The Kenya Revenue Authority (KRA) has officially announced new tax rates that will apply for the second quarter of 2025, specifically from April to June.
These changes affect both the Fringe Benefits Tax and the Deemed Interest Tax.
In a public notice issued on Tuesday, April 8, KRA stated that the current market interest rate—which is the rate borrowers pay when they take loans from financial institutions—has been set at 9% for this three-month period. This is in line with Section 12B of Kenya’s Income Tax Act.
“For the purposes of Section 12B of the Income Tax Act, the Market Interest Rate is 9%. This rate shall be applicable for the three months of April, May and June 2025,” the notice read.
What is Fringe Benefit Tax?
The Fringe Benefit Tax is a tax paid by employers when they give their employees loans at interest rates lower than the market rate.
It also applies when employees receive non-cash perks such as company vehicles, housing, or other benefits that are not part of their regular salary. Since these benefits have value, KRA treats them as taxable income.
Deemed Interest Rate Also Adjusted to 9%
In addition, KRA announced that the Deemed Interest Rate will also be set at 9% for April, May, and June.
This rate is used to estimate the value of interest that should have been charged on interest-free loans, especially those given by foreign investors to their local Kenyan businesses.
“For purposes of section 16(2)(ja) of the Income Tax Act, the prescribed rate of interest is 9%. This rate is applicable for the months of April, May, and June 2025,” the notice continued.
KRA clarified that any deemed interest must be subjected to withholding tax at 15%, which should be paid to the tax authority within five working days of deduction.
Who Does the Deemed Interest Tax Target?
This tax mainly targets businesses in Kenya that are controlled by foreign companies. It ensures that the Kenyan government collects tax on benefits that may otherwise go untaxed when foreign owners offer interest-free loans to their local subsidiaries.
Comparison With Previous Rates
The new 9% rate is a significant drop compared to the rates from the first quarter of the year. Between January and March 2025, KRA had set the Deemed Interest Rate and Fringe Benefit Tax rate at 13%, which had already been reduced from 16% in earlier months.
KRA also lowered the Low-Interest Benefit rate from 16% to 14% in the previous period. However, this specific rate remains unchanged in the new update.
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