KRA raises fringe benefit tax and deemed interest rate to 9% for October to December

The Kenya Revenue Authority (KRA) has raised the interest rate used to work out fringe benefit tax and deemed interest to 9% for October, November and December 2026, up from 8% in the previous quarter.

The change, in a public notice dated October 22, affects employers who give staff cheap or interest-free loans, and companies that lend to non-resident shareholders or directors without charging market interest.

What the 9% rate applies to

Fringe benefit tax. Under Section 12B of the Income Tax Act, when an employer lends money to an employee at below the market interest rate, the employer pays fringe benefit tax on the difference between that market rate and the rate actually charged. For this quarter the market rate is 9%. A staff loan charged at 5% now has a taxable gap of 4 percentage points, compared with 3 points last quarter.

Deemed interest. Under Section 16(2)(ja), the prescribed rate of interest is also 9%. It applies to interest-free or low-interest loans that are treated as carrying interest for tax purposes. KRA says withholding tax of 15% on the deemed interest must be deducted and paid within five working days.

A worked example

Say a company lends an employee KSh1,000,000 at 4% a year. For fringe benefit tax, the benefit is the gap between the 9% market rate and the 4% charged, which is 5% a year, or about KSh4,167 a month on the full balance. The employer pays fringe benefit tax on that monthly benefit at the corporate rate, and pays it by the 9th of the following month, the same deadline as PAYE. Last quarter, with the market rate at 8%, the same loan produced a benefit of about KSh3,333 a month, so the employer’s tax bill on it has gone up by a quarter.

For a non-resident shareholder loan of KSh10,000,000 with no interest at all, the deemed interest at 9% would be KSh900,000 a year, and 15% withholding tax on that comes to KSh135,000 a year. Treat these as illustrations only: the exact treatment depends on the loan terms, and a tax adviser should confirm the numbers for your books.

Why it went up

KRA sets the market interest rate every quarter using the 91-day Treasury bill rate. With the 91-day bill trading around 8.7% (Central Bank of Kenya figures), the quarterly reset has moved it up a point. For employees, the change does not show up as a payslip deduction, because the tax falls on the employer.

Who feels it most

Staff loan schemes are common in banks, insurers, Saccos, large manufacturers and state corporations, where cheap car, school fees and mortgage loans are part of the pay package. In those organisations the higher rate raises the cost of the benefit for the employer, and some may respond by lifting the interest they charge staff closer to the market rate. Small businesses that advance salaries to employees and recover them within the month are generally not the target here, but any longer-term loan below market interest should be checked.

Groups with foreign parents should also look again at intercompany loans from non-resident related parties, since the deemed interest rules exist to stop profits leaving Kenya through interest-free funding.

What employers should do

• Use 9% when calculating fringe benefit tax on staff loans for October to December 2026.
• Check intra-group or shareholder loans for deemed interest and remit the 15% withholding tax within five working days.
• Look out for the next notice in January, when the rate for January to March 2027 will be set.

For the bigger picture on employment taxes, see our PAYE tax bands and housing levy table, and for what’s changing next year, our Finance Bill 2027 explainer.

Source: KRA public notice, “Fringe Benefit Tax and Deemed Interest Rate”, October 22, 2026 (kra.go.ke).