The Kenya Revenue Authority (KRA) has released the applicable interest rates for Fringe Benefit Tax, Deemed Interest, and Low Interest Benefit for 2026.
In a public notice dated January 22, 2026, KRA stated that the market interest rate for Fringe Benefit Tax is set at 8 per cent, applicable for January, February, and March 2026.
“For the purposes of Section 12B of the Income Tax Act, the Market Interest Rate is 8%. This rate shall be applicable for the three months of January, February and March 2026,” read part of the notice.
The notice was issued by the Commissioner for Micro, Small, and Medium Enterprises.
KRA Sets 2026 Rates for Fringe Benefit and Deemed Interest
Employers are required to deduct a 15 per cent withholding tax on deemed interest and remit it to the Commissioner within five working days.
The prescribed interest rate for the Low Interest Benefit has been set at 8 percent, applicable for the six-month period from January to June 2026.
What is Fringe Benefit Tax on Employee Loans?
Some employers offer loans to employees at interest rates lower than the market rate.
This is considered an employee benefit, and it is subject to Fringe Benefit Tax (FBT).
Fringe Benefit Tax is paid by the employer on loans given to employees, directors, or their relatives at below-market interest rates.
The taxable value is calculated as the difference between the market interest rate and the actual interest paid by the employee.
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If a loan extends beyond the employee’s period of employment, FBT continues to apply until the loan is fully repaid.
The tax is charged monthly on the value of the benefit and is due by the 9th of the following month.
The applicable interest rate is based on market lending rates and may be updated quarterly by the Commissioner.
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How Fringe Benefit Tax on Employee Loans is Calculated
The value of a fringe benefit on a loan is calculated as the difference between the interest that would have been payable at the market rate and the actual interest paid by the employee.
This applies to loans made after January 1, 2026, or to earlier loans whose terms were changed after that date.
Fringe Benefit Tax is paid by employers who have PAYE obligations.
Employers who fail to remit the tax face a penalty of 25% of the amount due, while late payments attract an additional 5% penalty.
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