October 2018 Fringe Benefits Tax (“FBT”) : By: Atty. Llamado Fringe Benefit Subject to the Fringe Benefits Tax (“FBT”) | The term “fringe benefit” means any good, service, or benefit other than the regular salary and allowances received by an employes, and which may be furnished or granted in cash or in kind by an employer to an individual employee. | Coverage Fringe benefits subject to FBT are those benefits given or furnished to managerial or supervisory employees, and not to the rank and file. General Rules in the Valuation of Fringe Benefits { (@) If the fringe benefit is granted in money, or is directly paid for by the eniployer, then the value is the amount granted or paid for. (b)IE the fringe benefit is granted or furnished by the employer in property and ownership is transferred to the employee, then the value of the fringe behefit shall be equal to the fair market value (“FMV”) of the property. Note: The FMV of the property is the FMV determined by the BIR Commissioner or the FMV determined by the Provincial or City Assessor, whichever is higher. | (©)If the fringe benefit is granted or furnished by the employer in property but the ‘ownership is not iransferred to the employee (i.e., only the “usufruct” of the right to use the property is transferred), the value of the fringe benefit is equal to the deprecitiongyalue ofthe property, \ | @ | Rate of Tax and Tax Base Tax rate = Final Tax of 35% 1 ‘Tax Base = Grossed up monetary velue (“GUMV™) of the fringe benefit | GUMV = Monetary value of the fringe benefit + 65% | Notes: a) The final tax is imposed whether the employer is an individual, partnership, ot corporation, regardless of whether the employer is taxable or not, or the government and its instramentalities.October 2018 b) The fringe benefit tax is a tax of the employee. It is a tax on the income or benefit received by the employee. However, for convenience, the tax is imposed on the employer. The employer is required by law to pay the tax for and in behalf of the employee. : Filing of Return and Payment of Tax The fringe benefit tax is a final income tax on the employee to be “withheld” by the employer. The employer shall file the Quarterly Remittance Return of Final Income Taxes Withheld on Fringe Benefits Paid to Employees Other Than Rank and File (BIR Form No. 1603Q) and pay the tax “withheld” on or before the last day of the month following the close of the calendar quarter during which “withholding” was made. With respét to employers enrolled with the Blectronic Filing and Payment System (“eEPS”), Sales for e-filing BIR Form No. 1603Q and e-paying the tax due thereon shall be five (5) days later than the deadline for manual filing.’ Note: No actual withholding of the tax ean take place because the paymenis are generally made to persons/entities (ex. store, school, club, etc.) who are not the taxpayer subject to the fringe benefit tax. Taxable FBs and Specific Valuation Guidelines ‘The guidelines for valuation of specific types of fringe benefits and the determination of the monetary value of the fringe benefits are as follows — (A) Housing Privilege Case 1 - The employer leases (as lessee) residential property for the use of the employee — Value of the benefit - rental paid by the employer under the lease contract. Monetary value of the benetit 50% of the value of the benefit ' Despite the provisions of the Tax Code mandating the quarterly payment of the FBT, the BIR has obligated withholding agents/employers to remit the FBT monthly by filing BIR Form No. 0619F every tenth (10%) day of the following month when the withholding was made, regardless of the amount withheld. For employers using the eFPS facility, the due date is on the fifteenth (15) day of the following month. Employers with zero remittance are still required to use and file the same form. Employers shall thus pay the FBT monthly ty fiieg BIR Form No. 0619F for the first 2 months of the quarter. ‘The quarterly FBT remittance return (BIR Form No. 1603Q) shall reflec therein the total fringe benefits paldjgiven during the quarter and the resulting FBT due Zor the quarter. Whatever FBTs were previously paid in the first 2 months shall be available as tu: credits against the FBT due for the quarter. The resulting amount payable shall be the FIST payable for the jast month of the quarter.October 2018 Case 2— The employer owns residential property which was assigned to an officer for his use as residence. : Annual value of the benefit - Monetary value of the benefit- 5% of FMV of the land and improvements as determined by the BIR Commissioner or the Assessor, whichever is higher. 50% of the value of the benefit Case 3— The employer purchases residential property on the installment basis and allows the employee to use the same as his residence. Annual value of the benefit - Monetary value of the benefit - 5% of the acquisition cost exclusive of interest 50% of the value of the benefit Case4—The employer purchases residential property and transfers ownership thereof in the name of the employee. ‘Value of the benefit- _ Monetary value - employer’s acquisition_cost_or_FMV, whichever is higher. The FMV is the higher between the BIR Commissioner's value and the Assessor’s value. the entire value of the benefit Case 5~'THE employer purchases residential property and transfers ownership thereof to bis employee for the latter’s residential use at a price less than the employer’s acquisition cost. Value of the benefit - ‘Monetary value of the benefit - ‘The difference between the FMV of the BIR Commissioner or the FMV of the Assessor, whichever is higher, and the cost to the employee. entire value of the benefit Case 6 Housing Benefits Which Are Not Taxable - The following housing benefits provided by the employer to its employees are not considered as taxable fringe benefits -October 2018 (@) Housing privilege of military officials of the Armed Forces of the Philippines consisting of officials of the Philippine Army, Philippine Navy, and Philippine Air Force. | (b) A 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 itis located within the maximum of fifty (50) meters from the perimeter of the business premises. (©) Temporary housing for an employee who stays in a housing unit for three (3) months or less. (B) Expense Accounts (1) Expenses incurred by Joye which are paid by his employer. In this case, thie employee receives an entertainment or representation allowance which is subject to liquidation. @ Ex aid for by the employee but reimbursed by his employer. In this case, the employee pays for the expense and gets reimbursement from the employer. Note: The above expenses shall not be taxable provided — (a) the expenditures are duly receipted for and in the name of the employer, and () the expenditures are connected with the trade or business of the taxpayer, that is, they are not personal expenses attributable to the employee. @ Pergonal_expenses of the employee (like purchases of groceries for the personal consumption of the employee and his family) paid for or reimbursed bby the employer to the employee shall be treated as taxable fringe benefits of the employee whether or not the same are duly receipted for in the name of the employer. Note: Representation and transportation allowances which are fixed in amounts and are regularly received by the employees as part of their monthly compensation income shall not be treated as taxable fringe benefits. I Such allowances are taxable as compensation income subject to regular tax rates. (© Motor Vehicle of Any Kind Case 1- The employer purchases the motor vehicle in the name of the employee.October 2018 Value of the benefit - acquisition cost Monetary value of the benefit - entire value of the benefit Case 2 — The employer provides the employee with cash for the paehase ofa motor vehicle in the name of the employee. Value of the benefit - amount of cash received by sd employee Monetary value of the benefit- entire value of the benefit | Case 3 The employer shoulders a portion of the amount of the purchase price of a motor vehicle in the name of the employee. Value of the benefit - amount shouldered by the employer Monetary value of the benefit - entire value of the benefit | Case 4— The employer purchases the car on installment in the name of the employee. Value of the benefit - acquisition. cost (exclusive of interest) divided by five (5) years Monetary value of the benefit- entire value of the benefit | | Note: In Cases 1 to 4, 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 personal purposes and partly for the benefit of the employer. Case 5~ The employer owns and maintains a fleet of motor vehicles for the use of the business and the employees. Value of the benefit - acquisition cost of all motor vehicles not normally used for business purposes divided by 5 years Monetary value of the benetit - 50% of the value of the benefitOctober 2018 Case 6 The employer leases and maintains a fleet of motor vehicles for the use of the business and the employees. ; Value of the benefit - amount of rental payments for motor vehicles not normally used for business purposes Monetary value of the benefit - 50% of the value of the benefit Case 7 (a) The\use of raft or helicopters) owned and maintained by the employer sI 1e fringe benefit tax. The use shall be treated as a bu: . (b) The[use of a yacht) whether o \d maintained or leased by the employer shall be treated as a taxable fringe benefit. The value of the benefit shall be measured based on the, depreciation of the yacht at an estimated useful life of20 years) (D) Household Expenses The following personal expenses of the employee which are borne by the employer shall be treated as taxable fringe benefits — (1), Salaries of household help, personal driver of the émployée, OF other. (2) Similar expen es like payment for homeowners’ association dues, Sarbage _Mues, ete. ee ee (E) Interest on Loans at Less Than Market Rate (1) If the employer lends money to his employee free of interest or at a rate lower than 12%, such interest foregone by the employer (the difference of the interest assumed by the employee and the rate of 12%) shall be treated as a taxable fringe benefit. (2) The benchmark rate of 12% shall remain in effect until revised by a subsequent regulation, (F) Social and Athletic Club Fees Membership fees, dues, and oth expenses bome by the employer for_his employee, in social and athletic civbs or other similar organizations shall be treated as tangible fringe benefits of the employee in full.October 2018 | (G) Expenses for Foreign Travel : | Not subject fo FBT — reasonable expenses | Subject to FBT of the employee paid by the employer for the purpose of attending business meetings or foreign conventions: | (@) Inland travel expenses such as expenses for food, beverage, and local transportation; | (@) 30% of the cost of first class airplane tickets; | Lodging cost in a hotel or similar establishment in excess ele $300 Per day; | | 1) (b) The cost of lodging in a hotel or similar establishment amounting to an average of US $300 or less per day: (©) Travelling expenses paid by the (c) The cost of economy and _business employer for the travel of the family class airplane tickets; members of the employee; @ When there is @. documentary evidence showing that the employee's | travel abroad was in connection with | business meetings or conventions, the | gntire cost of the ticket, including the i \ | (d) 20% of the cost of first class airplane tickets. Cost OF hotel accommodations and other expenses incident thereto shouldered-by-the-employer, shall-be treated as taxable fringe benefits. (H) Holiday and Vacation Expenses Holiday and vacation expenses of the employee borne by his employer shall be treated as taxable fringe benefits (Educational Assistance SubjecttoFBT —_____[ Not Subject to FBT | Cost of education assisiance to | If: | the employee which is borne |(a) the education or study involved is directly by the employer Connected with the employer’s trade, business, or profession; and (®) there is a written contract that the employee is under obligation to remain in the employ of the employer for a period of time mutually agreed upon. Cost of educational assistance | When the assistance is provided through a competitive extended by en employer to | scheme under a scholarship program of the company the dependents of an employeeOctober 2018 G0) Cost of Insurance Subject to FBT Not Subject to FBT Cost of life or health insurance and other | (a) Contributions of the employer for the non-life insurance premiums borne by the| benefit of the employee pursuant to employer for his employee the provisions of existing laws, such as contributions to the Social Security System, the Government Service Insurance System, and similar contributions under the provisions of any other existing law. © The cost of premiums bore by the employer for the group insurance of his eraployees. (K) Stock Options Stock options granted by an employer to its employee(s) involving the employer’s own shares or the shares of another corporation are considered compensation, The amount of stich compensation shall be the FMV of the stock options at the time the services were readered. If the grantee exercises the option in the future, additional income may be recognized by the grantee which shall give rise to the following tax consequences: When the option is granted by an employer (involving its own shares of stock or shares of another corporation) to its rank-and-file employee, and the latter actually exercises the option by paying the exercise price, additional taxable compensation shall be recognized by the employee and shall be subjected to creditable withholding tax on compensation. Such additional compensation shall be equivalent to the difference of the higher of the book value or FMV of the underlying shares at the time of the exercise of the option, and the exercise price. However, if the employee exer employee, such additional compen subject to the final fringe benefit (RMC 79-2014). the option is a supervisory or_managerial shall be treated sa fnge benefit CEBP) under Section 33 of the Tax Code Tax Accounting for FB Expense and FB Tax (@) The “fringe benefit expense” ‘Ginge benefit tax” shall constitute allowable eta teera employer. 2 tt goes without saving that the exercise of the option will result to additional incomeOctober 2018 | Ex. The fringe benefit expense of P35,000 and fringe benefit tax of Pi8,846 are deductible from gross income of the employer, and shall be taken| up’ in the employer's books of accounts as follows: Debit — Fringe benefit expense ‘35,000 | Debit — Fringe benefit tax expense 18,846 1 Credit — Cash 53,846 (b) If the basis for the computation is iation value of the property, only t a sti i pénse of the employer. oe Provided [nowever] if the zonal value or FMV of the said property is greater than its cost subject to depreciation, the @xcess amoundshall be allowed as 4 deduction ‘om the employer's gross income as a fringe benefit expense. ; Other Fringe Benefits Not Subject to Fringe Benefits Tax (Sec. 33 (A), (C), NIRC) (A) Fringe benefits which are authorized and exempted from income tax under the ‘Tax Code or under special law; e Coutttibitions of the employer for the benefit of the employee to retirement, insurance, and hosptalizotion benefit pians; | © Benefits given to the rank and file, whether granted under a collective bargaining agreement or not; | © If the grant of fringe tenefits to the employee is required by the nate of, or necessary to the trade, business, or profession of the employer; | © If the grant of the fringe benefit is for the convenience or advantaze ofthe employer. (1) In the case of meals, they tnust be furnished on the business prethises of the employer. | 2) In the case of lodging, the lodging must be furnished on the business premises of the employer and the employee must be required to accept such lodging as a condition of his employment in order for the employee to properly perform the cuties of his employment. “De minimis” Benefits ® “De minimis” benefits which are exempt from the income tax _on compensation as well _as from the fringe benefit tax shall be limited to edad en te eh MT Na, i a aOctober 2018 as a means of promoting the health, goodwill, contentment, or efficiency of his employees, such as the following: : (1) Monetized_uoused_vacation leave credits of employees (in_the private sector) not exceeding 10 days during the year; (2) Monetized value of vacation and sick leave credits paid to government officials and employees; (3) Medical cash allowance to dependents of employees not exceeding P1,500 per semester, or P250 per month (or P3,000 per year); @ subsidy of P2,000 or one (1) sack of 50 kg. of rice per month amounting to not more than P2,000, (or P24,000 per year); (5) Uniform and clothing allowance not exceeding P6,000 per annum; (6) Actual medical assistance, ¢.g. medical allowance to cover medical and healthcare needs, annual medical/executive check-up, maternity assistance, and routine consultations, not exceeding P10,000 per annum; (7) Laundry allowance of P300 per month, (or P3,600 per year); (8) Employee achievement awards, e.g. for length of service, loyalty, safety achievement, etc, To be exempt — (a) the award must be in the form of tangible personal property other than cash or gift certificates; (b) the annual monetary value must not exceed 10,000; and (©) the award must be given under an established written plan which does not discriminate in favour of highly paid employees. (9) Gifts given during Chris major_anniversary celebrations not exceeding P5,000 per employee per annum; (10) Daily meel_allowance for overtime work and night/graveyard shift not exceeding twenty-five percent (25%) of the basie minimum wage on a per region basis; (11) Benefits received by an employee by virtue of a collective bargaining agreement (“CBA”) productivity incentive schemes. Provided, the total annual monetary value “receiver Wom both the CBA and productivity incentive schemes combi st exceed Ten Thousand Pesos (P10,000) per employee per taxable year (Rev. Regs. No. 3-98, as amended by Rev. Regs. Nos. 5-201] and 1-2015},October 2018 Notes: 8) The abovementioned eleven (11) items are not only exempt from the FBT but also from the withholding tax on compensation, inom managerial, ig geri: Supervisory, and rank and file empioyees, SSpervisory, and rank and file employe b) The amount of “de minimis” benefits conforming to the abovementioned Prescribed ceilings shall not be considered in ining the 90,000 ceiling of “13® month pay and other benefits” excluded fron: gross income under Section 32 (B)(7)(e) of the Tax Code. Provided that, the excess of the “de minimis” benefits over their respective ceitings shall be considered as part of “13! month pay and othes benefits” and the employee receiving it will be subject to tax only on the excess over the P90,000 ceiling. ©) Minimum wage eamers (“MWEs”) receiving “13 month ay atid other benefits” exceeding the 90,000 limit shall be. taxable benefits over P90,000. si PE Deer as aoe sapere ten Taxation of Fringe Benefit of NRANETB A non-resident alien not engaged in trade or business in the Philippines who receives a fringe benefit is subject to the fringe benefit tax as follows: : twenty-five percent (25%) | the grossed-up monetary value of the fringe benefit computed by dividing the monetary value of the fringe benefit by seventy-five percent (75%),October 2018 | Valuation of FBs subject to FBT ¥B Value of Benefit | Monetary Value of Benefit (A) Housing Privilege Case 1: ER lets EE use ER-leased property Rent paid by ER | 50% of Value 5% of FMV x (higher of zonal Case 2: ER lets EE use ER-owned property eter zonal | 50% of Value value) i 5% of Case 3: ER buys property in installment and lets | acquisition cost the EE use the same exclusive of | 50% of Value interest | Case 4: Transfer to EE of ER’s property ae pene tales Difference Case 5: Transfer to EE of ER’s property at less between the sale than the acquisition cost ofER | FMV and the cost to EE (B) Expense Accounts (1) Allowance subject to liquidation ere by] Value aman ~~ ‘Amounts { (2) Amounts reimbursed by ER reimbursed by Value ER. T (©) Motor Vehicle Case I: ER buys vehicle in the name of BE Cost Value Case 2: ER gives EE cash to buy vehicle Cash received Value ‘Amount Case 3: ER shoulders portion of cost shouldered by Value ER Gomer | Case 4: ER purchases vehicle on installment in | acquisitioncost | yy the name of EE (exclusive of ae oy Case 5: ER lets EE use ER-owned vehicle 207 of | 50% of Value |_acquisition cost Case 6: ER lets EE use ER-leased vehicle Rentals paid for 7 soo, of Value yebicle : 5% oF Case 7: ER lets BE use ER-owned yacht acquinfion cost | __ Valve (D) Household Expenses : = ‘Amount of (1) Salaries of household help, driver, etc, eee Value (@)Payment for other similar expenses like ‘Amount paid ValueOctober 2018 [association dues, garbage dues, ete. | Difference: « between 12% a. (©) Less than Market Rate Interest on Loans | and the interest ie |__charged | “Amounts paid by (B) Social and Athletic Club Fees em Value (G) Expenses for Foreign Travel | (D).No documentary evidence that the “Amounts foreign travel was in connection with shouldered by Value business meeting or convention ER | (2) There is documentary evidence that the foreign travel was in connection with | business meeting or convention: | (i) 30% of cost of first class ticket; oa =. (ii) Excess of lodging cost over $300/day eros nei by |e vain (iii) Travelling expenses for the travel of EE’s famil Be (H) Holiday and Vacation Expenses Amounts borne Value |__bER_| (@) Educational Assistance () Education of EE UNLESS education is | _-connecied-with tne BR's-business and EE} Amountpaidby | yt obligated to remain in the employ of the ER ; ER for a certain period of time | | @ Education of EE’s dependents UNLESS | assistance is provided thru a competitive | Amount paidby | vate scheme under a scholership program of the ER IL ER, snes | | (® Cost of Insurance borne by BR for the EE 2 ' UNLESS the contribution is pursuant to esas ae he existing law (ex. $85, GSIS, PhilHealh), or | COmmIPUNC ; if the ER is paying for group insurance of the | _P8EPY | I< (Sepia eet ek | a value or FMV ane ae | of the shares less 1 the exercise price) “7