The Kenya Revenue Authority (KRA) has unveiled new interest rates that will be used to calculate tax on employee and company loans for the second half of 2025.
In a public notice dated 8th July 2025, KRA stated that the change will be applicable in the next three months from July 2025.
“Please take note of the updates for key tax provisions on: Fringe Benefit Tax, Deemed Interest Rate and Low Interest Benefit for the months of July, August and September 2025,” read the notice in part.
KRA has announced that the market interest rate for Fringe Benefit Tax (FBT) will be 8% for the months of July, August, and September 2025.
KRA Lowers Rates on Fringe Benefits Tax
Fringe Benefit Tax is payable by the employer on any loan provided to an employee, director, or their relatives at an interest rate lower than the market rate.
The taxable value is the difference between the market interest rate and the actual interest paid on the loan.
It also covers non-cash benefits offered by an employer to an employee, such as the use of vehicles, housing, or other perks that are not part of the employee’s gross salary.
If the term of the loan continues beyond the employee’s date of termination, the tax continues to apply as long as the loan remains unpaid.
Employers are required to remit the fringe benefits tax by the ninth day of the following month, with the taxable value determined quarterly based on market lending rates prescribed by the KRA.
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Deemed Interest Rate for Next 3 Months
KRA also announced an 8% deemed interest rate under Section 16 of the Income Tax Act.
This applies to the interest rate used to calculate taxable income when a loan is given at little or no interest, especially in transactions between related parties, such as parent companies and subsidiaries or between companies and shareholders.
If no interest (or very low interest) is charged on such a loan, KRA assumes a “deemed” interest—in this case, 8%—to calculate the benefit arising from the loan.
”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 July, August, and September 2025, on the deemed interest rate,” read part of the statement by KRA.
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Low Interest Benefit Rate
For the Low Interest Benefit, which applies to loans given to employees by employers at low interest, KRA set the prescribed rate at 9%.
This rate will be used from July to December 2025 to determine the taxable benefit.
Withholding tax at the rate of 15% on the deemed interest shall be deducted and paid to the Commissioner within 5 working days.
”For purposes of section 5(2A) of the Income Tax Act, the prescribed rate of interest is 9 per cent. This rate is applicable for the months of July, August, September, October, November, and December 2025. Withholding tax at the rate of 15 per cent on the deemed interest shall be deducted and paid to the Commissioner within 5 working days,” KRA added.
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