The Kenya Revenue Authority (KRA) has announced new Fringe Benefit Tax and Deemed Interest Tax rates that will apply between October and December 2025, setting both at 8 per cent.
In a public notice issued on Tuesday, October 21, the taxman urged employers to take note of the changes and ensure compliance within the three-month period.
Fringe Benefit Tax (FBT) is charged on employers who offer loans to employees, company directors, or their relatives at interest rates lower than the prevailing market rate.
It targets the financial advantage or “benefit” an employee enjoys by receiving cheaper credit from their employer.
“For the purposes of Section 12B of the Income Tax Act, the market interest rate is 8 per cent. This rate shall be applicable for the three months of October, November, and December 2025,” KRA stated.
The FBT also extends to non-cash benefits, such as vehicles, accommodation, or other perks provided by an employer that are not included in an employee’s gross salary.
To determine the tax, KRA first establishes the prescribed market interest rate, which is reviewed quarterly by the Commissioner for Domestic Taxes.
The difference between this rate and the interest rate actually charged by the employer forms the deemed interest benefit, on which the tax is applied at the current corporate tax rate of 30 per cent.
For instance, if an employer loans an employee KSh1 million at a 5 per cent interest rate while the prescribed market rate stands at 15 per cent, the difference 10 per cent of KSh1 million (KSh100,000) becomes the deemed benefit.
The employer would then pay 30 per cent of that amount (KSh30,000) as Fringe Benefit Tax.
In the same notice, KRA confirmed that the deemed interest rate used to assess whether a taxable benefit arises from such loans will also stand at 8 per cent for the quarter.
The tax authority explained that this rate helps curb tax avoidance, ensuring employers do not disguise taxable income as interest-free or low-interest loans, and that multinational firms do not manipulate loan interest rates between subsidiaries to shift profits.
“For purposes of Section 16(2)(a) of the Income Tax Act, the prescribed rate of interest is 8 per cent. This rate is applicable for the months of October, November, and December,” the statement added.
The Commissioner of Domestic Taxes reviews and publishes these rates every quarter in the Kenya Gazette, usually pegging them to the 91-day Treasury Bill rate plus a small margin, to align with prevailing market trends.
KRA reiterated that employers should keep accurate loan and benefits records to ensure compliance and avoid penalties under the Income Tax Act.
