Luxembourg Parliament votes new carried interest regime

 

On 22 January, the Luxembourg Parliament approved the draft law amending the Luxembourg carried interest regime. The revised regime aims at further reinforcing Luxembourg’s attractiveness for the alternative investment sector.

Key highlights

The law introduces a differentiation between two types of carried interest:

• Purely contractual carried interest, i.e. not linked to any form of investment Such carried interest, which is currently taxed at a rate of up to 45.78% (+1.4% dependence insurance contribution) will in the future be taxed at ¼ of the beneficiary’s global tax rate, i.e. a maximum of 11.45% (+1.4% dependence insurance contribution)

 

• Carried interest linked to an investment The latter will be taxed according to regular capital gains rules, i.e. not taxable if held for more than 6 months and the beneficiary does not hold a substantial participation (more than 10% of the shares/quota of the underlying vehicle)  

Furthermore, the new regime enables the inclusion of a wider scope of AIF such as debt funds. It also no longer requires investors to be repaid first and will thus include deal-by-deal arrangements.  


The law extends the scope of beneficiaries that is no longer restricted to employees of the AIFM or management company, but can include external individuals, such as directors or advisors.

Our experts outline the key aspects of the new regime in our latest newsletter available for download below.