TAX 5.

2 – FRINGE BENEFITS AND FRINGE BENEFIT TAX

 Definition of terms
Fringe benefit – an employee’s benefit supplementing a money wage or salary
Managerial employees – one who 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 – those who, in the interest of the employer, effectively recommend
such managerial actions if the exercise of such authority is not merely routinary or clerical in
nature but requires the use of independent judgment
Rank and file employees – all employees who are holding neither managerial nor supervisory
position

 Fringe Withholding Tax

Fringe benefit tax is a final tax

 Imposed on the grossed-up monetary value

It is imposed on the grossed-up monetary value of fringe benefits furnished granted or paid by
employer to employee except rank and file employees

 Withheld by employer
It shall be treated as a final tax on employee, which shall be withheld and paid by the employer
on a calendar quarterly basis

 Taxable Fringe Benefits

Any good and other benefit furnished or granted by an employer in cash or in kind, in addition
to basic salaries to employees (except rank and file) such as, but not limited to the following:
- Housing
- Expense account
- Vehicle of any kind
- Housing personnel, such as maid, driver, and others
- Interest on loan at less that market rate to the extent of the difference between the market
rate and the actual (12%benchmark rate)
- Membership fee to professional organization (social and athletic club or other similar
organizations)
- Expenses for foreign travel
- Holiday and vacation expense
- Educational assistance to the employee or his dependents
- Life or health insurance and other non-life insurance premium or similar amount in excess of
what the law allows
 Tax base and tax rate
Fringe benefit tax Employees other NRA-NETB Special alien
base and rate than rank and file (including Filipino
Counterparts) and
employees in special
economic zone**
Monetary value PXX PXX PXX
Divide by Gross 68% (TRAIN Law 65%) 75% 85% (TRAIN Law 65%)
monetary value factor
Grossed-up monetary PXX PXX PXX
value
X FBT Rate 32% (TRAIN Law 35%) 25% 15% (TRAIN Law 35%)
Fringe Benefit Tax PXXX PXXX PXXX

 Basic Rules on Fringe Benefit and Fringe Benefit Tax

- Fringe benefit given to rank and file employee is not subject to FBT
- Fringe benefit is given to a supervisory or managerial employee and subject to FBT
- De minimis benefit, whether given to rank and file employee or to a supervisory or
managerial employee is not subject to the FBT
- Any excess in de minimis benefit, whether given to rank and file employee or to a
supervisory or managerial employee part of other 13th month pay and other benefits

 Valuation of fringe benefits

- If money, the value is the amount granted
- If property, and ownership is transferred to the employee, the value is the fair market value
of the property
- If property, but ownership is not transferred to the employee, the value is equal to the
depreciation value of the property

 Computation of Monetary Value of Benefit of Housing Privilege and Motor Vehicle

- In case of housing privilege and motor vehicles:
o If there is no transfer of ownership, the monetary value of benefit is 50% of the
value of the benefit
o If there is transfer of ownership, the monetary value of the benefit is the same as
the value of the benefit
- In case of other fringe benefits > the monetary value of the benefit is the same as the value
of the benefit

 Deductible expense of the employer

-If the fringe benefit is given to a rank and file employee, or to a supervisory or managerial
employee, but is not subject to fringe benefit tax, the deduction for the employer is the
monetary value of the fringe benefit
 - If the fringe benefit is given to a supervisory or managerial employee and is subject to fringe
benefit tax, the deduction is the grossed-up monetary value of the fringe benefit which
compose to the fringe benefit expense and fringe benefit tax

 Fringe Benefits Explained

- Housing
o Employer leases residential property for the use of the employee
Value: Rental paid
Monetary value: 50% of the value of the benefits
o Employer owns residential property which was assigned to an officer for his use as
residence
Value: 5% of the (FMV in the real property declaration or Zonal Value, whichever is
higher) of the land and improvements
MV: 50% of the value of the benefits
o Employer purchases residential property on the installment basis and allows the
employee to use the same as his residence
Value: 5% of the acquisition cost exclusive of interest
MV: 50% of the value of the benefits
o Employer purchases a residential property and transferred the ownership in the
name of the employee
Value: The higher between the acquisition cost or FMV
MV: Entire value of the benefit
o Employer purchases a residential property and transfer ownership to his employee
for the latter’s residential use at a price less than the employer’s acquisition
Value: FMV less payment by employee (Higher between the assessed value and
zonal value as determined by the CIR)
MV: Entire value of the benefit
- Expense Account
o Taxable as fringe benefits:
 Expenses incurred by employees but paid by employer
 Expenses by employees reimbursed by employer
 Personal expenses of the employee paid/reimbursed by the employer whether
or not receipted in the name of the employer
o Not taxable as fringe benefits
Expenses by employees are not taxable as fringe benefits when receipted in the
name of the employer and do not partake the nature of personal expense
attributable to employee
o Not treated as taxable fringe benefits but taxable as compensation income under
Sec.24 (A)
Representation and transportation allowance given regularly on a monthly basis
 Representation and Transportation Allowance (RATA)
 For private employees – generally taxable as part of their gross compensation
income
Except:
1. The expenses are ordinary and necessary in the pursuit of trade, business,
or profession
2. The employee is required to account/liquidate for the said expenses

 For government employees – considered as reimbursement for expenses

incurred while performing government duties and are therefore income tax-
exempt.
- Vehicle
o Employer owns and maintains a fleet of motor vehicles for the use of the business
and employees
Value: Acquisition cost divided by 5years
Monetary value: 50% of the value of the benefit
o Employer leases and maintains a fleet of motor vehicles for the use of the business
and employees
Value: Amount of rental payments
MV: 50% of the value of the benefit
o Employer purchases the motor vehicle in the name of the employee
Value: Acquisition cost
MV: Entire value of the benefit
o Employer provides the employee with cash for the purchase of a motor vehicle in
the name of the employee
Value: Amount of cash received by the employee
MV: Entire value of the benefit
o Employer shoulders portion of the amount of the purchase price of a motor vehicle
in the name of the employee
Value: Amount shouldered by the employer
MV: Entire value of the benefit
o Employer purchases the car on installment in the name of the employee
Value: Acquisition cost excluding the interest divided by 5 years
MV: Entire value of the benefit
o Use of yacht, whether owned and maintained or leased by employer
Value: Depreciation (estimated useful life, 20 years)
MV: Entire value of the benefit
o Fringe benefits that are not subject to fringe benefit tax
 Use of aircraft and helicopters owned and maintained by the employer
- Household expenses
o Taxable as fringe benefits – expenses of employees borne by employer for
household personnel such as salaries of household help, personal driver, or other
similar personal expenses
- Interest on loan at less than market rate
o Benchmark interest rate – 12%
o Taxable fringe benefit – The taxable fringe benefit interest foregone by the
employer or the difference of the interest assumed by the employee and the rate of
12%
- Membership dues or fees
o Taxable fringe benefit – Membership dues or fees of employees borne by employer
in social and athletic clubs or other similar organizations
- Holiday and vacation expenses
o Taxable fringe benefit – holiday and vacation expenses of the employee borne and
paid by his employer shall be treated as taxable fringe benefit
- Expenses for foreign travel of employee paid by his employer
o Taxable as fringe benefit
 30% of the cost of first class airplane ticket shall be subject to fringe benefit tax
 Traveling expenses of family members of employees paid by the employer
 In the absence of documentary evidence, showing that the employee travel
abroad was in connection in business, the entire cost of ticket including cost of
hotel accommodation and other expenses shouldered by the employer shall be
treated as taxable fringe benefits
o Not subject to fringe benefit tax
 Expenses in connection with attending business meeting or convention (except
lodging cost in a hotel) at an average of $300 per day are considered reasonable
expenses and shall not be subject to fringe benefit tax
 Lodging cost
 The cost of economy and business class airplane ticket
 70% of the cost of first class airplane ticket
- Educational assistance
o Taxable as fringe benefit – cost of educational assistance to employee or his
dependents
o Not subject to fringe benefit tax
 When the study is directly connected with the employer’s trade, business, or
profession and there is a written contract between the employee and employer
that the former is under obligation to remain in the employ of the employer for
a period of time
 When given to employee’s dependents through a competitive scheme under
scholarship program of the company
 - Life or health insurance and other non-life insurance premiums or similar amounts in excess
of what the law allows
o Taxable fringe benefit – life or health insurance and other non-life insurance
premiums
o Not subject to fringe benefit tax
 Contributions under SSS law
 Contributions under GSIS law
 Similar contributions under existing laws
 Premiums for group insurance of employees

 De minimis benefit
- Small value offer by employer to his employee, means of promoting the health, goodwill,
contentment, or efficiency of his employee
o Example of de minimis benefit
 Monetized unused vacation leave credits or private employees
 Monetized unused vacation and sick leave credits of government employees
 Medical cash allowance to dependents of employees
 Rice subsidy
 Uniforms and clothing allowance
 Actual medical assistance, e.g. medical allowance to cover medical and
healthcare needs, annual medical/executive checkup, maternity assistance, and
routine consultation
 Laundry allowance
 Employee achievement awards under an established written plan which does
not discriminate in favor of highly paid employees
 Gifts given during Christmas and major anniversary celebrations
 Daily mean allowance for overtime work
 Benefits received by virtue of collective bargaining agreement and productivity
incentive scheme

 Remittance of final income taxes withheld on fringe benefits paid to employees other than
rank and file
- Tax Form
BIR Form 1603 – Quarterly remittance Return of final income taxes withheld on fringe
benefits paid to employees other than rank and file
- Who are required to file
Every withholding agent/payor who is either an individual or non-individual required to
deduct and withhold taxes on fringe benefits furnished to employees other than rank and
file subject to final withholding tax
- Documentary requirements
Return previously filed and proof of tax payments, if amended return
- Procedures
o Manual filing
a. Fill up BIR Form 1603 in triplicate copies
b. If there is tax required to be remitted:
1. Proceed to the nearest Authorized Agents Banks of the Revenue District
Office where you are required to register and present the duly
accomplished BIR Form 1603, together with the required attachments and
your payment.
2. In places where there are no AAB’s proceed to the Revenue Collection
Officer
3. Duly Authorized City or Municipal Treasures located within the RDO where
you are required to register and present the duly accomplished BIR Form
1603, together with the required attachments and your payment
c. If there is no tax required to be remitted
Proceed to the RDO where you are required to register and present the duly
accomplished BIR Form 1603, together with the required attachments
d. Deadline
Filing via EFPS: On or before the 15th day of the month following the end of the
calendar quarter
Manual Filing: On or before the 10th day of the month following the end of the
calendar quarter