2025 Luxembourg’s new tax bill

In July 2025, Luxembourg introduced draft Bill No. 8590 to the Parliament, to modernize the country’s tax treatment for carried interest. The reform replaces temporary measures with a permanent and transparent framework, aiming to align Luxembourg’s system with international standards and strengthen its position as a leading fund hub. This new regime is intended to take effect for the 2026 tax year if approved.

The reform differentiates between two types of carried interest. Contractual carried interest, granted as performance-based remuneration without an investment stake, would be taxed at a reduced rate roughly one quarter of the standard income tax, resulting in an effective rate near 11–13%. Participation-linked carried interest, tied to an actual investment in the fund, may benefit from full or partial exemption if the holding meets certain size and duration criteria.

Eligibility under the new regime would expand beyond fund managers to include professionals involved in fund management and advisory roles. The draft law also recognises deal-by-deal carry structures and introduces safeguards to prevent misuse, ensuring carried interest remains linked to genuine investment performance.

If adopted, the reform would offer greater legal certainty, eliminate outdated transitional rules, and make Luxembourg even more attractive for global asset managers seeking stability, transparency, and competitive tax treatment.

Author: Dany Tong Sam, Partner and Head of Accounting