What a carry vehicle is
Carried interest is the deal team's share in the profits of a fund above an agreed return to investors. Rather than receiving it individually, the team usually holds it through a vehicle of its own — the carry vehicle — which holds the carry interest in the fund or receives the carry under the fund documents, and passes it on to its partners under its own agreement.
The usual vehicle is a Luxembourg special limited partnership (SCSp): it has no legal personality separate from its partners, is formed by notarial or private deed, has no minimum capital, and its governance, allocations and transfers are set in the partnership agreement (Law of 10 August 1915, Articles 100-4, 320-1 and 320-7).
Is a carry vehicle a fund?
An alternative investment fund raises capital from a number of investors to invest it under a defined investment policy; an entity is an AIF only if every element of the definition is present (AIFMD Articles 2(3)(f) and 4(1)(a); AIFM law Article 1(39); ESMA/2013/611, para. 4). Employee participation schemes are outside the AIFMD.
Where only members of the manager's team participate, a carry vehicle is usually structured so that it falls outside the AIF definition — as an employee participation scheme or because it does not raise capital from investors. Neither ESMA nor the CSSF has said so expressly for carry vehicles, so each structure is assessed on its own terms, especially where outside persons join.
Structure and governance
The carry vehicle has its own general partner, often the fund's general partner or a company controlled by the sponsor, which takes the decisions; team members are limited partners. Limited partners keep their limited liability as long as they carry out no acts of management towards third parties; exercising partner rights, giving advice, supervising and granting loans or guarantees are not acts of management (Law of 10 August 1915, Article 320-4).
The partnership agreement fixes each member's share, the allocation of carry between deals or funds, the rights to information, and how decisions are taken. The SCSp keeps a register of its agreement, partners and transfers (Article 320-1(6)).
Leavers, vesting and transfers
There is no statutory rule on leavers or vesting: they are contractual. The partnership agreement sets when a member's carry vests, what a good leaver keeps, what a bad leaver forfeits, and at what price an interest is taken back.
Interests transfer as the agreement provides; without a clause, the general partner's consent is needed, and the agreement may provide for the redemption or reduction of interests (Article 320-7). These are the tools for re-allocating carry when the team changes.
Remuneration rules
Carried interest paid by the fund is remuneration under the AIFMD rules, which apply in a way appropriate to the manager's size, internal organisation and the nature, scope and complexity of its activities (AIFMD Annex II; AIFM law Annex II).
A pro-rata return on the team's own investment in the fund — also through a carried interest vehicle — is not subject to these rules; only the part above that return is. Co-investment financed by a loan from the manager does not count as the team's own investment (ESMA/2013/232, paras 12–16). The fund's annual report discloses remuneration and the carried interest paid by the fund (AIFMD Article 22(2)(e); Regulation (EU) No 231/2013, Article 107(2)).
The 2026 carried interest tax regime
Since tax year 2026 the Law of 3 February 2026 sets a permanent regime for carried interest from an alternative investment fund (LIR Article 99bis(1a)). It covers individuals who carry out management functions — as employees, partners, managers or directors — with an AIFM, a management company or the fund, and individual advisers under an advisory contract, directly or through entities.
Purely contractual carried interest is taxed as extraordinary income at a quarter of the global rate. Carried interest that is inseparably linked to a direct or indirect participation in the fund — the usual carry vehicle — is not taxable if realised more than six months after acquisition, unless the participation is a substantial one: more than 10%, held alone or with one's spouse or partner and minor children, at any time in the five previous years, in which case half the global rate applies (LIR Articles 100, 131 and 132). Where the fund is an FCP or a tax-transparent partnership such as an SCS or SCSp, participation-linked carry is always treated as a speculation gain. Carry may be paid deal by deal; the former condition that investors first recover their capital was removed.
What the regime does not cover
The regime applies to alternative investment funds only, not to UCITS, and not to a club deal or other vehicle that is not an AIF. It rewards real outperformance: the parliamentary report refers to a market hurdle rate and a participation with economic substance, and the general anti-abuse rule applies. A fixed bonus labelled as carry is not carried interest.
The former temporary regime for incoming employees (Article 213 of the AIFM law) was repealed; its remaining beneficiaries moved into the new regime.
The vehicle's own tax position
An SCSp is tax-transparent: it pays no corporate income tax and no net wealth tax, and as an unregulated partnership no subscription tax. It is treated as carrying on a commercial activity — and becomes liable to municipal business tax — if its general partner is a capital company holding 5% or more of the partnership interests (LIR Article 14 no. 4; Circular L.I.R. no. 14/4).
For team members who are not resident in Luxembourg, the carry is generally outside Luxembourg's non-resident taxation, but the outcome depends on the facts — where the work is done and how the vehicle is set up — and on the applicable tax treaty.
Register and formalities
The carry SCSp is registered with the Luxembourg Business Registers, publishes an extract of its formation in the RESA, and declares its beneficial owners in the register of beneficial owners. Public access to that register was suspended on 22 November 2022; since the Law of 23 January 2025, access is reserved to national authorities, professionals subject to anti-money laundering obligations and persons with a legitimate interest.
If the vehicle's seat is with a third-party service provider, a domiciliation agreement with a regulated professional is required (Law of 31 May 1999, Article 1).
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