The Kenya Revenue Authority (KRA) has announced the new fringe benefits tax and deemed interest tax rates to serve for the next three months between July and September.
In a notice on Tuesday, July 8, the taxman noted that the market interest rate - the rate at which borrowers can obtain funds from lenders - will be 8 per cent for this period as per Section 12(b) of the Income Tax Act.
For fringe benefits, this means employers offering staff low-interest or interest-free loans must calculate the taxable benefit using the 8 per cent market interest rate.
The employer, not the employee, is liable to pay the fringe benefit tax, which is calculated on the difference between the deemed rate and the actual interest charged.
It also applies to non-cash benefits offered to an employee by an employer, including vehicles, cars, or other forms of perks that are not part of the employee's gross earnings.
KRA further clarified that the deemed interest rate - used when assessing whether a benefit has arisen from a loan - is also 8 per cent, aligning with the market interest rate for the same period.
''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.
The Deemed Interest Rate is the notional interest that KRA assumes to be payable on interest-free loans provided to a resident person by a non-resident person and primarily targets foreign-controlled entities operating in Kenya.
In contrast, the low-interest benefit rate - which applies to employees receiving loans at interest rates below the prescribed rate - has been set at 9 per cent.
This is slightly higher than the fringe benefit and deemed rates, and will cover a longer period from July to December 2025 under Section 5(2a) of the Act.
According to the taxman, employers must note that where the loan interest charged is below the 9 per cent prescribed rate, the resulting benefit is considered taxable income for the employee. In such cases, a 15 per cent withholding tax on the deemed interest must be deducted and remitted to KRA within five 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.''
