LUXEMBOURG Trends and Developments Contributed by: Romain Tiffon and Marie Bentley, ATOZ Tax Advisers
Introduction The year 2025 marked a significant phase of legis - lative and policy reform in Luxembourg, reflecting the country’s ambition to strengthen its position as a leading European financial centre while supporting entrepreneurship, innovation and international tax compliance. Against a backdrop of increasing regu - latory complexity and heightened scrutiny at EU and OECD levels, Luxembourg pursued targeted reforms across the tax, fund and corporate sectors. These developments highlight a co-ordinated governmental approach to competitiveness, transparency and align - ment with global standards. For market participants, the past year brought new opportunities but also new compliance expectations that require close attention. This chapter of the guide reviews the most notable tax‑related reforms Luxembourg adopted or clarified during 2025. It focuses on the following: • modernisation of the carried interest tax regime; • introduction of a new start‑up tax credit to stimu - late domestic innovation; • implementation of the DAC9 framework affecting Pillar Two reporting obligations; and • clarifications to the reverse hybrid mismatch carve‑out applicable to collective investment vehi - cles (CIVs). Collectively, these measures demonstrate Luxem - bourg’s efforts to balance competitiveness with inter - national conformity, while providing businesses and investors with greater legal certainty. Modernisation of Luxembourg’s Carried Interest Framework Reinforcing Luxembourg’s competitiveness in alternative asset management Luxembourg’s reform of the carried interest tax regime, adopted in January 2026 and prepared throughout 2025, represents one of the most strategically impor - tant developments for the asset management indus - try. The carried interest rules, originally enacted in 2013, had been under-appreciated due to interpre - tative uncertainties and technical limitations that no longer reflected the modern structuring of alternative investment funds (AIFs).
The new carried interest reform provides clarity and modernises the Luxembourg tax regime applicable to carried interest received by individual managers of alternative investment fund managers (AIFMs). It creates a legal framework that is favourable to AIFs and digital assets, supporting Luxembourg’s ambition to attract and retain senior fund professionals. These updates are aligned with the objectives expressed in the 2023–28 coalition agreement of the Luxembourg government, which emphasises strengthening Lux - embourg’s competitive edge as a fund domicile. In practice, the confirmed and broadened tax treatment provides greater predictability for managers involved in private equity, real estate, infrastructure, venture capital and increasingly digital asset strategies. Confirmation of tax classification A central feature of the reform is the confirmation that carried interest received by eligible individuals contin - ues to qualify as miscellaneous income (speculative gains) rather than employment or professional income. This classification preserves the favourable tax treat - ment applied to genuine carried interest arrangements and avoids recharacterisation risks that could under - mine Luxembourg’s attractiveness. The confirmation also aligns tax treatment with market expectations and existing fund industry interpretations. Expansion of eligible beneficiaries The previous carried interest tax regime only applied to employees of AIFMs or of AIF management com - panies. Employees of a fund’s affiliated companies other than the AIFM or the AIF management compa - nies, or individuals who are not employed as such, therefore do not fall within the scope of the regime. The new regime broadens eligibility to non-employees who play an active role in value creation within AIF
structures. These may include: • independent board members; • partners of management entities; and • employees of affiliated advisory firms.
The expansion aims to reflect the economic reality of modern fund structures, where value generation is often spread across multiple entities rather than con - centrated exclusively within the management com - pany. At the same time, the law expressly excludes
296 CHAMBERS.COM
Powered by FlippingBook