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FRINGE BENEFITS

In the Philippines, fringe benefits are defined and regulated in Section 33 of the
National Internal Revenue Code (NIRC), as amended, and the Revenue
Regulations 3-1998 re: Implementing Section 33 of the National Internal
Revenue Code, as Amended by Republic Act No. 8424 Relative to the Special
Treatment of Fringe Benefits.
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 such as, but are
not limited to the following:
1. Housing;
2. Expense account;
3. Vehicle of any kind;
4. Household personnel, such as maid, driver and others;
5. Interest on loan at less than market rate to the extent of the
difference between the market rate and actual rate granted;
6. Membership fees, dues and other expenses borne by the employer
for the employee in social and athletic clubs or other similar
organizations;
7. Expenses for foreign travel;
8. Holiday and vacation expenses;
9. Educational assistance to the employee or his dependents; and
10. Life or health insurance and other non-life insurance premiums or
similar amounts in excess of what the law allows.
Revenue Regulations No. 3-1998(B) further explains the composition of each on
the list above, the rules, and the valuation of the fringe benefits.

RATIONALE OF GRANTING FRINGE BENEFITS

One reason why fringe benefits are granted by the employer to the employee is
to provide incentive to encourage employees productivity and loyalty to the
employer. It could be in form of vehicle to be used for business meetings and
personal travels, or personal benefits like providing for house maids and family
drivers. During financial difficulties, the employer may decrease or discontinue

previously given fringe benefits. The employer may increase the fringe benefits
in times of economic boom.

RULES ON FRINGE BENEFITS

Under the Tax Code, fringe benefits are taxable. As an employer, you have to
withhold tax for the fringe benefits in order for it to become deductible from
business income in computing income tax. The following rules apply to fringe
benefits:

1.) Fringe benefits to rank-and-file employees are not taxable with fringe
benefit tax, but instead are taxable as compensation income subject to normal
income tax rate in Section 24(A) of the NIRC, except for de minimis benefits
and benefits provided for the convenience of the employer. A rank-and-file
employee is an employee not holding a managerial or a supervisory position.

2.) Fringe benefits to managerial and supervisory employees are taxable


with the 32% fringe benefit tax, which is a final tax and is the subject of this
article, except for de minimis benefits and benefits provided for the
convenience of the employer. A managerial employee is 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 are 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.

The fringe benefit tax is computed only to those granted with managerial and
supervisory positions. Other than that, the income is subject to normal income
tax rate.

1.
Those allowances that are received by an employee in fixed amounts and
regularly received by the employee as part of his salaries shall not form part of
the taxable fringe benefit but shall be treated as compensation income.
There are fringe benefits under Section 33(C), however, that are not taxable as
the following:

1.
2.
3.
4.
5.
6.

Fringe benefits which are authorized and exempted from tax under
special laws;
Contributions of the employer for the benefit of the employee to
retirement, insurance and hospitalization benefit plans;
Benefits given to the rank and file employees, whether granted under a
collective bargaining agreement or not; and
De minimis benefits as defined in the rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the
Commissioner.
If the grant of fringe benefits to the employee is required in the nature
of, or necessary to the trade, business or profession of the employer;
If the grant of the fringe benefit is for the convenience of the employer.
DE MINIMIS BENEFITS

According to BIR Revenue Regulations No. 3-1998(C), the term de minimis


benefits refers to facilities or privileges furnished or offered by an
employer to his employees that are of relatively small value and are
offered or furnished by the employer merely as a means of promoting
the health, goodwill, contentment, or efficiency of his employees. De
minimis benefits, like fringe benefits, are granted by the employer on top of the
employees basic compensation, but are not considered as taxable
compensation for income tax purposes nor subject to the fringe benefit tax.
BENEFITS CONSIDERED AS DE MINIMIS BENEFITS
For tax purposes, only the benefits considered as de minimis are considered as
tax-exempt. All other benefits given by the employers which are not included in
the listing of de minimis benefits are not considered as de minimis, and
hence, subject to income tax as well as withholding tax on compensation
income. Below is the list of the latest de minimis benefits of both managerial
and rank-and-file employees for income tax purposes. All allowances regularly
received by the employees are subject to income tax, except those that are
enumerated below within the stated ceiling amount.

Monetized unused vacation leave credits of employees not exceeding


ten (10) days during the year; (RR No. 5-2011)
2.
Monetized value of vacation and sick leave credits paid to government
officials and employees; (RR No. 5-2011)
3.
Medical cash allowance to dependents of employees, not exceeding
P750 per employee per semester or P125 per month; (RR No. 5-2011)
4.
Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month
amounting to not more than P1,500; (RR No. 5-2011)
5.
Uniform and Clothing allowance not exceeding P5,000 per annum; (RR
No. 8-2012)
6.
Actual medical assistance, e.g. medical allowance to cover medical and
healthcare needs, annual medical/executive check-up, maternity assistance,
and routine consultations, not exceeding P10,000.00 per annum; (RR No. 52011)
7.
Laundry allowance not exceeding P300 per month; (RR No. 5-2011)
8.
Employees achievement awards, e.g., for length of service or safety
achievement, which must be in the form of a tangible personal property
other than cash or gift certificate, with an annual monetary value not
exceeding P10,000 received by the employee under an established written
plan which does not discriminate in favor of highly paid employees; (RR No.
5-2011)
9.
Gifts given during Christmas and major anniversary celebrations not
exceeding P5,000 per employee per annum; (RR No. 5-2011)
10.
Daily meal allowance for overtime work and night/graveyard shift not
exceeding twenty-five percent (25%) of the basic minimum wage on a per
region basis; (RR No. 5-2011)
11.
Benefits received by an employee by virtue of a collective bargaining
agreement (CBA) and productivity incentive schemes provided that the total
monetary value received from both CBA and productivity incentive schemes
combined do not exceed P10,000.00 per employee per taxable year. (RR No
1-2015)
CONVENIENCE OF THE EMPLOYER RULE
Under Section 33 of the Tax Code, the Fringe Benefit Tax does not apply when:
(1) the fringe benefit is required by the nature of, or is necessary to, the trade,
business or profession of the employer; or (2) when the fringe benefit is for
the convenience or to the advantage of the employer.
-

This refers to a benefit provided by the employer for the employee but which
would be more beneficial to the former than the latter. As such, they are not
considered as taxable.
Ex. A is a technical manager of a refrigeration plant in Laguna where a single
power loss of 10 mins would bring about millions of losses. To prevent such
losses, A was provided a housing benefit in Laguna because it would take
him 2 hours to travel from his Bulacan residence to the Laguna plant.