The Kenya Revenue Authority (KRA) has set the Fringe Benefit Tax market interest rate and the deemed interest rate at 9% for October to December 2026.
In a notice issued on Thursday, October 22, KRA said the rates would apply throughout the fourth quarter of the year, affecting employers, businesses and other taxpayers subject to the provisions.
“The Kenya Revenue Authority (KRA) wishes to inform taxpayers that the Fringe Benefit Tax Market Interest Rate and the Deemed Interest Rate have both been set at 9% for October, November and December 2026,” read part of the notice.
KRA Sets 15% Withholding Tax on Deemed Interest
The authority also reminded taxpayers that deemed interest attracts a 15% withholding tax, which taxpayers must deduct and remit to KRA within five working days.
KRA urged affected taxpayers to observe the applicable rates and meet their tax obligations to ensure compliance.
“Employers, businesses and other affected taxpayers are encouraged to take note of these rates and ensure compliance with the applicable tax requirements,” read part of the statement.
The new rates mark an increase from the previous quarter, when both the Fringe Benefit Tax market interest rate and the deemed interest rate stood at 8% for July to September 2026.
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How Fringe Benefit Tax on Employee Loans Works
Some employers provide loans to their employees at interest rates lower than those offered in the market. The difference gives employees a financial benefit, which is subject to Fringe Benefit Tax (FBT).
Fringe Benefit Tax is payable by employers who provide loans to employees, directors or their relatives at interest rates below the prevailing market rate.
The taxable benefit is calculated by finding the difference between the market interest rate prescribed by the Commissioner and the actual interest rate charged on the loan.
Therefore, the tax applies even where an employee’s loan remains unpaid after their employment ends. Employers are required to pay Fringe Benefit Tax on the taxable value of the benefit provided during each month, with payment due on or before the ninth day of the following month.
The Commissioner prescribes the market interest rate quarterly, based on prevailing market lending rates.
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For example, if an employee receives a loan of Ksh3,000,000 at an interest rate of 3% while the prescribed market interest rate is 9%, the taxable benefit is calculated using the 6-percentage-point difference between the two rates.
- Loan amount: Ksh3,000,000
- Interest rate charged to the employee: 3%
- Market interest rate: 9%
- Difference: 6%
The taxable fringe benefit is calculated using the 6% difference between the 9% market interest rate and the 3% interest charged to the employee.
Applying this difference to the Ksh3,000,000 loan gives an annual taxable benefit of Ksh180,000, equivalent to Ksh15,000 per month.
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