KRA maintains 8% interest rate for Fringe Benefit and Deemed Interest Tax
By Kenneth Mwenda, October 21, 2025The Kenya Revenue Authority (KRA) has maintained the market interest rate for Fringe Benefit Tax (FBT) and the prescribed rate for Deemed Interest at 8 per cent for the final quarter of 2025.
In a public notice issued on Tuesday, October 21, the Commissioner for Micro and Small Taxpayers said the rate will apply for the months of October, November, and December 2025.
“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 October, November and December 2025,” the notice stated.
KRA added: “For purposes of Section 16(2)(ja) of the Income Tax Act, the prescribed rate of interest is 8%. This rate is applicable for the months of October, November and December 2025.”
The tax authority also reminded employers and financial institutions that a withholding tax rate of 15 per cent on the deemed interest must be deducted and paid to the Commissioner within five working days.
Rate stability for employers
The latest rate shows consistency with the previous quarter when KRA also set the market and deemed interest rates at 8 per cent. Earlier this year, the rates were higher – 13 per cent between January and March, 9 per cent between April and June, and 8 per cent between July and September 2025. For comparison, the rate stood at 16 per cent during the last quarter of 2024.
Fringe Benefit Tax is charged on employers who give loans to employees, directors, or their relatives at interest rates below the market rate. The tax is applied on the difference between the market rate and the actual rate paid on the loan.
Employers with a PAYE obligation must remit FBT by the 9th of the following month. Failure to do so attracts a 25 per cent penalty on the tax due, and late payment attracts an additional 5 per cent penalty.
The Deemed Interest provision, under Section 16(2)(ja), applies where interest-free or low-interest loans are provided by employers. KRA requires employers to calculate tax on the notional interest and remit the 15 per cent withholding tax accordingly.
Maintaining the 8 per cent rate provides stability for businesses as they close the financial year. It helps employers plan for end-of-year obligations without unexpected changes in tax calculations.