FRINGE BENEFIT

TAX
Mr. Mario M. Castro, Cpa, Mba
Tax Consultant
 FRINGE BENEFIT TAX

Is any goods, services or other benefits furnished or granted by

the employer in cash or in kind, in addition to basic salaries.

1. If given to managerial or rank & file employees – Not subject to FBT

2. If given to managerial or supervisory - subject to FBT

Nature of Fringe Benefit Tax

The FBT is a final tax imposed on the employee withheld

by the employer, computed at 35% on the gross-up monetary
value (GUMV) of the fringe benefit granted by the employer to
an employee who holds a managerial or supervisory position.
Being a final tax, the FBT is collected or withheld at source by
employer at the firm’s level rather than at the taxpayer’s level to
facilitate tax administration. FBT is effective regardless of
whether the employer is an individual, professional partnership or
corporation.
 Items subjects to fringe benefit tax

1. Housing
2. Expense account
3. Vehicle in any kind
4. Household personnel
5. Expense to foreign travel
6. Holiday or vacation expenses
7. Educational assistance
8. Life & health insurance
9. Membership fee dues and other expenses
10. Life or health insurance or non-life insurance premiums or
similar amount in excess of what the law allows.
 Tax exempt Fringe Benefits

1. FB which are authorized and exempted from income tax under

special law, such as:
Contributions required under SSS law
Contributions required under GSIS law
Similar contributions under an existing law
Premiums for group insurance of employees

2. If the grant of FB to the employee is required by the nature of, or

necessary to the trade, business or profession of the employer.

3. De minimis benefits.

4. FB is for the convenience or advantage of the employer.

 Computation of Fringe Benefit Tax

In general, fringe benefit tax rate is 35% (beginning Jan

1, 2018 or upon the effectivity of THE TRAIN LAW) FBT rate for
non-resident alien not-engaged in trade or business (NRA-NETB) is
25%. The computation is done by:

1. Evaluating the value of the benefit granted or determining the

monetary value.

2. Determining the proportion or percentage (gross monetary factor)

of the benefit which is subject to the FBT.

3. Determining the grossed-up monetary value of the fringe benefit

by dividing the monetary value of the fringe benefit by the
gross monetary value factor;.

4. Multiplying the grossed-up monetary factor by the FBT rate

 Fringe Benefit Tax Base and Rate
Classification of Taxpayers CIT,RA,NRAET NRA-NETB
Monetary value Pxx Pxx
Divided by gross monetary value factor 65% 75%
Grossed-up monetary value Pxx Pxx
X FBT Rate 35% 25%
Fringe Benefit Tax Pxx Pxx

Illustration
Determine the grossed-up monetary value and FBT
of the following for 2018 taxable year:
1. P39,000 grocery allowance for the personal
consumption of an executive of ABC Corp..
2. P40,800 expenses paid by an executive of ABC
Corp. duly receipts for ABC Corp..
3. P40,800 expenses incurred by an executive of ABC
Corp in connection with attending business meeting
and convention.
4. P40,800 grocery allowance for the personal
consumption of one of ABC Corp.’s rank and file
employees.
Answers
1. GUMV=P39k/65%=P60k x 35%=P21k
2. GUMV=P40,800; FBT - P0
The expenditure is not in the nature of personal
expenses of the company’s executive. It is an
ordinary business expenditure of ABC Corp.
3. GUMV=P40,800; FBT – P0
same explanation to #2
4. GUMV=P40,800 same monetary
value FBT = P0 subject to basic tax
 Valuation of Fringe Benefits

1. If granted in money, the value is the amount granted

2. If granted in property and ownership is transferred to the employee, the
value is the FMV of the property.
3. If granted in property but ownership is not transferred to the employee,
the value is equal to the depreciation value of the property.

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 it is not subject to FBT, 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 FBT, the deduction is the grossed-up monetary
value of the fringe benefit which compose of the fringe benefit expense and
the FBT.
 Illustration

Assume an employer furnished cash fringe benefit subject to FBT

amounting to P975,000.
Question #1. What should be the appropriate journal entry in the
books of the employer?
#2. Assume that the cash fringe benefit is not subject to
FBT, what should be the appropriate journal entry in
the books of the employer?
Answers

#1. Fringe benefit expense (monetary value) P975,000

FBT expense (P975k/65%x35%) P525,000
Cash (975k/65%) P1,500,000

The P1,500,000 grossed-up monetary value is composed ot P975,000 paid to the employee and
P525,000 paid/remitted to the BIR

#2 Fringe benefit expense (Compensation expense) P975,000

Cash P975,000
SPECIAL RULES IN COMPUTING THE MONETARY VALUE OF HOUSING BENEFITS

Employer leases a residential property Monetary Value: Rental paid x 50%

for the use of the employee

Employer owns a residential property Monetary Value: The higher between FMV
for the use of the employee or ZV of the property x 5% x 50%

Employer purchases residential Monetary Value: Acquisition cost,

property in installments for the use of exclusive of interest x 5% x 50%
the employee

Employer purchase residential property Monetary Value of the benefits: the

and transfer ownership to employee. higher between the AC or ZV as
determined by the CIR

Employer purchases residential property Monetary Value: The higher between the
and transfer to employee on a lesser FMV in the real property declaration or
amount ZV as determined by the CIR less cost to
the employee.
 Illustration

Case 1.
In 2018, a domestic corp. paid for the monthly rental of a residential
house of his branch manager, Mr. Jose Bidal, amounting to P156,000. (Assume
there is no transfer of ownership).
Question 1. What is the monetary value of the benefit?

2.What is the grossed-up monetary value of the benefit?.

3. How much is the fringe benefit tax?

4. Total amount deductible by the employer from the gross

income?
5 . What is the appropriate journal entry to record the
provision of the above benefit?
Solution

Rental payment P156,000

Multiply by 50%
Monetary value P 78,000 (1)
Divided by 65%
GUMV P120,000 (2)
X fringe benefit tax rate 35%
Monthly Fringe benefit tax expense P 42,000 (3)
Add: Rental paid 156,000
TOTAL DEDUCTIBLE EXPENSE P198,000 (4)

Question 5. To record the transaction, the following journal entries should be

made by the employer for the month.

Fringe benefit expense P156,000

Fringe benefit tax expense 42,000
Cash (rental payment) 156,000
FB T Payable 42,000
Case 2.
A domestic corp. owns a condominium units in 2018., the said corp.
furnished and granted the said property for residential use of its VP. The FMV of
the property per BIR assessment amounts to P10m while its FMV as shown in
its current real property declaration amount to P8m. Determine the follow

1. Monthly monetary value of the benefit?

2. Monthly grossed-up monetary value of the benefit?

3. Monthly fringe benefit expense?

4. . Total amount deductible by the employer for the month?

5. Journal entry to record the provision of the above benefit?

Solution

FMV per BIR assessment – higher P10,000,000

X 5%
Value of the benefit P500,000
X 50%
Annual monetary value P250,000
Divided by 12 months
Monthly monetary value P20,833 (1)
Divided by 65%
Grossed-up monetary value (annual) P32,051 (2)
X Fringe benefit tax rate 35%
Fringe benefit tax for the year P11,218
Deductible by the employer for the year P11,218 (4)

Fringe benefit tax expense P11,218

Fringe benefit tax payable P11,218
To record the transaction.
Case 3.
Using the data in Case 2., and assuming that the acquisition cost of the
property is P5m with remaining useful life of ten (10) years. How much
is the monthly fringe benefit expense?

Answer: P41,667 computed as follows

FMV per BIR assessment (higher) P10,000,000

Less : Cost 5,000,000
Excess of FMV over cost 5,000,000
Divided by its remaining life 10 years
Fringe benefit expense (for the year) 500,000
Divided by 12 months
Monthly fringe benefit expense P 41,667

Fringe benefit expense 41,667

Fringe benefit tax expense 11,218
Income constructively realized 41,667
Fringe benefit tax payable 11,218
 RULES IN COMPUTING THE MONETARY VALUE OF MOTOR VEHICLES
Employer owns and maintains a fleet of
motor vehicles for the use of the business
and employees
Employer leases/maintains a fleet of motor
vehicles for the use of the business and the
employees
Employer purchases vehicle in the name of
employee
Employer provides employee with cash for
the purchase of the vehicle, and ownership
is placed in the name of the employee
Employer purchases the vehicle on
installment and ownership is placed in the
name of the employee
Employer shoulders a portion of the amount
of the purchase price of vehicle and
ownership is placed in the name of the
employee
Monetary Value: AC of vehicles not
normally used for business by 5years x
50%
Monetary Value: Amount of rental
payment not normally used for
business purposes x 50%
Monetary Value: Acquisition cost
Monetary Value: Cash received
Monetary Value: Acquisition cost
exclusive of interest divided by 5
years
Monetary Value: Amount shouldered
by employer
 De Minimis Benefits

1. Monetized unused vacation leave credits of private employees not

exceeding 10 days during the years.
2. Monetized value of vacation and sick leave credit paid to
government officials and employees.
3. Medical cash allowance to dependents of employees not
exceeding P1,500 per semester or P250 per month.
4. Rice subsidy of not more than P2,000 per month or 1 sacks
(50kg) rice per month.
5. Uniform given to employees by the employer not exceeding
P6,000 per annum.
6. Actual medical assistance not exceeding P10,000 per month
7. Laundry allowance not exceeding P300 per month
8. Employees achievement awards not exceeding P10,000
9. Gift given during Christmas and major anniversary celebrations
not exceeding P5,000 per employee per annum.
10. Daily meal allowance for overtime work not exceeding 25% of
the basic minimum wage per region
11. Benefits received by an employee by virtue of collective
bargaining agreement and productivity incentives not
exceeding P10,000.

BENEFITS NOT INCLUDED IN THE ENUMERATIONS ABOVE ARE NOT DMB

P90,000 Ceiling for 13th month pay/bonuses and “Other Benefits”

1. Christmas bonus
2. Productivity incentive bonus
3. Loyalty awards
4. Gifts in cash or in kind and other benefits of similar nature actually
received by officials and employees of both government and private
offices.

All other benefits given by employers are not included in the enumeration
of the de minimis benefits shall not be considered de minimis benefits but
should fall under the classification of “Other Benefits” and is subject to the
P90,000 ceiling. The excess of the benefits over the P90,000 limit would
form part of an individual’s gross income and subject to income tax and
individual gross income and subject to income tax and applicable
creditable withholding taxes.

Fixed or Variable Allowance

in general, when received by public officer or employee or officer
or employee of a private entity, in addition to regular compensation is
compensation subject to income tax.
Business related expenses/Allowances subject to liquidation
Any amount paid specifically, either as advance or reimbursements for
travelling, representation and other bona fide ordinary and necessary expenses
incurred or reasonably expected to be incurred by the employee in the
performance of his duties are not compensation subject to withholding tax, if
the following conditions are satisfied:
1. it is for ordinary and necessary travelling and representation or
entertainment expenses incurred by the employee in the pursuit of the trade,
business or profession; and
2. the employee is required to account/liquidate for the foregoing
expenses in accordance with the specific requirements of substantiation for
each category of expenses.

Representation and transportation allowance

granted to certain officials and employees of the government or
private entity are considered reimbursements for the expenses incurred in the
performance of duties rather than compensation.

Communication Allowances
granted to employees are not subject from fringe benefits tax and tax
on compensation on the basis of communication allowance is deemed required
by the nature of the job of the employees and deemed necessary to business
and redounds to the convenience and benefit.
***END***