Fringe benefit tax in Kenya: who pays it and how much

An employer that lends to staff below KRA's market interest rate pays 30% tax on the interest saved, declared on the monthly P10 return.

When an employer lends money to an employee, a director, or a relative of either, at an interest rate lower than the market rate, the difference is a benefit of the job. That benefit is taxed, and the employer pays the tax. This is Fringe Benefit Tax (FBT), under section 12B of the Income Tax Act^[1].

How the benefit is valued

The taxable value is the interest the loan would have cost at the market interest rate, less the interest the borrower actually pays^[2]:

Fringe benefit = loan amount × (market rate − actual rate)

The tax on that benefit is the resident corporate rate, which is 30%^[3]. KRA publishes the market rate in a public notice every quarter. Its notice of 14 July 2026 set it at 8% for July to September 2026^[4], and the FBT rates page keeps the current rate and every one before it.

Take a Ksh 3,000,000 loan at 3% while the market rate is 8%. The benefit is 5% of the loan, Ksh 150,000 a year or Ksh 12,500 a month, and the FBT on it is Ksh 3,750 a month.

Where a loan runs past the end of employment, the benefit keeps applying for as long as the loan is unpaid^[2]. Loans made on or before 11 June 1998 are outside the charge, unless their terms have changed since^[1].

Who pays, and when

The employer pays. The Act makes FBT due by the 10th of the month after the benefit month^[5], but it is declared in section D of the P10 PAYE return, and that return is due by the 9th^[6]. File and pay by the 9th and both dates are met.

Filing or paying late

FBT goes in with the PAYE return, so a late return costs the higher of 25% of the tax due or Ksh 10,000^[7]. Tax paid late costs a further 5% of the unpaid amount^[8], plus interest of 1% a month until it is paid^[9].

Questions people ask

Who pays fringe benefit tax, the employer or the employee?

The employer. The employee has already received the benefit of the cheaper loan; the employer pays and remits the tax on it.

What decides whether a loan is a fringe benefit?

The market interest rate in KRA’s current public notice. A loan given below that rate carries a benefit equal to the difference, and the rate changes when KRA publishes a new notice.

When is the tax due?

The Act says by the 10th of the month after the benefit month, but FBT is declared on the monthly P10 PAYE return, which is due by the 9th. Filing and paying with the return meets both dates.