Luxembourg's 2026 Tax Package: Another Corporate Cut on the Horizon and a Rewritten Carried-Interest Regime

Luxembourg's 2026 tax landscape combines incremental corporate-rate easing with a much more substantive overhaul of how carried interest is taxed. Together, the two changes are designed to keep the Grand Duchy competitive against London and Dublin in the funds and asset-management industry that anchors the financial centre.

The corporate income tax trajectory

The 2025 budget cut the headline corporate income tax rate by 1 percentage point. The Frieden government has now confirmed a further 1-ppt reduction planned for 2027. For 2026, the in-force rates remain: 14% CIT for taxable income below €175,000, and 16% for income above €200,000, producing an overall combined rate (with the 7% solidarity surtax and Luxembourg City's 6.75% municipal business tax) of 23.87%.

The trajectory matters because most of Europe is moving the other way. The OECD's Pillar Two minimum-tax framework, now binding on in-scope groups, has narrowed the room for headline rate competition; Luxembourg's strategy is to optimise within Pillar Two while maintaining a competitive headline number for non-in-scope businesses.

The carried-interest reform

The Luxembourg law of 3 February 2026 substantially rewrites the country's carried-interest regime. The new definition treats carried interest as a participation in the over-performance of an AIF, based on rights to the fund's net assets or proceeds. Two effects matter most. First, a broader range of compensation structures used by alternative investment fund managers now qualify for the favourable carried-interest tax treatment. Second, the definition is now more aligned with how carried interest is documented and structured in practice in modern PE, infrastructure and credit funds.

Energy renovations and Pillar Two registration

Two technical changes worth flagging. From 2026, the depreciation rate on sustainable-energy renovation expenditure for rental buildings rises from 6% to 10%, provided the renovation completion is less than nine years old at the start of the tax year. And Luxembourg entities subject to Pillar Two must register with the tax authorities by 30 June 2026, separate from standard CIT registration, with specific information requirements set out in the implementing legislation.

What it means commercially

For asset managers domiciling new funds, Luxembourg in 2026 looks more attractive on carried-interest treatment than it has at any point since the post-AIFMD overhaul. For corporates planning capex on rental real estate, the energy-renovation depreciation uplift is a meaningful incentive on the margin. For Pillar-Two-in-scope groups, the registration deadline is the immediate compliance task.

The political read

The CSV-DP coalition has pursued a tax strategy of incremental rate reductions paired with structural reforms designed to defend the financial centre's specialisation. It is working, by the numbers — the funds industry crossed the €6 trillion AUM threshold in 2026 — but the strategic risk is that the next round of EU and OECD harmonisation closes off the room to manoeuvre. The 2027 cut may be the last comfortable headline-rate move available.