Luxembourg Bolsters Financial Hub Status with Carried Interest and Startup Tax Reforms

Luxembourg, June 21, 2025 – Luxembourg is set to solidify its position as a premier global financial center with the introduction of a modernized carried interest tax regime and a special tax framework for startup employees’ stock options. 

Announced by Finance Minister Gilles Roth at the Nexus 2025 conference, these reforms aim to attract alternative investment fund managers and foster innovation in the startup ecosystem, signaling “good news” for businesses, according to tax and corporate law experts David Maria and Stephanie Raffini of Pinsent Masons.

A Competitive Edge for Fund Managers
The new carried interest regime is designed to align Luxembourg with leading financial hubs by offering a clear and competitive tax structure for fund managers, particularly in private equity and venture capital. Carried interest, the performance-based share of profits earned by fund managers, has long been a focal point in European tax policy debates. Luxembourg’s reform addresses this by introducing a framework that provides tax certainty and incentives, making the Grand Duchy an attractive base for top-tier fund managers.

“These changes position Luxembourg as a forward-thinking jurisdiction that balances competitiveness with compliance,” said Maria. “By modernizing the tax treatment of carried interest, Luxembourg is sending a strong signal to the global investment community that it remains a hub for innovation and growth.”

The reform comes at a time when jurisdictions worldwide are reevaluating carried interest taxation. For instance, the UK recently increased its carried interest tax rate from 28% to 32% as an interim measure, with broader reforms planned for 2026, highlighting the competitive pressure Luxembourg faces. Luxembourg’s proactive approach aims to maintain its edge by offering a stable and attractive environment for fund management

Empowering Startups Through Stock Option Incentives
Alongside the carried interest reform, Luxembourg is introducing a special tax regime for stock options granted to startup employees. This initiative targets early-stage contributors who often accept lower salaries in exchange for equity stakes, a common practice in the startup world. The new tax framework aims to make these equity incentives more financially viable, encouraging talent retention and fostering innovation.

“This is a game-changer for Luxembourg’s startup ecosystem,” Raffini noted. “By offering favorable tax treatment for stock options, the government is supporting the growth of high-potential companies and rewarding the individuals who drive their success.”

This move builds on earlier reforms, such as the modernization of the expatriate tax regime and the introduction of a 75% tax exemption on bonuses for employees under 30, effective from January 2025. These measures reflect Luxembourg’s broader strategy to enhance its competitiveness and attract high-value-added jobs.

The tax reforms are part of a comprehensive effort to ensure Luxembourg remains a leading financial hub amid global economic and technological shifts. At Nexus 2025, Minister Roth also highlighted the launch of the ‘Peak Accelerator,’ a new initiative to support the digitalization of investment fund services. Combined with recent legislative advancements, such as the adoption of blockchain laws and the transposition of the EU’s Markets in Crypto-Assets (MiCA) directive, Luxembourg is positioning itself at the forefront of digital finance.

These developments complement other recent tax reforms, including a reduction in the corporate income tax rate from 17% to 16% for companies with taxable income above €200,000, lowering the aggregate tax rate in Luxembourg City to 23.87%. Additionally, changes to the minimum net wealth tax (NWT) regime, prompted by a 2023 Constitutional Court ruling, simplify the tax structure by basing NWT on a company’s total balance sheet, ranging from €535 to €4,815. These reforms enhance tax certainty and competitiveness for investors and businesses.

Luxembourg’s reforms come at a pivotal moment as global financial centers compete to attract investment and talent. The carried interest reform aligns with international trends, such as the UK’s ongoing efforts to simplify and fairly tax carried interest while preserving competitiveness. However, Luxembourg’s approach stands out for its clarity and focus on attracting fund managers without compromising on regulatory standards.

The startup tax regime also responds to the growing importance of innovation-driven economies. By incentivizing equity-based compensation, Luxembourg is fostering a vibrant startup ecosystem, complementing its established role as a hub for investment funds. This dual focus on traditional finance and emerging tech sectors underscores Luxembourg’s adaptability in a rapidly evolving global landscape.

The carried interest and startup tax reforms are expected to take effect in 2025, pending parliamentary approval. Businesses and investors are encouraged to consult with tax authorities to navigate the new frameworks. As Luxembourg continues to diversify its financial sector—moving beyond its historical reliance on multinational tax structures—these reforms signal a commitment to resilience, innovation, and global competitiveness.

“Luxembourg is not just keeping pace with global trends; it’s setting the standard,” said Raffini. “These reforms demonstrate a strategic vision to balance economic growth with fairness and transparency, ensuring Luxembourg remains a top destination for investment and innovation.”

With its robust network of over 80 double tax treaties, cutting-edge digital finance initiatives, and now a modernized tax regime for carried interest and startups, Luxembourg is reinforcing its role as a dynamic and open economy at the crossroads of global trade and investment.

For more information, contact the Luxembourg Ministry of Finance or visit pinsentmasons.com.

pinsentmasons.com/out-law/news/luxembourg-carried-interest-tax-reform-business-benefits