The Kenya Revenue Authority (KRA) has set both the Fringe Benefit Tax (FBT) market interest rate and the deemed interest rate at 9% for October, November and December 2026, up from 8% in the July to September quarter. A 15% withholding tax continues to apply to deemed interest.
Fringe Benefit Tax (FBT)
Section 12B of the Income Tax Act has governed FBT since 12 June 1998. It applies where an employer lends to an employee, a director or their relative at an interest rate below the market rate. The taxable benefit is the difference between interest at KRA’s market rate and the interest the borrower actually pays, and the employer pays the tax on it.
Deemed interest
Section 16(2)(ja), read with the definition of deemed interest in section 2 of the Income Tax Act, applies where a non-resident provides or secures an interest-free loan for a Kenyan resident. The Kenyan borrower is treated as paying interest at KRA’s prescribed rate, and must withhold 15% tax on that deemed interest.
Comparing the two taxes
| Fringe Benefit Tax | Deemed interest | |
|---|---|---|
| Typical situation | Low-interest loan to an employee, director or their relative | Interest-free loan provided or secured by a non-resident for a Kenyan resident |
| Q4 2026 benchmark rate | 9% | 9% |
| Tax calculation | Interest benefit × FBT rate (the corporation tax rate, 30%) | Deemed interest × 15% withholding tax |
| Who accounts for the tax | The employer | The Kenyan borrower, as withholding agent |
| Payment deadline | 9th day of the following month | Within 5 working days |
Comparison by Edward Chebii, CPA, Partner, Tax & Financial Advisory.
Sources: KRA public notice, Fringe Benefit Tax and Deemed Interest Rate, 22 October 2026 · KRA, Understanding Fringe Benefit Tax · Kenyans.co.ke, KRA Announces New 9 Per Cent Tax Rate for Employers and Businesses for Next 3 Months, 22 October 2026.
This briefing is general information, not advice. Contact the partners about your situation.