Agefi Luxembourg - février 2026

AGEFI Luxembourg 18 Février 2026 Fonds d’investissement By David MARIA, Partner & Stephanie RAFFINI, SeniorAssociate. PinsentMasons Luxembourg LLP L uxembourghas longbeen a leading jurisdiction for funddomiciliation and administration. Now, the country faces a challenge in attracting front- office activities, particularly active fundmanagement. In response to this, the government introducedBillNo. 8590 on 24 July 2025 - aiming tomodernise the carried interest regime to alignwithmarket practices and attract qualifiedpersonnel in active fundmanagement. The BillNo. 8590was passedon 22 January 2026 (the “Law”) andwas publishedon 4 February 2026, furthering the amendment of the beneficiarydefinition requiredby theCouncil of State ( Conseil d’État ) tobemore precise andgive therefore more legal certainty. The tax regime applica- ble to carried interest introducedby the Law (the “NewRegime”)will come into force from01 January 2026. The previous tax regime applicable to carried inter- est (the “ Previous Regime ”) in Luxembourg was governed by Article 99bis of the Luxembourg In- come Tax Law (“ LITL ”) and by Article 213 of the Law of 12 July 2013 on Alternative Investment Fund Managers (the “ AIFM Law ”). The Previous Regime had an unduly restrictive scope – which was expanded by the NewRegime. Before highlighting the changes introduced by the Law, wewill recall themain features of the Previous Regime to illustrate what the NewRegime brings to the Luxembourgmanagement fund landscape. Previous carried interest tax regime ThePreviousRegimeprovidedbytheLITLinvolved a complex distinction between contractual entitle- ments andparticipation-linked rights : - Pure contractual carried interest involved: (i) en- titlements linked to the employee’s role inmanaging the fund, (ii) entitlements not linked to an equity in- vestment in the fund and (iii) the distributions oc- curredonlyafter the full returnof capital to investors under the fund’s waterfall. Such carry interest wouldbe taxable asmiscellaneous income (i.e spec- ulative profit), meaning the entire amount of carry receivedwouldbe taxedat the individual’sprogres- sive income tax rate (the “ Rate ”) goingup to45.78% (which is the marginal tax rate of 42% to which the unemployment fundsurchargeof up to9%applies). However, no social security contributions would apply as such income does not constitute employ- ment income. - Participation-linked carried interest was realised upon the disposal of units or shares with carried in- terest rights (the “ Units ”). It benefits from a full ex- emptionprovidedtheindividualdoesnotexceedthe 10%shareholdingthresholdandtheUnitsareheldfor more than six months. Where the beneficiary held more than10%of the shares of anopaque alternative investment fund (“ AIF ”) (which should not be quite frequent),thegainoncarriedinterestbecomestaxable as a capital gain. This means that the individual was taxed at the half-global personal income rate (the “ Global Rate ”).If theUnits are disposed before the 6 months period elapses, the carried interest is taxable at the level of the individual at theRate up to 45.78%. Inaddition, theAIFMLawprovideda temporary in- patriate regime allowing eligible individuals relocat- ing toLuxembourgbetween2013and2018 tobenefit from taxation on pure contractual carried interest at onequarteroftheGlobalRateforaperiodofuptoten years, provided the individual had not been Luxem- bourg-resident or taxable on Luxembourg employ- ment/professional income during the preceding five years. This regime was temporary and no longer availablefornewarrivals. Assuch,thelastbeneficia- ries canonly benefit fromit until 2028. These complexdefinitionsdidnot alignwith theeco- nomic requirements of the fund industry which re- quired bespoke carry interest structuring. This weakened the attractiveness and efficiency of the tax regime.Forexample,amajorobstaclewastherequire- mentofthefullreturnofcapitaltoinvestorsunderthe fund’swaterfall. Additionally, the restrictive scope regarding eligible beneficiarieswas anothermajor obstacle. Thegeneral tax regime providedby article 99 bis LITLwas appli- cabletoLuxembourgtaxresidentsemployedbyonly authorised AIFMs - expressly excluding advisers, partners, andother serviceproviders. Moreover, the taxregimeforinpatriatesprovidedbytheAIFMLaw concernedonly newLuxembourg tax residents . TheNewRegime Key Innovation Against this backdrop, the NewRegime intended to extend its scope to include other beneficiaries as well as to other carry interest plan structuring without limit of time. - The Law broadens the scope of beneficiaries to include carried interest holder’s that are all-natu- ralpersonsgenuinelyinvolvedin the investment management of theAIF. This includes both (i) in- dividuals performing manage- ment functions as employees, partners, managers, or directors with managers, management companies,orAIFsand(ii)individ- uals involved in the management of an AIF under an advisory services contract. Purelyadministrativefunctionsareexcludedfromthe scopewhich alignswith the purpose of the Law. - The previous requirement that investors must re- cover their full investment before managers receive carriedinterestisabolished.Thischange allowsdeal- by-deal carry structures tobenefit fromthe regime . -Unlike the previous temporary regime (which fore- seen that the carry should be allocated within a 10- yearperiodasfromgrant/implementation);the New Regimewill applywithout time limits . - The carried interest tax regimewill apply regardless of the AIF’s legal form - ensuring consistency in the application of tax treatment for tax-opaque entities, tax-transparent entities and common funds. Still two categories of carried interest The New Regime was also necessary for Luxem- bourg toprovide clear definitions of carried interests andtodistinguishbetweenperformance-basedcarry, returnon investment, and salaryor bonus - enabling clear and predictable carry interest planning. The Lawmaintainsthedistinctionbetweenthetwotypes of carried interest. Contractual carried interest Thiscarriedinterestisstillnotlinkedand doesnotre- quirethebeneficiarytoacquireaparticipation inthe AIF.However,thecarriedinterestundertheLawwill nowincludeall performance-basedprofitsharing of anAIF - includingprofit sharingonout-performance andnot only profit sharing on capital gain. This enti- tlementtypically arisesoncethefundachievesapre- agreed hurdle rate, which refers to the minimum return investors expect before sharing excess profits. Suchhurdleratemustalignwithmarketpracticesand cannot be set artificially low. Thecontractualcarriedintereststillqualifiesasan ex- traordinaryincome (i.e.stillnotsubjecttosocialsecu- rity’s contribution) . However, it is subject to one quarteroftheGlobalRate,anditsapplicabilitywill notberestrictedbytimelimitationsortaxresidency. Inaddition,theLawclarifiesthatfixedincomeorstan- dard bonus shall not be improperly recharacterized as carried interest. Specifically, if a carried interest is expressed as a percentage of salary and it is paid out ona regular basis, then this couldbe consideredabu- sive and treated as a “hidden” bonus. Participation-linked carried interest Thebeneficiary mustacquireadirectorindirectpar- ticipation in the AIF or a participation represented by a interest in theAIF to be able to benefit fromthe participation-linkedcarriedinterest.Theparticipation- linked carried interest is tax-exempt if it is received more thansixmonths after the investment madeby thebeneficiaryof the carried interest, unless linked to a participation exceeding 10% ownership. Other in- come from the participation remains subject to ordi- nary tax rules. Typically, the income derived from non-carried interest would be taxed according to the general tax rules as it would be for other investors. (Summary table below) Expected impact and challenges The Law signifies a good step in positioning Lux- embourg as a leading jurisdiction for private equity and alternative investment fund management by implementinga regime that canmaterially improve after-tax returns for investment professionals. However, the carried interest tax regime should apply in linewith thepurposeof theLawon income qualifying as such as per themeaning of the Law. If the purpose of the Law is not to define what is a carry interest, it has to define what kind of carried interest enter in the scope of application of the favourable tax regime. As carry interest plans are bespoke designed, their structuration should be carefully thought to ensure tax efficiency. Luxembourg carried interest tax reform - Amodernised and competitive regime for fund managers ȱ Taxation ȱ un d er ȱ t h e ȱ P re v ious ȱ re g ime ȱ Taxation ȱ un d er ȱ t h e ȱ N e w ȱ R e g ime ȱ Con d itions ȱ un d er ȱ t h e ȱ N e w ȱ R e g ime ȱ Contractual ȱȱ carrie d ȱ interest ȱȱ Taxe d ȱ a t ȱ th e ȱ Ra t e ȱ g oin g ȱ up ȱ to ȱ 4 5 .78 % . ȱ On e ȱ qu a rt e r ȱ of ȱ th e ȱ G l o bal ȱ Ra t e. ȱ ȱ C ontr ac tu al ȱ ri g ht ȱ to ȱ s h a r es ȱ profit ȱ base d ȱ on ȱ th e ȱ p e rfor ma n ce ȱ without ȱ ho l din g ȱ p a rti c ip a tion ȱ in ȱ th e ȱ A I F ȱ r e quir eme nt s. ȱ P artici p ation Ȭ lin k e d ȱ carrie d ȱ interest ȱȱ Same ȱ as ȱ und e r ȱ th e ȱ Ne w ȱ Reg i me. ȱ Ȭȱ I f ȱ ho l din g ȱ less ȱ th a n ȱ 1 0% ȱ p a rti c ip a tion ȱ for ȱ m or e ȱ th a n ȱ 6 ȱ m onth s: ȱ not ȱ t axable ȱ Ȭȱ I f ȱ ho l din g ȱ m or e ȱ th a n ȱ 1 0% ȱ p a rti c ip a tion ȱ for ȱ m or e ȱ th a n ȱ 6 ȱ m onth s ȱ (quit e ȱ r a r e ) : ȱ t axable ȱ a t ȱ h al f ȱ of ȱ th e ȱ G l o bal ȱ Ra t e ȱȱ Ȭȱ I f ȱ ho l din g ȱ less ȱ th a n ȱ 6 ȱ m onth s: ȱ fu lly ȱ s u bjec t ȱ to ȱ t ax ȱ a t ȱ th e ȱ Ra t e ȱȱ up ȱ to ȱ 4 5 .78 % . ȱ R i g ht ȱ l ink e d ȱ to ȱ a ȱ dir ec t ȱ or ȱ indir ec t ȱ p a rti c ip a tion ȱ in ȱ th e ȱ A I F ȱ ȱ ȱ Summary table D eloitte Luxembourg and itsGerman Business Community—a network- ing initiative forGerman-speaking market participants inLuxembourg—or- ganised the 25th edition of the “Deutscher Fondstag” on 27 January 2026. The event brought together leading figures fromthe assetmanagement industry, politics, andacademia. For over more than one decade, the Fondstag has established itself as a key platform for dialogue among fund professionals from Luxembourg, Germany, Austria, and Switzerland. This edition featured a comprehensive programme addressing the regulatory, legal, and taxdevelopments shaping the fund industry across these regions. Among the distinguished guests was Jean Assel- born, former Deputy Prime Minister and Minister of ForeignAffairs of Luxembourg,whoparticipated ina fireside conversationmoderatedbyFrankLich- tenthäler, Partner Deloitte Luxembourg, offering perspectives on current European political dynam- ics and geopolitical challenges facing the region. The programme also included the traditional eco- nomic outlook presentedbyDr.Alexander Börsch, Chief Economist at Deloitte Germany. He outlined macroeconomic expectations for 2026 and explored how long-term structural forces are likely to influ- ence Europe’s economic resilience. Building on this broader economic perspective,MartinFlisgen, Part- ner at Deloitte Germany, highlighted key trends in digital asset management and outlined how tok- enization can drive efficiency and support value creation in asset management. These insights set the stage for a central theme of this year’s discussions: theEuropeanCommission’s proposed Savings and Investment Union and its potential role in supporting reforms of European pension systems. In a dedicated panel discussion moderated by Harald Thul, Partner Deloitte Lux- embourg, Corinne Lamesch (Association Luxem- bourgeoise des Fonds d'Investissement - ALFI), Jochen Wiesbach (Union Investment Privatfonds GmbH), and Prof. Patrick Augustin (McGill Uni- versity) examined how the fund industry can help strengthen retirement systems across Europe. Prof. Augustin opened the session by presenting key insights from the ALFI study “Europe’s Pro- ductive Capital Gap,” which highlights how di- vergent pension systems across the continent result in uneven distribution of risk capital, with direct implications for long-term investment in strategic areas such as security and infrastructure. Reflecting on the event, Harald Thul, Partner and leader of the German Business Community at De- loitte Luxembourg, stated: “The 25th edition of the “Deutscher Fondstag” demonstrates how es- sential cross-border dialogue has become for the European fund industry. As regulatory land- scapes evolve and pension systems come under increasing pressure, collaboration remains the key to unlocking productive capital and support- ing long-term economic growth.” This edition reaffirmed the Fondstag’s role in con- vening diverse industry perspectives on the de- velopments shaping the European fund landscape, emphasising the importance of collab- oration as the sector looks ahead. Deloitte Luxembourg hosts the 25th edition of the “Deutscher Fondstag” Key insights into Europe’s fund landscape ©WillySpeicher /Deloitte from left to right: Sascha Voigt, Prof. PatrickAugustin, JochenWiesbach, Corinne Lamesch, JeanAsselborn, Dr.Alexander Börsch, Harald Thul, Frank Lichtenthäler, Kevin Boran, and Beate Twellmeyer