NOTES ON CHAPTER 11: FRINGE BENEFITS
TAXATION
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Fringe Benefits
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Goods, services, or other benefits furnished by
the employer to the employees
All other benefits or incentives of employees
other than basic pay
Tax Classification of FB
1. Regular compensation (e.g., transportation
allowance)
2. Supplemental compensation (e.g., profit
sharing & O.T)
3. 13th month pay & other benefits
4. Exempt (e.g., for employer’s convenience or
necessity)
Other Fringe Benefits
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Part of 13th month pay & other benefits for rank
& file employees
Subject to FBT for managerial & supervisory
employees
Scope of FBT
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Covers only taxable fringe benefits of
managerial & supervisory employees
Excludes items considered compensation
income
General Categories of FB subject to FT
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Management perquisite benefits (nonperformance based)
Employee personal expenses shouldered by
employer
Taxable de minimis benefits
a. Excess de minimis over limits
b. Benefits not in the de minimis list
FB for convenience of employer (convenience rule)
Contribution of employer to retirement,
insurance, & hospitalization benefit plans
FB to rank & file employees
De minimis benefits within their limits
Necessity or convenience of the employer
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Examples: scholarships for job-related studies,
car incentives to medical doctors, etc.
FBT
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Final tax imposed on fringe benefit given by
employer to managerial & supervisory
employees
FB to managers/supervisors could be:
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Housing benefit
Expense account
Vehicles
Household personnel
Interest if lower than 12%
Membership fees
Foreign travel
Holiday/vacation
Educational assistance
Life/health or nonlife premiums
Characteristics of FBT
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Final tax
Tax upon the FB of managerial or supervisory
employees
Paid by the employer
Grossed-up tax
Due quarterly (BIR Form 1603Q)
Hybrid Expenses
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Expenses incurred by employer partly for
business & partly for employee incentive
Only 50% is subject to FBT
FB Exempt from FBT
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FB authorized/exempted by law
FB necessary to employer’s trade (necessity rule)
Procedures in computing FBT
1. Determine the monetary value (amount of
benefits taken home by managerial/supervisory
employee)
2. Determine the gross-up
applicable for the taxpayer
rate
and
FBT
Illustration – Movable Properties
Special Guidelines on Monetary Value
Determination
3. Determine the grossed-up monetary value by
dividing the monetary value by the gross-up
rate
4. Determine the fringe benefit tax by multiplying
the grossed-up monetary value by the FBT
rate
Rules on Valuation of Fringe Benefits
1. When benefit is given in cash, the monetary
value is the amount paid in cash
Note: The only exception is when the employer pays for the
rent of the residence of the employee. Monetary value is
50% of the rental payment.
2. When benefit is given in kind, monetary value
is the fair value or the book value whichever
is higher.
When ownership over the property is transferred to the employee,
the monetary value is the entire fair value even if the property is
partially used in the business of the employer.
3. When the benefit is given in the form of free
use of employer’s property, the monetary value
is 50% of the rental value of the property. If
the property has no rental value, the
depreciation value is used.
Depreciation Value
For purposes of depreciation value, the presumptive
useful lives of the property are:
a. 20 years for real properties
b. 5 years for movable properties
Illustration – Real Property
Taxable housing benefits
Exempt housing privileges
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AFP, PAF, PA, & PN quarters within military
camp
Housing unit adjacent to premises of
business/factory (w/in 50 meters, subject to
adjustment for healthy/safety reasons) from
perimeter of business
Temporary housing for an employee in a
housing unit for 3 months or less
Expense Account
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Personal expense of employee paid by
employer
Monetary value is the amount paid by employer
Properly documented employer expense which
does not partake the nature of personal expense
is not subject to FBT
Personal expenses of the employee paid by
employer such as groceries for the personal
consumption of the employee and/or his family
are taxable whether or not receipted in the name
of the employer.
Fixed & regular RATA are treated as part of
regular compensation income & are subject to
withholding tax on compensation NOT FBT
Motor Vehicles of Any Kind
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Membership fees, dues, and other expenses
borne by the employer for his employees in
social & athletic clubs or other similar
organizations.
Monetary value = Amount Paid
Expenses for Foreign Travel
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Note on aircrafts & yachts
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High cost of aircraft ownership makes it
impractical for personal use, hence
presumption is that it is for business use
Yachts lack any sensible business purpose
aside from being for personal use, hence to FBT
in full
If yachts are used solely to entertain clients, it
can be claimed by business as part of EAR
(entertainment, amusement, & recreation
expense)
Household Expenses
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Monetary value shall be the amount paid by the
employer
Reasonable business expenses for foreign
travel for attending business meetings and
conventions are exempt, such as:
➢ In land travel expenses: food, beverage
& local transportation
➢ Lodging costs of $300 per day or less
➢ Economy & business class airplane
tickets
➢ 70% of 1st class ticket
Expenses for family members of employee
shouldered by employer are subject to FBT in full.
Substantial Requirements
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Business meetings – official communication
from business associates
Business conventions – official invitation from
host organization
Failure to substantiate makes the expenses subject to
FBT
Holiday & Vacation Expenses
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Monetary value is the amount shouldered by
the employer
Education Assistance
Dependents
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Interest on Loan at Less than Market Value
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Monetary value is the difference between 12%
and the actual interest changed.
to
Employee
or
his
Generally taxable, except when it is incurred
for the convenience or furtherance of
employer’s business such as:
a. Education/studies directly connected w/
employer’s trade
b. Employment bond (lock-in period)
Educational assistance to dependents of employee is generally
taxable except when the assistance is provided through a
competitive scheme under scholarship program of the company.
FB which do not involve payment of cash or
properties (e.g., free use of employer’s assets or
interest free loan)
Life or Health insurance & other non-life insurance
premiums or similar amounts in excess of what the
law allows
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These are taxable FB, except when the
following insurance or premium contributions:
1. Contributions of employer for the benefit of the
employee pursuant to existing law (e.g., SSS,
PHIC, GSIS, & HDMF)
2. Cost of premium for group insurance of
employees
Fringe Benefit Tax Rates
The fringe benefit tax shall be imposed of at the
following rates:
ATC
Tax
Rate
WF360
In general, for Citizen, 35%
Resident Alien and NonResident Alien Engaged in
Trade or Business Within
the Philippines
WF330
Non-Resident Alien Not 25%
Engaged in Trade or
Business
Within
the
Philippines
Grossed-up Monetary Value
Exempt benefits paid in cash or in kind (e.g., tuition
fee of supervisor for a course in furtherance of
employer’s business)
Recipient
Exempt benefits which do not involve transfer of
cash or property
Recipient
Tax
Rate
In general, for Citizens, Resident Alien, and 65%
Non-Resident Alien Engaged in Trade or
Business Within the Philippines
Non-Resident Alien Engaged in Trade or 75%
Business Within the Philippines
Accounting Entries
FB paid in cash or in kind (e.g., rental
accommodation; transfer of ownership over
properties)
Illustration
Tax Treatment of Total Fringe Benefit Expense
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Deductible against the gross income of
employer in computing its taxable income