Published in the Official Gazette No. 33361 dated September 5, 2026, the withholding tax rate on gains from participation shares earned by certain institutional investors from money market funds and open-end funds bearing the term “money market” in their names has been raised from 0% to 10%. This regulation introduces a new practice that affects the timing of tax collection and the cash available for use after investment in institutional cash management.

Scope of the Regulation

The Decree amends provision 1/1-(a)-(2) of the annex to Council of Ministers Decree No. 2006/10731, which is implemented under Article 67 of the Transitional Provisions of the Income Tax Law No. 193. The amendment applies to capital companies covered by Article 2/1 of the Corporate Tax Law No. 5520, as well as taxpayers determined by the Ministry of Treasury and Finance to be similar to investment funds and investment partnerships that operate exclusively to generate income from securities and other capital market instruments and capital gains, and to exercise rights related thereto.

In addition to joint-stock and limited liability companies, funds subject to the regulation and supervision of the Capital Markets Board (SPK) that are classified as capital companies under the Corporate Income Tax Law, as well as similar foreign funds, should also be taken into account in the scope assessment. Consequently, the amendment is significant not only for the cash investments of commercial enterprises but also in terms of the liquidity that funds invest in other funds.

The new rate applies to both money market funds and open-end funds whose names include the term “money market.” The 0% rate has been maintained for other gains of the specified investor group falling under the amended provision. This does not mean that all investors’ other fund gains are tax-exempt. With regard to the rates applicable to individual investors, the type of fund, the date of acquisition, and relevant special provisions must also be taken into account, and this increase applicable to institutional investors should not be generalized to individual investors.

Effective Date and Existing Investments

The decision took effect on September 5, 2026. A 10% withholding tax will apply to gains derived from relevant fund shares acquired by covered investors on or after this date. For units acquired prior to this date, only the portion of the gain corresponding to the period from September 5, 2026, until the date the units are disposed of is subject to the new rate. Therefore, no generalization should be made to suggest that older units are entirely excluded from the scope or that the entire gain realized upon sale is subject to the new rate.

Impact of Withholding Tax on Net Cash and Final Tax Burden

Withholding tax is calculated based on the gain determined in accordance with the relevant provisions, not on the principal amount invested. For example, if a withholding tax base of 100,000 TL arises entirely during the new application period, a deduction of 10,000 TL is made, leaving the investor with 90,000 TL in cash from this gain. This example illustrates the cash impact at the time of the transaction.

For fully taxable corporations whose income is included in the corporate income tax base and that meet the offset conditions, the withholding tax may be offset against the calculated corporate income tax. Therefore, a 10% withholding tax does not create an additional final tax burden at the same rate in every case; rather, it reduces the amount available for reinvestment due to the earlier collection of the tax. For exempt income, funds, and limited-tax-liability investors, the rules regarding offsetting, refunds, and any applicable tax treaty provisions must be examined on a case-by-case basis. It should not be assumed that all institutional investors can recover the withholding tax in the same manner.

Changes to the Sector and Potential Impacts

Corporate cash management: In companies’ daily liquidity plans, post-withholding available cash and the timing of offsets will become key factors alongside gross returns. Businesses that meet their regular payment obligations through fund redemptions should update their cash forecasts to account for the withholding tax impact.

Inter-product competition: When comparing money market funds, deposits, and other short-term instruments, investors should evaluate tax status, maturity, liquidity, risk, and costs collectively. The regulation may lead to a redistribution of institutional investor demand; however, this should not be interpreted as a definitive outflow of funds or a yield advantage in favor of a specific product.

Fund liquidity management: Any haircut that may arise on cash held by other funds in money market funds could affect the investing fund’s available liquidity and returns. Portfolio management companies will need to consider cross-fund investments in conjunction with the relevant fund’s tax regime and setoff opportunities.

Product design and investor communication: The inclusion of hedge funds under the “name criterion” requires that both the fund’s legal type and its name be considered together in tax assessments. Excluding the name alone should not be viewed as a safe tax solution; the investment strategy and the Capital Markets Board’s (SPK) naming rules must also be evaluated. The decision does not introduce a new fund type or investment authority; rather, it differentiates the taxation of existing products at the institutional investor level.

Implementation for Portfolio Management Companies and Distribution Institutions

Investor and fund classification: Tax status records must be matched with fund type and name information; the new rate should apply only to the relevant combination of investor and product. The scope must be clearly distinguished in disclosures to individual and institutional investors.

Transition Period Records: Acquisitions made before and after September 5, 2026, must be separated; cost, date, and valuation records supporting the determination of gains attributable to specific periods for existing shares must be retained. The technical calculation method for period differentiation must be confirmed in a manner consistent with administrative guidelines and the practices of the withholding agent.

Withholding and reconciliation: Calculation, reporting, and record-keeping processes must be coordinated with banks or brokerage firms subject to withholding obligations. The fact that a portfolio management company is a founder or manager does not, by itself, mean it is the withholding agent. Withholding documents must be prepared in a manner that facilitates investors’ offset and, if applicable, refund processes.

Disclosure and Return Presentation: Tax disclosures on the website, sales screens, client presentations, and relevant fund documents must be reviewed. The fund’s published performance must be distinguished from the amount the investor will actually receive after withholding tax ( ); phrases such as “0% withholding tax” should not be used without specifying the investor type and the applicable period.

Liquidity and Product Planning: Potential changes in institutional investors’ preferences should be monitored, and the impact of heavy redemption requests on fund liquidity should be assessed. Alternative product recommendations should not be based solely on the withholding tax rate; investor needs, risk profiles, portfolio constraints, and liquidity conditions should all be considered together.