Luxembourg’s government has introduced a new plan, Bill 8590, to lower taxes on carried interest.
The goal is to attract the best financial talent to the country, especially as institutional investors plan to increase their hedge fund investments by 10% or more by 2027.
This bill, introduced on July 24, 2025, aims to bring the actual decision-makers and fund managers to Luxembourg.
The new law would create a major tax cut for these managers, whose earnings can currently be taxed as high as 45.78%. It offers two new options.
First, performance-based pay could be taxed at a much lower rate of around 11%. Second, if a manager invests their own money into the fund, the carried interest they earn could be 100% tax-free after six months. The bill also expands the eligibility for these tax benefits beyond just direct employees.
If approved, the new tax rules would be implemented in the 2026 financial year. The proposal is meant to strengthen Luxembourg’s position as a global financial leader, where over EUR 5.5 trillion in fund assets are already managed. By creating a more attractive tax system, Luxembourg could see entire management teams relocating, bringing more skills and high-level financial activity to the country.
