Fringe Benefit Tax
FRINGE BENEFITS DEFINED
Section 33 (B) of the NIRC defines Fringe Benefits as “any good, service, or other benefit furnished or granted by an employer, in cash or in kind, in
addition to basic salaries, to an individual employee.
Rationale of Granting Fringe Benefits
1. A fringe benefit given to employees is a form of incentive to encourage employees’ productivity and loyalty to employer;
2. During financial difficulties, the employer may decrease or discontinue previously given fringe benefits, but cannot reduce the wage or
salary of a specified amount once it is given to employees; and
3. Additional remunerations for overtime and separation pay do not include do not include fringe benefits.
Fringe Benefit Tax (FBT)
It is a monetary burden imposed by the sovereignty on any good, service or other befit furnished or granted by an employer, in cash or in kind, in
addition to basic salaries, to an individual employee other than a rank and file employee.
The fringe benefit tax is a final tax on the employee’s income to be withheld by the employer. The withholding and remittance of FBT shall be
made on quarterly basis.
Fringe Benefit Tax Base and Rate
The tax base of fringe benefits is based on the grossed-up monetary value (GMV) of fringe benefits furnished, granted or paid by the employer to
the employees, except rank and file employees.
The grossed-up monetary value of the fringe benefit shall be determined by dividing the monetary value of the fringe benefits by 68% effective
January 1, 2000.
The rates of the fringe benefit tax that shall be applied in 32% effective January 1, 2000 and thereafter.
Classification of Fringe Benefits
1. Fringe benefit to rank and file employees are taxable as compensation income subject to normal tax rate, except
a. De minimis benefits, and
b. Benefits provided for the convenience of the employer;
2. Fringe benefit to managerial employees are taxable with final benefit tax of 32%, except
a. De minimis benefits, and
b. Benefits provided for the convenience of the employer;
3. Allowances which are fixed in amounts and are regularly received by the employee as part of his monthly compensation income shall not
be treated as taxable fringe benefit but as compensation income.
A “rank-and-file employee” is an employee who is holding neither managerial nor supervisory position.
A “managerial employee”, on the other hand, is vested with powers or prerogatives to lay down and execute management policies and/or to hire,
transfer, suspend, lay-off, recall, discharge, assign or discipline employees.
“Supervisory employees” are those who, in the interest of the employer, effectively recommend such managerial actions if the exercise of such
authority is not merely routinely or clerical in nature but requires the use of independent judgment.
FBT Concept Summary

Taxable amount is the grossed-up monetary value of the fringe benefit granted/furnished.

The fringe benefit tax is 32% of grossed- up monetary value of benefit.

The grossed-up monetary value is the benefit expense of the employer which is also the income of the employee.

The fringe benefit tax is the income tax on income earned by the employee.

The liability of the employer is to withhold the corresponding income tax from the fringe benefit earned by the employee.

The fringe benefit income tax is a final tax on gross taxable income.
Housing Fringe Benefits
Housing Privilege
1. Lease of residential property for residential of
employees
Fringe Benefit Tax Base
MV = 50% x rental payments
Where:
MV = monetary value of the FB
2.
Assignment of residential property for use of
employees
3.
Purchase of residential property on installment
bases for the use of the employees
4.
Purchase of residential property and ownership is
transferred in the name of the employees
MV = [5% (FMV or ZV, whichever is higher) x 50%]
Where:
ZV = Zonal value MV = value of the land and improvement, as
declared in the real property declaration form.
FMV = fair market value as determined by the Commissioner
of Internal Revenue
MV = 5% x AC x 50%
Where:
AC = Acquisition cost, exclusive of interest
MV = FMV or ZV, whichever is higher
Nontaxable Housing Fringe Benefit
1. Housing privilege of the Armed Force of the Philippines (AFP) officials – i.e., those of the Philippine Army (PA), Philippine Navy (PN) or
Philippine Air Force (PAF);
Prepared by: HALIM M. NOOR, CPA
RC – Alkhwarizmi International College
2.
3.
Housing unit, which is situated inside or adjacent to the premises of a business or factory. A housing unit is considered adjacent to the
premises of the business if it is located within the maximum of 50 meters away from the perimeter of the business premises; and
Temporary housing of an employee who stays in a housing unit for 3 months or less.
Motor Vehicle
1.
2.
Motor Vehicle Privilege
Purchase of motor vehicle in the name of the
employee
Cash is given to the employee for the purchase of
vehicle; ownership is placed in the name of the
employee
3.
Purchase of car on instalment basis, the ownership
of which is placed in the name of the employer
4.
Employer shoulders a portion of the purchase price,
the ownership of which is placed in the name of the
employee
Employer owns and maintains a fleet of motor
vehicles for the use of the business and the
employees
Employer leases and maintains a fleet of motor
vehicles for the use of the business and the
employees
5.
6.
Fringe Benefit Tax Base
MV = AC
AC = Acquisition cost
MV = cash received by the employee
However, please note that if the cash given by the employer
to its employee is subject to WTW, it shall not be subject to
FBT, anymore.
MV = AC / 5
Where:
AC = Acquisition cost, exclusive of interest
MV = amount shouldered by the employer
MV = (AC / 5) x 50%
MV = 50% x rental payment
Household Expenses
Expenses of the employee which are borne by the employer for household personnel, such as salaries of household help, personal driver of the
employee, or other similar personal expenses (like payment of homeowners association dues, garbage dues, etc.) shall be treated as taxable fringe
benefits.
Membership Fees, Dues and Other Expenses
Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations.
The entire expenditures shall be treated as taxable fringe benefits of the employee in full.
Holiday and Vacation Expenses
Holiday and vacation expenses of the employee borne by his employer shall be treated as taxable fringe benefits.
Educational Assistance
a.
Taxable FB
General rule
Cost of the educational assistance to the employee
which are borne by the employer
a.


b.
Cost of educational assistance extended by an
employer to the dependence of an employee
Non-taxable FB
Exception
Scholarship grant to the employee by the employer,
provided the following conditions are met:
The education or study involved is directly
connected with the employer’s trade, business or
profession; and
There is a written contract between them to the
effect that the employee is under obligation to
remain in the employ of the employer for the
period that they have mutually agreed upon.
In this case, the expenditure shall be treated as
incurred for the convenience and furtherance of
the employer’s trade or business.
b. The assistance was provided through a competitive
scheme under the scholarship program of the
company.
FRINGE BENEFITS NOT SUBJECT TO FBT
(a) Fringe benefits which are authorized and exempted from income tax under the Code or under any
special law;
(b) Contributions of the employer for the benefit of the employee for retirement, insurance and hospitalization benefit plans;
(c) Benefits given to the rank-and-file, whether granted under a collective bargaining agreement or not;
(d) If the grant of fringe benefits to the employee is requested by the nature of, or necessary to the trade, business or profession of the employer;
or
(e) If the grant of the fringe benefits is for the convenience of the employer.
(f) De minimis benefits as defined in these regulations;
The exemption of any fringe benefits from the fringe benefit tax shall not be interpreted to mean exemption from any other income tax imposed
under the Code except if the same is likewise expressly exempted from any other existing law. Thus, if the fringe benefit is exempted from the
fringe benefit tax, the same may, however, still form part of the employee’s gross compensation income subject to income tax. Hence, it is likewise
subject to a withholding tax on compensation income payment.
Prepared by: HALIM M. NOOR, CPA
RC – Alkhwarizmi International College
DE MINIMIS
The term “de minimis” benefits which are exempt from the fringe benefits tax shall, in general, be limited to facilities or privileges furnished or
offered by an employer to his employees that are of relatively small in value. These are offered or furnished by the employer merely as a means of
promotions the health, goodwill, contentment or efficiency of his employees.
Revenue Regulations No. 10-2008 (as amended) provides the following “de minimis” benefits not subject to income tax as well as withholding tax
on compensation income of both managerial and rank-and-file employee:
DE MINIMIS BENEFIT
1. Monetized unused vacation leave credits of private
2. Monetized value of leave credits paid to government officials and employees;
3. Medical cash allowance to dependents of employees
4. Rice subsidy
5. Uniform and clothing allowance
6. Actual yearly medical benefits
7. Laundry allowance
8. Employees achievement awards, e.g. for length of service or safety achievement.
9. Gifts given during Christmas and major anniversary celebrations
10. Daily meal allowance for overtime work
LIMIT
10 days
No limit
P750.00 per employee per semester or P125 per month
P1,500 or one sack of 50 kilogram rice per month
P5,000 per annum
P10,000 per annum
P300 per month
Annual monetary value not exceeding P10,000
P5,000 per employee per annum
25% of the basic minimum wage
Rules on ‘De Minimis’ and ‘Other Benefits’
1.
The following rules shall be observed in determining the taxability of the ‘de minimis’ and the P30,000 ‘other benefits’ ceiling under
Section 32(b)(7)(e) of the Tax Code: The amount of the ‘de minimis’ benefits conforming to the ceiling herein prescribed shall not be
considered in determining the P30,000 ceiling of ‘other benefits’ excluded from gross income under Section 32(b)(7)(e) of the Tax Code.
2.
The excess of the ‘de minimis’ benefits over their respective ceilings prescribed by these regulations shall be considered as part of the
‘other benefits’ and the employee receiving it shall be subject to tax only on the excess over the P30,000 ceiling.
3.
The MWEs receiving ‘other benefits’ exceeding the P30,000 limit shall be taxable on the excess benefits, as well as on his salaries, wages
and allowances, just like an employee receiving compensation income beyond SMW.
PROBLEMS
#1 During the taxable year, Maydenn Magan, an employee of San Miguel Corp., received a total salary of P150,000. In addition, she received cash
fringe benefits amounting to P142,800 for personal expenses during the year.
a. Assuming that Maydenn Magan is a rank and file employee of the company, how much of her fringe benefits would be subject to fringe
benefit tax?
b. Assume that Maydenn Magan is a manager of the company. How much is the related final tax on her fringe benefits?
#2 The cash payment by the employer representing reimbursement of the personal expenses of a managerial employee is P170,000.
Required:
Determine the amount of the following:
1.
2.
3.
Taxable amount of fringe benefit income
Fringe Benefit Tax
Deductible Fringe Benefit expense of the employer
#3 Beauty Corp. purchased a residential property and transferred the same in the name of its Chairman of the Board as a fringe benefit. The
property has a fair market value of P4,000,000 and a zonal value of P3,000,000. Find the fringe benefit tax.
#4 In 2009, San David Corporation provided a four-day free vacation in Palawan to all of its employees of which 80% are rank and file. Total
expenses incurred by the company for the said vacation amounted to P1,800,000. Find the fringe benefit tax.
Prepared by: HALIM M. NOOR, CPA
RC – Alkhwarizmi International College