Introduction
Carried interest refers to the share of profits from a private investment fund – such as a private-equity or venture-capital fund – that is allocated to the fund manager as a performance-based incentive. It is effectively the manager’s ‘success fee’: the carry is paid only when the fund performs well and generates returns above a certain threshold for its investors. Because the manager typically contributes little or no capital compared to other investors, this portion of profit is considered a disproportionate return, which raises the central tax question: should it be treated as an investment income or as remuneration for services?
For many years, Belgium lacked a specific tax framework for carried interest. This created substantial uncertainty for private-equity and venture-capital managers, as the tax treatment depended largely on how the structure was drafted and how the tax authorities assessed it. The same remuneration could be taxed as a capital gain, a dividend or, more often, as professional income – leading to high tax exposure and regular disputes. As a result, Belgium is usually not considered to be an attractive jurisdiction for fund managers.
Old Regime: High Uncertainty
Under the previous rules, carried interest was classified based on factual and contractual elements. In rare situations, it could qualify as investment income taxed at 30%, but only if the manager invested significant capital and received a return proportionate to that investment. In most cases, however, the authorities considered carried interest to be linked to the manager’s performance or role, treating it as professional income. This resulted in progressive tax rates that often exceeded 50%, combined with social-security contributions.
Attempts to secure capital-gains treatment were possible but difficult to defend, especially when the individual’s involvement clearly surpassed that of a passive investor. Overall, the lack of a dedicated regime meant legal uncertainty for taxpayers and advisors alike.
New Regime Since mid-2025
This situation changed fundamentally with the Law of 18 July 2025. Belgium has introduced a dedicated, modernised framework for carried interest, applicable to all income paid or allocated from 29 July 2025 onwards.
Carried interest received by individuals is now treated as investment income, subject to a flat 25% withholding tax, which is a final levy. The risk of reclassification as professional income is removed, and no social-security contributions apply. This significantly increases regulatory clarity and positions Belgium more competitively within Europe.
To fall under the new regime, the vehicle paying the carry must qualify as a ‘carried-interest vehicle’, typically an alternative investment fund or an equivalent foreign structure. The return must represent a genuine ‘disproportionate return’, meaning the share of profits that goes beyond what a normal investor would receive. The regime applies only to individuals, meaning that carry paid through companies or management vehicles generally falls outside its scope.
Technical Restrictions & Exclusions
The new law also introduces several important restrictions. Companies holding carried-interest participations cannot create liquidation reserves during the period in which they hold the relevant fund interests. Additionally, stock-option plans taxed under the Stock Option Law of 1999 remain excluded from the new regime, as they continue to be governed by their own specific tax rules.
For non-Belgian residents, any Belgian-sourced carried interest is in principle subject to the same 25% withholding tax, although double-tax treaties may provide relief or exemptions depending on the specific treaty provisions.
Transition Rules for Existing Structures
Although the new framework applies immediately from 29 July 2025 onward, a limited grandfathering regime exists for certain pre-existing carried-interest plans. Only arrangements that were fully vested and not subject to any further modifications may continue under older rules. In practice, this exception is narrow, and most existing carried-interest rights will automatically fall under the new regime going forward.
Practical Impact
For Belgian-resident fund managers, the reform provides long-awaited certainty. The shift to a flat 25% tax on qualifying carried interest creates a more predictable and attractive environment. At the same time, existing structures involving management companies or special-purpose vehicles may require review, as the benefits of the new regime apply only when the carry is allocated directly to individuals.
Funds themselves must ensure their documentation clearly identifies the carried-interest component, including the waterfall mechanism and the disproportionate return. Compliance with withholding-tax obligations also becomes essential, particularly for vehicles that distribute carry to non-resident individuals outside Belgium.
Significant Step Forward
Belgium’s new carried-interest regime marks an important evolution in the taxation of fund-manager remuneration. After years of uncertainty, the law now offers clarity, predictability and a rather competitive tax rate. For many fund managers, this is a welcome development. Nevertheless, applying the new rules correctly requires careful analysis of existing structures, documentation and distribution mechanisms.