taxnews.ey.comPrint

22 January 2026

Luxembourg adopts modernized carried interest regime

  • The Luxembourg Parliament has adopted a law that substantially reforms the carried interest regime.
  • Effective from the 2026 tax year, the new law introduces two specific regimes applicable to specific types of carried interest.
  • Contractual carried interest will be subject to a maximum personal income tax rate of 11.45%, while participation-linked carried interest may qualify for tax exemption under specific conditions.
  • The adopted legislation broadens the scope of beneficiaries and aligns with the various carried interest models that exist in the market.
 

On 22 January 2026, the Luxembourg Parliament approved the legislative proposal that substantially reforms the existing carried interest regime. For more information on the proposed law, see EY Global Tax Alert, Luxembourg carried interest proposal would make significant changes, dated 4 August 2025.

The final law modifies the proposed version by defining beneficiaries. The new carried interest regime applies to individuals that either:

  • Perform investment management functions (such as portfolio and risk management functions, but excluding purely administrative roles) as employees, shareholders, managers or directors of managers, management companies or alternative investment funds
  • Act as service providers involved in the management of an alternative investment fund under a consultancy agreement, whether engaged directly or through one or more intermediary entities

The provisions apply to any carried interest received from tax year 2026 onwards.

* * * * * * * * * *
Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young Tax Advisory Services Sàrl, Luxembourg City

Ernst & Young LLP (United States), Luxembourg Tax Desk, New York

Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor

Document ID: 2026-0259

 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 1996 – 2026, Ernst & Young LLP

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

EY US Tax News Update Master Agreement | EY Privacy Statement