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Türkiye’s Treasury and Finance Ministry is exploring tax options to steer short-term flows toward longer-term, productive investments rather than money market funds, which have also attracted foreign investors seeking carry-trade returns, Bloomberg HT reported.
According to the sources cited in the report, the ministry is examining the rapid growth of short-term capital flows into funds that invest in highly liquid financial instruments, as well as the scale of institutional investors’ participation.
The report added that the ministry is considering options, including taxation, to encourage capital currently concentrated in short-term funds to move into more permanent investments.
Under the current system, income earned by individual investors from money market funds is subject to a 17.5% withholding tax, with the rate applying to funds acquired on or after July 2025. Institutional investors, however, are not subject to withholding tax, according to the report.
Gains from most investment funds are also taxed at 17.5%, while gains from stock-heavy funds are exempt from withholding.
The same 17.5% rate applies to interest from demand deposits and deposits with maturities of up to six months, while lower rates apply to longer-term deposits.
Türkiye also applies a 25% withholding tax to interest from foreign-currency deposits, while income from repo transactions is subject to a 15% rate.
The study aims to curb short-term capital movements and encourage capital flowing into Türkiye to become more permanent, stable and productive.
Money market funds have become an increasingly important destination for short-term capital in Türkiye, particularly after the government unveiled its disinflation program in mid-2023 and moved toward tighter monetary conditions following a long period of low interest rates.
As the Central Bank of the Republic of Türkiye (CBRT) gradually raised its policy rate to 50%, returns on short-term, interest-bearing instruments became more attractive.
Funds investing in highly liquid money-market instruments benefited from the shift, drawing investors seeking to take advantage of higher domestic interest rates while maintaining relatively easy access to their money.
These advantages have been reflected in the market’s substantial expansion, with total capitalization rising from ₺77.5 billion in May 2023 to ₺1.8 trillion in July 2026, an increase of about 2,269% over the period.
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