Luxembourg is once more taking a bold step to strengthen its position as a leading hub for alternative investments.

On 24 July 2025, Draft Law No. 8590 was submitted to Parliament (Chambre de Députés) introducing a modern, more flexible tax regime for carried interest.This reform – expected to apply from fiscal year 2026 – aims to attract and retain top talent, offering greater clarity and more competitive taxation for fund managers, advisors, and other key professionals.

🔎 What’s changing

🗝️ Broader eligibility – Not only employees of the AIFM, but also advisors, independent directors, and other key individuals.

🗝️ More flexibility – Both contractual and participation-based carried interest arrangements are covered.

🗝️Attractive taxation – Reduced rates for contractual arrangements and capital gains exemptions (after six months) for participation-based structures.

🗝️ Simplification – Clearer rules, fewer limitations, and alignment with market practice.

♀️ Why it mattersFor fund managers and investors, this reform creates new opportunities to optimise compensation structures while keeping Luxembourg at the forefront of the alternative investment industry.

👟 Next steps The draft law is under parliamentary review and is expected to take effect in 2026. Now is the perfect time to review your carried interest arrangements and plan ahead.