The Kenya Revenue Authority (KRA) has retained the prescribed interest rate at 8 per cent across three separate tax categories; the Fringe Benefit Tax, deemed interest and low interest benefit.
In a public notice issued on July 8, 2026, the tax man said that the three categories will run on different timelines through the rest of the year.
For the Fringe Benefit Tax, KRA fixed the market interest rate at 8 per cent for July, August and September 2026.
“For the purpose of section 12B of the Income Tax Act, the market interest rate is 8 per cent. The rate shall be applicable for the three months of July, August and September 2026,” KRA said.
The Fringe Benefit Tax is payable by every employer in respect of a loan advanced to an employee or their relatives at an interest rate lower than the market rate, or on interest-free loans, and is calculated on the difference between the market interest rate and the actual interest paid on the loan.
The deemed interest rate, which applies to cross-border and related-party financing, was likewise set at 8 per cent for the same three months. “For the purpose of section 16(2)(ja) of the Income Tax Act, the prescribed rate of interest is 8 per cent. This rate is applicable in the months of July, August and September 2026. Withholding tax rate of 15 per cent on the deemed interest shall be deducted and paid to the Commissioner within five working days,” KRA said.
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The deemed interest provision is designed to stop interest-free or low-interest loans from eroding Kenya’s tax base, ensuring that even when related foreign parties do not explicitly charge interest on loans extended to their Kenyan subsidiaries or affiliates, the transaction is still subjected to local taxation.
Unlike the Fringe Benefit Tax and deemed interest rate, which apply only to the third quarter, the low interest benefit rate covers a longer six-month window running from July through December 2026, though it too was maintained at 8 per cent, unchanged from the rate applied in 2025.
“For the purpose of section 5(2A) of the Income Tax Act, the prescribed rate of interest is 8 per cent. This rate is applicable for the months of July, August, September, October, November and December,” KRA noted.
The low interest benefit applies whenever an employer grants an internal loan or advance to an employee at an interest rate lower than the KRA-prescribed market rate. KRA reviews and sets this benchmark rate on a quarterly or semi-annual basis, with the taxable benefit calculated as the difference between the prescribed rate and the actual interest charged to the employee.
With the Fringe Benefit Tax and deemed interest rate confined to July, August and September, and the low interest benefit stretching to December, KRA has urged taxpayers to take note of the differing applicable periods for each category and comply accordingly.
By Jonathan Mwinzi
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