What is carried interest?
Carried interest is a performance-based entitlement granted to managers of alternative investment funds.
Its tax treatment can raise practical uncertainties when the mechanics differ from one fund structure to another.
A new law voted on 22 January 2026 provides a clarified and lasting framework. The new rules apply from the 2026 tax year.
1. Status of the reform and overall approach
The reform clearly distinguishes two categories based on the legal basis of the entitlement: a purely contractual entitlement, or an entitlement that is inextricably linked to an equity participation (or represented by such a participation).
2. Two categories covered by Article 99bis LIR
Carried interest “on a purely contractual basis” refers to a performance entitlement granting rights different from standard rights to the fund’s net assets or proceeds, without being inextricably linked to an “ordinary” participation and without being embodied in an equity interest.
Carried interest “linked to a participation” covers, first, situations where the carried entitlement and an ordinary investment are granted together, and second, “carried invest” acquired for consideration through an intermediary vehicle (for example an SCSp or a partnership).
To avoid unintended effects arising from the tax transparency of certain vehicles, the transparency concept referred to in Article 175 LIR is neutralised solely for the purposes of the carried interest regime in the hands of the individuals concerned.
3. Tax treatment: quarter of the global rate or capital gains regime
For “purely contractual” carried interest, taxation at one quarter of the global rate is made permanent (without a time limit). For indicative purposes, if the top marginal global rate is assumed, applying one quarter results in an effective rate capped at around 11.45% (subject to individual circumstances).
For carried interest “represented by a participation” or “inextricably linked to a participation”, the treatment falls under the gains/capital gains regime.
An exemption may apply where the participation is held for more than six months and represents less than 10% of the fund’s capital; otherwise, taxation follows the applicable regime (which, depending on the situation, may reach the global rate).
4. Broader scope and technical adjustments
The text removes certain conditions that previously limited practical access to the regime, in particular to allow eligibility of “deal-by-deal” mechanisms where the other conditions are met.
The former temporary regime (Article 213 LFIA) is not extended; a transition to the Article 99bis scenarios is foreseen for situations still falling under the former framework.
The consolidated legislative file also notes that, for non-resident beneficiaries, the analysis must take into account the applicable double tax treaty (or, failing that, the relevant domestic rules).
5. Key implementation points
The contractual qualification must reflect economic reality; the text stresses that an “inextricable link” must be genuine (including in amount and duration) for participation-linked arrangements.
The “ordinary” participation must be acquired for consideration, even if the carried element may, in practice, be granted free of charge; each component may require a separate tax analysis.
Documentation (LPA, side letters, distribution mechanics/waterfall) should allow a clear identification of the applicable category, acquisition and holding dates, and participation level, in order to secure the application of the 10% threshold and the six-month holding condition.
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