Money Market Fund Returns Now Subject to 10% Withholding Tax
A new tax regulation has changed the withholding treatment applied to earnings from money market funds in Türkiye. The withholding tax rate, previously set at 0%, has been increased to 10% for income obtained from money market funds and from certain free funds whose names include the phrase “money market.”
The change applies specifically to domestic and foreign corporate investors. The existing 17.5% withholding tax rate imposed on individual investors has not been altered.
New withholding rate applies to selected funds
Under the Presidential Decision published in the Official Gazette, the amendment was introduced within the framework of Temporary Article 67 of Income Tax Law No. 193. The regulation concerns earnings derived from participation shares in money market funds and free funds that explicitly contain the term “money market” in their title.
For these instruments, the withholding rate has risen from zero to 10%. As a result, investors in the affected funds may receive lower net returns after tax, even if the fund’s gross performance remains unchanged.
The regulation does not cover all investment funds. Earnings obtained by domestic and foreign corporate investors from funds other than the specified money market funds will continue to benefit from the 0% withholding rate under the current framework.
Different treatment for domestic and foreign companies
The tax effect differs depending on the status of the investor. For domestic corporate investors, the 10% withholding amount can be deducted from provisional tax declared during quarterly tax periods. In other words, the deduction functions as an advance tax payment and may be offset against the company’s final tax liability.
For foreign corporate investors, however, the 10% withholding is considered final taxation. These investors generally cannot treat the withheld amount as a provisional payment to be reconciled through the domestic tax declaration system.
This distinction means that the same fund may produce different after-tax outcomes depending on whether the investor is a Turkish company, a foreign company, or an individual.
No change for individual investors
The regulation does not modify the withholding tax regime applicable to individual investors. Domestic and foreign individuals who earn income from investment fund participation shares will continue to be subject to the 17.5% rate currently in force.
Therefore, the amendment primarily affects corporate investors that previously invested in money market funds under a zero-withholding-tax regime. Individual investors should not interpret the new 10% rate as a general replacement for the 17.5% rate applied to their fund earnings.
Transitional rules for previously purchased fund shares
The new rate will not be applied retroactively to the entire profit generated by participation shares acquired before the regulation took effect. A gradual implementation method has been introduced to separate earnings accumulated before and after the effective date.
Shares purchased after the regulation entered into force will be directly subject to the new 10% withholding rate. In this case, the entire gain generated from the relevant investment will fall within the scope of the amended provision.
For shares acquired before the effective date, the profit accumulated up to the publication date of the decision remains outside the withholding-tax calculation. Tax will apply only to the portion of the gain generated between the publication date and the date on which the participation shares are sold or otherwise disposed of.
How the calculation works
The transitional method requires the investment period to be divided into two stages. First, the gain accumulated until the publication of the decision is identified. That part is excluded from the new withholding calculation. Second, the increase in value from the publication date until the disposal date is determined. Only this latter amount is subject to the 10% deduction.
This approach is intended to prevent the new tax from being imposed on profits earned before the regulation was announced. It also means that investors and financial institutions may need to maintain detailed records of purchase dates, valuation data and disposal prices.
Possible impact on fund preferences
Money market funds are commonly used for short-term cash management because they typically invest in highly liquid and relatively low-risk instruments. The tax adjustment may lead corporate investors to reassess the net advantage of these funds compared with time deposits, other investment funds or direct money-market products.
The key comparison is not the headline return but the amount remaining after taxation. A fund offering a higher gross yield may no longer provide the best net result if its return is reduced by a 10% withholding deduction.
Investors should focus on net performance
The new rule does not change the investment strategy or portfolio structure of the affected funds. However, it changes the amount of income retained by certain investors. Corporate treasuries should therefore compare expected fund returns after withholding, transaction costs and any applicable management expenses.
For domestic companies, the ability to offset the withheld amount against provisional tax may reduce the permanent impact of the measure. For foreign companies, the deduction is final, making the tax burden more direct and easier to reflect in net-return calculations.
Importance of purchase and sale dates
The purchase date has become especially important for investors holding existing participation shares. Two investors with units in the same fund may face different tax treatment if one acquired the shares before the regulation was published and the other purchased them afterward.
Likewise, the sale date determines how much of the post-publication gain falls within the withholding scope. Accurate transaction records will be essential when calculating the taxable portion of returns under the transitional arrangement.
What investors should review
Corporate investors should examine their portfolios to identify whether they hold money market funds or free funds bearing the relevant designation. They should also verify whether their accounting systems distinguish between pre-regulation and post-regulation gains.
Before making new investments, investors may wish to assess the expected return on an after-tax basis and consider their own tax status. The appropriate choice may vary depending on liquidity needs, investment horizon, risk tolerance and whether the investor is subject to domestic or foreign taxation.
The amendment therefore represents a targeted change rather than a comprehensive revision of investment fund taxation. The 10% withholding rate applies to specified money market fund earnings of corporate investors, while the 17.5% rate for individuals and the zero rate for other corporate fund earnings remain unchanged.