FRINGE BENEFIT TAX

Income Taxation
9:00 AM to 12:00 PM
Prepared by: Edmer Ongco
 Fringe Benefit

• Means 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 (except rank and file)
Fringe benefit includes the following but not limited to:
• Housing
• Expense Account
• Vehicle of any kind
• Household personnel, such as maid, driver and others
• Interest on loan at less than market rate to the extent of the difference
between the market rate and the actual rate granted
• Member ship fees, dues and other expenses borne by the employer for the
employee in social and athletic clubs or other similar organizations
• Holiday and vacation expenses
• Educational assistance to the employee or his dependents
• Life or health insurance and other non-life insurance premiums or similar
amounts in excess of what the law allows
 Fringe benefit Tax

• Final withholding tax imposed on the GROSSED-UP MONETARY VALUE of

the fringe benefit furnished, granted or paid by the employer to managerial
or supervisory employees, whether such employer is an individual,
professional partnership or corporation, regardless of whether the
corporation is taxable or not, or the government and its instrumentalities
 Managerial Employee

• He is one who is vested with powers and prerogatives to lay down and
execute management policies and or fire, transfer, suspend, layoff,
discharge, assign or fire employees. He is the employee vested with the
power to determine the employer-employee relationship because of his
powers. He has the power to execute management policies which can
include salaries and wages. All aspects of EE relationship are within his
control.
 Supervisory Employee

• He recommends managerial action but it should not be considered as

merely routinary or clerical in nature, but which requires use of independent
judgment.
 Rank and file employee

• Those who are neither managerial nor supervisory employees

Valuation of Fringe benefit

Fringe Benefit Valuation

In money or directly paid for by the employer Amount granted or paid for
In property other than money and ownership is Fair market value of the property
transferred to the
employee

Other than money but there is no transfer of Depreciated value of the property
ownership
 In money

When the fringe benefit is in the form of money, the value is the amount
granted or paid for.

Example: If I give you a grocery allowance, the value of the fringe benefit is the
amount that I gave.

If you give a receipt to the employer and he pays for it, the amount paid for is
the value of the fringe benefit. But, take note that this is not the amount
subjected to tax.
 Other than money with transfer of
ownership
When the benefit granted is property or something other than money and
ownership is transferred to the employee, the value of the fringe benefit is
equal to the fair market value of the property which is the higher between the
assessed value and zonal value.
Example: Houses and other properties.
 Other than money without transfer of
ownership

When the benefit furnished by employer is something other than money

where ownership is not transferred to the employee, the value of the fringe
benefit is equal to the depreciation of the property.

If your employer allows you to use a car, you will be benefitted by the ease and
comfort of using a car. While you use it, the value of the car diminishes. The
value you receive is equal to the value which the property diminishes by your
use of such property.
 Computation of Fringe Benefit Tax

• FBT is computed by multiplying the grossed-up monetary value (GUMV) by

35%. GUMV is determined by dividing the monetary value by 65%
• In other words, FBT is computed by first determining the GUMV and then,
multiplying the GUMV by the tax rate.
• Another way to determine FBT is to deduct the net monetary value from the
GUMV. The difference will be the FBT.
• Either way, the GUMV is to be computed first.
 Formula in computing the Fringe Benefits Tax
and Monetary Value PRIOR TO 2018
RC, NRC, RA, NRA-ETB NRA-NETB SE*
Monetary Value xx xx xx
Divided by GUMVF 68% 75% 85%
GUMV xx xx xx
Multiply by FBT rate 32% 25% 15%
Fringe Benefit Tax xx xx xx

PRIOR TO 2018, SFEs employed by ROHQs/RHQs not qualified for the 15% income tax on compensation income shall still
be subject to 15% FBT is such SFE is holding managerial position

The coverage of 15% fringe benefit tax and 15% tax on compensation income are independent to each other. Thus, there
would be instances where a Filipino employee shall enjoy 15% PTR but may not be covered by fringe benefit tax for not
being a supervisory/managerial employee
 Under TRAIN Law

RC, NRC, RA, NRA-ETB NRA-NETB SE*

Monetary Value xx xx xx
Divided by GUMVF 65% 75% 85%
GUMV xx xx xx
Multiply by FBT rate 35% 25% 15%
Fringe Benefit Tax xx xx xx
• RA 10963 • RR 11-2018
 FBT Concept Summary

• Taxable amount is the GUMV of the fringe benefit granted/furnished

• FBT is 35% of the GUMV of the benefit
• The GUMV is the benefit expense of the employer which is also the income
of the employee
• The liability of the employer is to withhold the corresponding income tax
from the fringe benefit earned by the employee
• The employer can claim the GUMV as an allowable deduction in its gross
income
• The fringe benefit income tax is a final tax on gross taxable income
 Housing Privilege

General Rule: Housing privileges are taxable as fringe benefits

Exceptions:
• Housing privilege of AFP, Philippine Navy and Philippine Air Force
• Housing unit situated inside or within the maximum of 50 meters from the
perimeter of the business or factory
• Temporary housing for an employee who stays in a housing unit for 3
months or less
• Housing privilege granted to rank-and-file employees (Note: this shall form
part of compensation income)
 Housing privileges Valuation
Housing Benefit
ER LEASES residential property for the USE of EE
ER OWNS residential property for the USE of EE
ER BUYS residential property in installment for
USE of EE
ER BUYS residential property and TRANSFERS
ownership to EE
ER BUYS residential property and TRANSFERS
ownership to EE on a lesser amount
Valuation
Rental paid x 50%
FMV or Zonal Value whichever is higher x 5% x 50%
Acq. Cost exclusive of interest x 5%
Acq. Cost or Zonal Value whichever is higher
FMV or Zonal Value whichever is higher less cost to
the EE
 Expense Account

General Rule: Expenses incurred by the EE but paid by his ER are taxable fringe
benefits

Exceptions:
• Duly receipted for AND in the name of the ER AND the expense do not
partake the nature of a personal expense to the EE
• Allowances subject to liquidation
• RATA which are fixed in amounts and are regularly received by EEs as part of
their monthly compensation (subject to 0-35%)

Note: Personal expenses of EE reimbursed by ER to the EE shall be treated as

 Motor Vehicle of any kind
Case
Purchases the motor vehicle in the name of the employee
Provides the employee with cash for the purchase of a
motor vehicle in the name of the employee
Shoulders a portion of the amount of the purchase price of
a motor vehicle in the name of the employee
Purchase the car on instalment in the name of the
employee
Owns and maintains a fleet of motor vehicles for the use of
the business and the employees
Leases and maintains a fleet of motor vehicles for the use
of the business and the employees
Use of yacht whether owned and maintained or leased by
the employer
Monetary Value of the Benefit
Acquisition cost
Amount of cash received by the employee
Amount shouldered by the employee
Acquisition cost (exclusive of interest) divided
by 5 years
Acquisition cost of all motor vehicles not
normally used in business divided by 5 years x
50%
Amount of rental payment for motor vehicles
not normally used in business x 50%
Depreciation of yacht at an estimated useful life
of 20 years
 Household Expenses

Expenses of the EE borne by the ER for household personnel such as salaries

of household help, personal driver of the EE or other similar personal expenses
shall be treated as taxable fringe benefits
 Interest on loan at less than market rate

If the employer lends money to his employee free of interest or at a rate lower
than twelve per cent (12%), such interest foregone by the employer or the
difference of the interest assumed by the employee and the rate of twelve per
cent (12%) shall be treated as a taxable fringe benefit.

The benchmark interest rate of twelve per cent (12%) shall remain in effect
until revised by a subsequent regulation.
 Valuation of Interest on loan at less than market rate

Benefit Monetary Value

ER lends money free of interest Principal x 12%
ER lends money at a rate lower than 12% Principal x (12% - Actual Rate)
 MEMBERSHIP FEES

• Membership fees, dues, and other expenses borne by the employer for his
employee, in social and athletic clubs or other similar organizations.
 Expenses for Foreign Travel

In general, reasonable business expenses which are paid for by the employer
for the foreign travel of his employee for the purpose of attending business
meetings or conventions shall not be treated as taxable fringe benefits.
• Inland travel expenses during foreign travel (such as expenses for food,
beverages and local transportation except lodging cost in a hotel)
amounting to an average of US $300 or less per day during foreign travel
• Cost of economy and business class airplane ticket for foreign travel
• 70% of the cost of first class airplane ticket for foreign travel
• Business travel expenses within the Philippines are generally assumed to be
reasonable in amount
 Expenses for Foreign Travel

• In the absence of documentary evidence showing that the employee's travel

abroad was in connection with business meetings or conventions, the entire
cost of the ticket, including cost of hotel accommodations and other
expenses incident thereto shouldered by the employer, shall be treated as
taxable fringe benefits. The business meetings shall be evidenced by official
communications from business associates abroad indicating the purpose of
the meetings. Business conventions shall be evidenced by official
invitations/communications from the host organization or entity abroad.
Otherwise, the entire cost thereof shouldered by the employer shall be
treated as taxable fringe benefits of the employee.
• Travelling expenses which are paid by the employer for the travel of the
 Holiday and Vacation Expenses

• Holiday and vacation expenses of the employee borne by his employer shall
be treated as taxable fringe benefits.
 Educational Assistance to the Employee or His Dependents

GR: Cost of educational assistance to the EE which are borne by the ER – subject to FBT
Exception:
- directly connected with the ER’s trade or business
- Written contract between them that the EE is under obligation to remain in the employ
of the ER for period of time that they have mutually agreed upon
 Educational Assistance to the Employee or His Dependents

GR: Cost of educational assistance to the dependents of an EE which are borne by the ER
– subject to FBT
Exception:
- Assistance was provided through a competitive scheme under the scholarship program
of the Company
 Health or Life Insurance

Life or health insurance and other non-life insurance premiums or similar

amounts in excess of what the law allows — 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 benefit, except the following:
(a)contributions of the employer for the benefit of the employee, pursuant to
the provisions of existing law, such as under the Social Security System
(SSS), (R.A. No. 8282, as amended) or under the Government Service
Insurance System (GSIS) (R.A. No. 8291), or similar contributions arising
from the provisions of any other existing law; and
(b) the cost of premiums borne by the employer for the group insurance of
his employees.
 Health or Life Insurance

Beneficiary
• If beneficiary is the heir, it is considered income of the employee because he
clearly benefits from it.
• If employee is managerial or supervisory, fringe benefit subject to tax.
• But if beneficiary is the company, then it is not considered as fringe benefit
since employee does not benefit from it.
• If for group of employees, not a fringe benefit subject to tax because it is not
personal to each of the employees.
 Benefits not Subject to FBT

• Fringe benefits given to rank and file employees – subject to 0-35%

• Contributions of the employer for the benefit of the employee to
retirement, insurance and hospitalization benefit plans. This applies to
group of employees
• Fringe benefits which are authorized and exempted from income tax under
the code or any special laws.
• Retirement benefits granted to managerial employees are considered fringe benefit,
but prior to retirement, there is still employer-employee relationship.
• Granting that you are able to comply with all the requirements, it is not subject to
Fringe benefit tax because it is already excluded in income tax law.
• Benefits granted to employee as required by the nature of, or necessary to
the trade, business or profession of the employer.
• Benefits granted for the convenience of the employer.
De minimis Benefits
 13th month pay and other benefits

• 13th month pay and other benefits not exceeding 90,000 beginning January
1,2018 under the TRAIN Law (82,000 from 2015 to 2017; 30,000 before 2015)
are exempt from income tax and creditable withholding tax on
compensation income
• Amount in excess of 90,000 threshold should form part of an individual’s
gross income and would be subject to income tax and applicable creditable
withholding taxes
 Other Benefits include:

• Christmas bonus
• Productivity incentive bonus
• Loyalty awards
• Gifts in cash or in kind and other benefits of similar nature actually received
by officials and employees of government and private offices
 Excess of De Minimis over the ceiling and 13th month pay
De minimis benefits “conforming” to the “ceiling” Tax exempt Excluded in determining the 90,000
ceiling of other benefits
Excess of de minimis benefits over their respective Included in determining the 90,000 ceiling of other
ceilings benefits
Amount in excess of 90,000 is subject to tax
• If rank and file – basic income tax
• If managerial or supervisory – FBT
 Deadline

Withholding Frequency Forms/List Due dates

Fringe Benefits Quarterly 1603Q – Quarterly Remittance Return of
Final Income Taxes Withheld on Fringe
Benefits Paid to Employees Other than
Rank and File; Annual Alphalist of
Employees with Fringe Benefits
On or before the end of
the month following the
close of the quarter
under TRAIN Law