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Employers offering low-interest loans and non-cash benefits to staff will see stability in tax calculations as the Kenya Revenue Authority (KRA) holds the Fringe Benefit Tax (FBT) rate at 8% for the final quarter of 2025.
The Kenya Revenue Authority (KRA) announced on Tuesday, October 21, 2025, that the market interest rate for Fringe Benefit Tax (FBT) and the prescribed rate for Deemed Interest will remain at 8% for the months of October, November, and December 2025. This decision, communicated through a public notice by the Commissioner for Micro and Small Taxpayers, offers a consistent tax environment for employers as the financial year draws to a close.
Fringe Benefit Tax, governed by Section 12B of the Income Tax Act, became effective on June 12, 1998. It is levied on employers who provide loans to employees, directors, or their relatives at an interest rate lower than the prevailing market rate. The tax essentially captures the benefit an employee receives from a cheaper loan or other non-cash perks, with the payment burden falling on the employer.
The KRA sets this market interest rate quarterly. Earlier in 2025, the rates fluctuated, starting at 13% for January to March, then decreasing to 9% for April to June, before settling at 8% for July to September. The current 8% rate for the final quarter of 2025 aligns with the previous quarter, providing a measure of stability compared to the 16% rate observed in the last quarter of 2024.
FBT is calculated on the difference between the KRA's prescribed market interest rate and the actual interest rate charged on the loan. The resulting 'deemed interest benefit' is then taxed at the corporate tax rate, which is currently 30%. For example, if an employer offers a KSh 1,000,000 loan at 5% interest when the market rate is 8%, the deemed benefit would be KSh 30,000 (3% of KSh 1,000,000), leading to an FBT of KSh 9,000 (30% of KSh 30,000).
In addition to FBT, the KRA also applies a Deemed Interest provision under Section 16(2)(ja) of the Income Tax Act. This applies to situations where employers issue interest-free or low-interest loans, requiring employers to compute tax on the notional interest and remit a 15% withholding tax within five working days.
Tax experts view the KRA's consistent 8% rate as a positive step, bringing predictability for businesses and taxpayers as they manage their year-end financial obligations. This stability is particularly beneficial for micro and small business segments, reflecting the KRA's efforts to simplify communication and enhance compliance.
Employers with a Pay As You Earn (PAYE) obligation are responsible for remitting FBT by the 9th day of the following month. Failure to do so attracts a penalty of 25% of the tax due, with an additional 5% penalty for late payment.
Businesses should ensure timely compliance with FBT and Deemed Interest tax obligations for the final quarter of 2025. The KRA's continued emphasis on consistent rates suggests a focus on fostering a stable and predictable tax environment for employers. Future adjustments to these rates will likely continue to be announced quarterly by the Commissioner for Domestic Taxes.
