Cross‑Border Tax Forecast 2026 in Luxembourg

On 22 January 2026, the Luxembourg Parliament adopted a law modernising and clarifying the carried interest regime.

Applicable as from fiscal year 2026, the revised regime will apply to a wide range of individuals involved in the management of alternative investment funds (AIFs), irrespective of their professional status (e.g. employees of AIFs or AIF managers, investment advisers, independent board members, consultants).

The law establishes a distinction between the carried interest received on a purely contractual basis and the carried interest mandatorily linked to direct/indirect participation in the AIF.

Tax treatments:

• contractual carried interest is taxed as extraordinary income, at one quarter of the global rate (i.e. a maximum rate of 11.45%)
• participation-linked carried interest is taxed under the ordinary capital gain rules (full exemption of the carried interest if participation in the AIF is held for more than 6 months and such participation does not exceed 10%). Note that the legal form in the AIF (opaque or transparent) is irrelevant for qualification of the remuneration.

The objective of the law is to provide legal certainty and to attract fund managers and key persons to further strengthen Luxembourg’s position as a leading international financial centre and hub for investment funds.

Hence, this law aims to foster a competitive environment for fund management activities, particularly to attract and retain front office functions.

Following enactment of the law, monitoring the types of service considered by the tax authorities to fall under the regime will help ensure consistent application.