Luxembourg adopts modernized carried interest regime

Luxembourg’s Chamber of Deputies adopted a long-awaited reform modernising the tax treatment of carried interest, representing a significant step forward for the Luxembourg financial centre. The law introduces the concept of outperformance, expands eligible beneficiaries to individuals genuinely involved in AIF management, and broadens the scope of qualifying funds. It clarifies the distinction between contractual and participative carried interest, ensures substance-based analysis, and makes permanent a favourable tax regime, enhancing legal certainty, competitiveness, and alignment with international market practices.