advisory services agreements, whether directly or through intermediary entities.  Note that there is no restriction as to the participants in the second category pertaining to carried interest closely linked to an investment in the AIF for that regime to apply. This clarification enhances legal certainty for commonly used market arrangements.

Apart from this clarification, the reform as laid down in the original bill of July 2025 remains unchanged. For more detail, we refer to our earlier publication accessible here.

Should you wish to explore introducing a carried interest regime or have questions on this reform, please contact an author of this newsletter or your trusted Loyens & Loeff adviser.