Luxembourg tax updates: key developments in summer 2025

The summer of 2025 saw the introduction of key changes in Luxembourg's tax landscape, offering significant benefits and strategic advantages, particularly for asset managers.  

Carried interest taxation

On 24 July 2025, the Luxembourg government introduced the draft law no.8590 aimed at substantially reforming the tax regime applicable to carried interest.  

By amending Article 99bis of the Luxembourg income tax law (LITL), this project expands the scope of eligible recipients of carried interest beyond traditional employees of alternative investment fund managers. This new regime recognises the significant contributions of independent board members, consultants and staff from investment advisory firms. 

The draft law provides a clearer framework by separating carried interest into two distinct categories. 

• Contractual carried interest - this refers to remuneration paid, typically without requiring an actual fund participation. This income is taxed as "extraordinary income" at the favourable rate of one quarter of the taxpayer’s global personal income tax rate. Notably, the previous time limitation of 10 years for this tax treatment has been withdrawn. 

• Participation-linked carried interest - this arises from a direct or indirect investment in the fund itself. The tax treatment of the corresponding income is independent of the legal form of the fund, whether tax opaque or tax transparent, and follows the ordinary capital gains regime. Provided that the carried interest is received more than six months after the investment date and that the participation does not exceed 10%, then no Luxembourg tax liability arises. 

A significant simplification is also proposed, as investors are no longer required to have recovered their initial investment before carried interest becomes payable. This enables (American style) "deal-by-deal carry", providing greater flexibility for managers and aligning Luxembourg with common international market practice. 

New tax circular on reverse hybrid rules

On 12 August 2025, the Luxembourg tax authorities published a new circular, providing welcome clarifications on the reverse hybrid rules contained in Article 168quater, paragraph 2 LITL. 

The circular provides that certain fund types are, by their very nature, regarded as collective investment vehicles (CIVs) which are out of the scope of the reverse hybrid rules. Specifically, the following vehicles qualify as CIVs: 

• collective investment undertakings governed by the Luxembourg law of 17 December 2010 as amended (UCIs) 

• specialised investment funds governed by the Luxembourg law of 13 February 2007 as amended (SIFs) 

• reserved alternative investment funds governed by the Luxembourg law of 23 July 2016 as amended (RAIFs) 

The circular also provides useful interpretative guidance on the three cumulative conditions that must be satisfied for a fund to qualify as an AIF and then also benefit from the CIV exemption.  

The circular, in line with the current market practice, offers clearer and safer parameters for industry practitioners and reinforces Luxembourg’s commitment to supporting legal clarity for its prominent investment fund sector. 

Crypto-assets reporting

On 24 July 2025, Luxembourg's government submitted the draft law no.8592 to parliament, initiating the transposition of DAC 8 into its domestic legislation. The provisions of this draft law closely align with those of DAC 8 and include: 

• new diligence procedures and reporting obligations for crypto-assets service providers  

• extension of the common reporting standard (CRS) scope 

For more details on DAC 8 and investment funds, read our briefing: How DAC 8 affects crypto assets in investment funds.

Minimal taxation

On 14 April 2025, the Council Directive (EU) 2025/872 amending Directive 2011/16/EU on administrative cooperation in the field of taxation, also referred to as DAC 9, was adopted by the Council of the EU. 

DAC 9 is closely connected to the Pillar Two Directive, which establishes a global minimum corporate tax rate of 15% and aims to incorporate the OECD’s GloBE top-up tax information return into EU law. DAC 9 intends to simplify the tax filing obligations of multinational enterprises, allowing them to shift from localised reporting to a centralised report filed by the ultimate parent entity or a designated entity, rather than requiring separate reports from each constituent entity within the group. Additionally, DAC 9 facilitates the exchange of top-up tax information returns between Member States in accordance with the OECD framework. 

Member States will have until 31 December 2025 to integrate DAC 9 into their domestic laws, and Luxembourg introduced the draft law no.8591 on 24 July 2025 to the Parliament in this respect.

About Ogier

Ogier is a professional services firm with the knowledge and expertise to handle the most demanding and complex transactions and provide expert, efficient and cost-effective services to all our clients. We regularly win awards for the quality of our client service, our work and our people.

Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found under Legal Notice