REVENUE REGULATIONS NO.

3-98
(May 21, 1998)
FRINGE BENEFITS TAX
These regulations govern the collection at source of the tax on fringe benefits
which have been
furnished, granted or paid by the employer beginning January 1, 1998.
A final withholding tax called the Fringe Benefits Tax (FBT) is imposed on the g
rossed-up monetary value
of fringe benefit furnished, granted or paid by an employer to an employee who i
s holding a managerial
or supervisory position. The FBT will be imposed regardless of whether such empl
oyer is an individual,
professional partnership or a corporation, or that the corporation is taxable or
not, or the employer is
the Philippine government or one of its instrumentalities.
Only fringe benefits given or furnished to managerial or supervisory employees a
re subject to FBT. For
this purpose, the term managerial employees refers to those who are vested with po
wers or
prerogatives to lay down and execute management policies and/or to hire, transfe
r, suspend, lay-off,
recall, discharge, assign or discipline employees. Supervisory employees are those
who effectively
recommend such managerial actions if the exercise of such authority is not merel
y routinary or clerical
in nature but requires the use of independent judgment. Rank and file employees me
ans all
employees who are holding neither managerial nor supervisory position.
Fringe benefits which have been paid prior to January 1, 1998 shall not be subje
ct to FBT.
FBT rates
In general, the fringe benefit tax rate is 34% in 1998, 33% in 1999 and 32% in y
ear 2000 and thereafter.
The grossed-up monetary value of the fringe benefit is determined by dividing th
e monetary value of the
fringe benefit by 66% in 1998; 67% in 1999 and 68% beginning January 1, 2000.
Fringe benefits given to certain managerial and supervisory employees are taxed
at preferential rates,
viz:

FBT
Rate

Gross-up
Factor
Alien individual who is not engaged in trade or
business in the Philippines

25%

75%
Alien employed by
. regional or area headquarters
. representative office
. regional operating headquarters
. foreign service contractor/subcontractor
. engaged in petroleum
operations

15%

85%

Filipino individual employees who are employed

and occupying the same position as those
occupied or held by the alien employees in the
entities listed above

15%
85%

Fringe benefits received by employees in special economic zones are also covered
by these regulations.
The FBT rate to be applied would be governed by the same rules discussed above.
Thus, if the fringe
benefit is given to employees of a representative office located in the zone, th
e FBT rate is 15%. On the
other hand, if the company providing the benefits is a regular company, the norm
al rate of FBT will
apply.
Fringe benefits refer to goods, services or other benefits furnished or granted
by an employer in cash or
in kind, in addition to basic salaries, to managerial or supervisory employees s
uch as, but not limited to
the following:
o Housing;
o Expense account;
o Vehicle of any kind;
o Household personnel, such as maid, driver and others;
o Interest on loan at less than market rate to the extent of the difference betw
een the market rate and
actual rate granted;
o Membership fees, dues and other expenses borne by the employer for the employe
e in social and
athletic clubs or other similar organizations;
o Expenses for foreign travel;
o Holiday and vacation expenses;
o Educational assistance to the employee or his dependents; and
o Life or health insurance and other non-life insurance premiums or similar amou
nts in excess of what
the law allows.
However, the following benefits are not covered by the FBT.
1. Fringe benefits which are authorized and exempted from income tax under the C
ode or under special
law. Separation benefits which are given to employees who are involuntarily sepa
rated from work are
not subject to FBT.
2. Contributions of the employer for the benefit of the employee to retirement,
insurance and
hospitalization benefit plans;
3. Benefits given to the rank and file, whether granted under a collective barga
ining agreement or not;
4. De minimis benefits
5. Benefits granted to employee as required by the nature of, or necessary to th
e trade, business or
profession of the employer
6. Benefits granted for the convenience of the employer
Although the benefit may be exempt from FBT, it may, however, still form part of
the employee s gross
compensation income which is subject to income tax, which is required to be cove
red by the
withholding tax on wages.
De minimis benefits refer to facilities or privileges furnished or offered by an e
mployer 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 employ
ees, such as the
following:
o Monetized unused vacation leave credits of employees not exceeding ten (10) da
ys during the year;
o Medical allowance for employee s dependents not exceeding P125 per month;
o Rice subsidy of P350
o Uniform allowance
o Medical benefits
o Laundry allowance of P150 per month
o Employee achievement awards in the form of a tangible property, with an annual
monetary value not
exceeding ½ of the basic salary of employee;
o Christmas and major anniversary celebration for employees and their guests;
o Company picnics and sports tournaments in the Philippines exclusively particip
ated in by employees
o Flowers, fruits or similar items given under special circumstances, e.g. illne
ss, marriage, etc.
In addition, the following fringe benefits are also not subject to FBT because t
hey are necessary to the
business of the employer, or granted for the convenience of the employer:
o Housing privilege of military officials of the AFP located inside or near the
military camps.
o A housing unit which is situated inside or at most 50 meters from the perimete
r of the business
premises.
o Temporary housing for an employee for 3 months or less.
o Expenses of the employee which are reimbursed by the employer if they are supp
orted by receipts in
the name of the employer and do not partake the nature of a personal expense of
the employee.
o Motor vehicles used for sales, freight, delivery service and other non-persona
l uses
o The use of aircraft (including helicopters) owned and maintained by the employ
er
o Business expenses which are paid for by the employer for the foreign travel of
his employees in
connection with business meetings or conventions. The expenses should be support
ed by documents
proving the actual occurrences of the meetings/conventions, or official communic
ations from business
associates
Valuation of Benefits
The computation of the fringe benefits tax would entail valuation of the benefit
granted and
determination of the proportion or percentage of the benefit which is subject to
the FBT. In cases where
the fringe benefits entail joint benefits to the employer and employee, the port
ion which shall be
subject to the FBT and the guidelines for the valuation of fringe benefits are d
efined below.
In general, the valuation of fringe benefits shall be as follows:
1. If benefit is granted in money or is paid directly paid for by employer, then
the value is the amount
granted or paid for.
2. If the employer gave the employee a property and the title to the property is
placed under his name,
the fair market value of the property will be considered as the monetary value o
f the fringe benefit.
3. However, if the employee is only allowed to use the property, and the title t
o the property remains
with the employer, the monetary value of the benefit is equal to the depreciatio
n value of the property.
Certain guidelines are set for the valuation and determination of the monetary v
alue of specific types of
benefits.
1. Housing
If employer leases a residential property for the use of his employee, the value
of the benefit shall be
the amount of rental paid by the employer, as evidenced by the lease contract. T
he monetary value shall
be equal to fifty percent (50%) of the value of the benefit.
If the property provided for the use of the employee belongs to his employer, th
e annual value of the
benefit shall be equal to 5% of the market value of the land and improvement as
declared in the Real
Property Tax Declaration Form or zonal value thereof as determined by the BIR, w
hichever is higher. The
monetary value of the fringe benefit shall be fifty percent (50%) of the value o
f the benefit.
If the employer purchases property on installment basis and allows it to be used
by its employee, the
annual value of the benefit shall be five percent (5%) of the acquisition cost o
f the property, exclusive of
interest. The monetary value of fringe benefit shall be fifty percent (50%) of t
he value of the benefit.
If the employer purchases a residential property and transfers ownership thereof
in the name of the
employee, its monetary value is equal to the full amount of the acquisition cost
or zonal value as
determined by the BIR, whichever is higher. In case the property is sold to the
employee at a price less
than the acquisition cost, the difference between the fair market value or zonal
value, whichever is
higher, and the cost of the property to the employee will be the basis for FBT.
2. Motor Vehicle
If the employer purchases the motor vehicle in the name of the employee, the acq
uisition price will be
the value of the benefit. The monetary value of the fringe benefit shall be the
entire value of the benefit,
regardless of whether the motor vehicle is used by the employee partly for his p
ersonal purpose and
partly for the benefit of the employer.
If the employer pays for the car on installment basis and ownership of the car i
s placed in the name of
the employee, the value of the benefit shall be the acquisition cost exclusive o
f interest, divided by five
(5) years. The monetary value shall be the entire value of the benefit.
If instead of buying the car directly, the employer gave the employee money to p
urchase the car,
whether the full amount or just a portion of the price, the cash received by the
employee will be used as
basis for FBT. However, the subsidy given by the employer is not subject to FBT
if it was declared as part
of the employee s taxable compensation income subject to withholding tax.
If the employer owns and maintains, or leases a fleet of motor vehicles for the
use of the business and
employees, the value of the benefit is equal to the acquisition cost of all moto
r vehicles not normally
used for sales, freight, delivery service and other non-personal use divided by
five (5) years. The
monetary value shall be fifty percent (50%) of the value of the benefit.
The use by the employee of the yacht owned or being leased by his employer is su
bject to FBT and the
value of the benefit is measures based on the depreciation of the yacht at an es
timated useful life of 20
years.
3. Foreign business travel
If employee is given a first class airplane ticket, the monetary value of the be
nefit is equal to 30% of the
cost of the first class airplane ticket.
The full amount of the travelling expenses of the family members of the employee
which are paid for by
the employer is subject to FBT.
4. Expense account
In general, expenses incurred by the employee which are paid by his employer, an
d expenses paid for by
the employee but reimbursed by his employer shall be treated as taxable benefits
. However,
expenditures which are not in the nature of a personal expense of the employee a
re not subject to FBT
provided that these are supported by receipts in the name of the employer.
Personal expenses of the employee paid for or reimbursed by the employer are sub
ject to FBT, even if
the same are duly receipted in the name of the employer.
Representations and transportation allowances which are fixed in amounts and reg
ularly received by the
employee as part of their monthly compensation income will be considered as taxa
ble compensation
income.
5. Loans Extended by Employers
If the employer lends money to his employee free of interest, the interest waive
d which will be
computed at the rate of 12% is considered as a benefit to the employee.
If the loan was given with interest but at a rate lower than 12%, the difference
of the interest assumed
by the employee and the rate of 12% shall be treated as taxable fringe benefit.
This rule will apply to installment payments or loans with interest rate lower t
han 12% starting January
1, 1998.
6. Educational support
The cost of the educational assistance to the employee which are borne by the em
ployer shall be
treated as taxable fringe benefit.
However, if the employer granted a scholarship to the employee for an education
or study which is
directly connected with the employer s business, it is not subject to FBT if there
is a written contract
between them that the employee is under obligation to remain in the employ of th
e employer for a
period of time that they have mutually agreed upon.
The cost of educational assistance extended to the employee s dependents is not ta
xable if such
assistance was provided through a competitive scheme under the scholarship progr
am of the company.
7. Insurance
The cost of life or health insurance and other non-life insurance premiums borne
by the employer for his
employee shall be treated as taxable fringe benefits.
However, the cost of life or health insurance borne by the employer if made unde
r the SSS or GSIS or
similar contributions arising from the provisions of any other existing law is n
ot taxable. Likewise, the
cost of premiums borne by the employer for the group insurance of his employees
is not subject to FBT.
Payment of FBT
The FBT is treated as a final income tax on the employee which is required to be
withheld and paid by
the employer on a calendar quarterly basis. The FBT return is required to be fil
ed and the FBT withheld
paid within 25 days from the close of the quarter when withholding was made.
Effectivity
FBT must be paid on all benefits granted starting January 1, 1998. Since the rul
es were released only in
April, no penalty will be imposed for late payment of the fringe benefit tax for
the first quarter ending
March 1998 for as long as the FBT for the first quarter is paid not later than J
uly 25, 1998.