1

10

11

12

13

14

15

16
LEARNING OUTCOMES
At the end of this module, you are expected to:

1. Define fringe benefit tax and de minimis benefits;

2. Identify the tax base, tax rate, and valuation of fringe benefit tax;
3. Compute the fringe benefit tax;
4. Discuss the special rule in computing monetary value of items subject to fringe benefit
tax; and
5. Identify the relevant returns and their deadline for filing.

Pre-Activity
Of the things you have learned so far, determine a tax terminology starting with each of the letters of the
term below.
F B
R E
I N
N E
G F
E I
T
…

FRINGE BENEFIT
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 additon to basic salaries, to an individual
employee such as, but are not limited to, the following:

a. Housing;
b. Expense account;
c. Vehicle of any kind;
d. Household personnel, such as maid, driver and others;
e. Interest on loan at less than market rate to the extent of the difference between the
market rate and actual rate granted;
f. Membership fees, dues and other expenses borne by the employer for the employee in
social and athletic clubs or other similar organizations;
g. Expenses for foreign travel;
h. Holiday and vacation expenses;
i. Educational assistance to the employee or his dependents; and
 j. Life or health insurance and other non-life insurance premiums or similar amounts in
excess of what the law allows.

Rationale of Granting Fringe Benefits

The following reasons may justify the granting of fringe benefits:

1. A fringe benefit, given to employees is a form of incentive to encourage employees'

productivity and loyalty to employer;
2. During financial difficulties, the employer may decrease or discontinue previously given
fringe benefits, but cannot reduce the wage or salary of a specified amount once it is
given to employees; and
3. Additional remunerations for overtime and separation pay do not include fringe
benefits.

FRINGE BENEFIT TAX

The fringe benefit tax is a final tax imposed on the fringe benefit furnished, granted or paid by
the employer to the employee, except rank and file employees, whether such employer is an
individual, a professional partnership or a corporation, regardless of whether the corporation is
taxable or not, or the government and its instrumentalities.

Scope
The fringe benefit tax covers only the taxable fringe benefits of managerial or supervisory
employees. For purposes of the fringe benefit tax, RR3-98 clarifies that taxable fringe benefits
exclude those items considered as compensation income. Hence, an excellent understanding of
the items of compensation income is extremely important in highlighting the bounds between
compensation income and the fringe benefits subject to fringe benefit tax.

General Categories
The following are the general categories of fringe benefits subject to final tax.

1. Management perquisite benefits

2. Employee personal expenses shouldered by the employer
3. Taxable de minimis benefits
a. Excess de minimis over their limits
b. Benefits not included in the de minimis list

Exemption
The following fringe benefits are exempt from the fringe benefit tax:

1. Fringe benefits which are authorized and exempted from tax under special laws
 2. Benefits required by the nature of, or necessary to the trade, business or profession of the
employer
3. Benefit given for the convenience or advantage of the employer
4. Contributions of the employer for the benefit of the employee to retirement, insurance
and hospitalization benefit plans
5. Benefit given to rank and file employees whether or not granted under a collective
bargaining agreement
6. De minimis benefits within their legal limits

Characteristics
Final tax
The fringe benefit tax is a final tax which is withheld by the employer at source. Thus, the
employee need not report the fringe benefits in his income tax return.

Tax upon the fringe benefits of managerial or supervisory employees

The fringe benefit tax is not a tax to the employer. It is a tax upon the fringe benefit realized by
the managerial or supervisory employee. It is a tax to the employee; hence, it applies regardless
of the identity of the employer. Therefore, it applies even if the employer is a sole proprietor,
partnership, corporation whether taxable or exempt, or the government.

Paid by the employer

As a final tax, the tax is presumed withheld at source and remitted by the employer to the
government.

Grossed-up tax
The monetary value or the amount of fringe benefit realized or taken home by the employee is
effectively net of the final tax which is to be withheld at source Hence, the monetary value is first
grossed-up by the complement percentage of the applicable fringe benefit tax rate before the
fringe benefit tax rate is applied.

Due quarterly
The fringe benefit tax is due for remittance quarterly based on the accounting period (fiscal or
calendar) selected by the employer. The monetary value of each taxable fringe benefit is
determined and reported quarterly through RIR Form 1603Q. The quarterly fringe benefit tax is
due on or before the last day of the month following the quarter in which withholding was made.

Procedures for Computation

The following are the general steps in the computation of the fringe benefit tax.
Step 1: Determine the monetary value.
Monetary value refers to the taxable amount of benefits taken home or realized by the managerial
or supervisory employee. The monetary value is presumed net of the final tax.

Step 2: Determine the fringe benefit tax rate applicable for the taxpayer.
The fringe benefit tax rate for non-resident aliens not engaged in trade or business is 25% and
35% for other cases.

Step 3: Determine the gross-up rate.

The gross up rate is computed by deducting the fringe benefit tax rate from 100%.

Step 4: Determine the grossed-up monetary value.

The monetary value is computed by dividing the monetary value by the gross-up rate.

Step 5: Determine the fringe benefit tax.

This is done by multiplying the fringe benefit tax rate to the grossed-up monetary value.

Illustration 11.1
A manager of IP Company received a fringe benefit with a value of P52,000.

The fringe benefit tax is computed as:

Step Particular Amount
1 Monetary Value 52,000
2-3 Grossed-up Rate (100%-35%) 65%
4 Grossed-up Monetary Value 80,000
2 Fringe Benefit Tax Rate 35%
5 Fringe Benefit Tax 28,000

Rules on Valuation
The following shall be considered in determining the monetary value of the fringe benefit.

Benefits paid in cash

When benefit is given in cash or paid for in cash, the monetary value is the amount paid for in
cash.

Note: The only exception here is when the employer pays for the rent of the residence of the
employee. Monetary value is 50% of the rental payment.
Benefits paid in kind
When benefit is given in kind, the monetary value is the fair value of the thing given unless its
book value is higher. Book value is the cost less any provision for depreciation for depreciable
properties. Simply stated, the monetary value is the fair value or the book value of the thing given,
whichever is higher. When ownership over the property is transferred to the employee, the
monetary value is the entire fair value of the property even if the property is partially used in the
business of the employer.

Benefits that are furnished

When the benefit is given in the form of free use of the employer's property, the monetary value
is 50% of the rental value of the property. If the property has no available rental value, the
depreciation value is used. For purposes of the depreciation value, the presumptive useful lives
of the property are:

Presumptive Annual Depreciation Quarterly Depreciation

Property
Useful Life Value Value
Real Property 20 years 1/20 or 5% 1/80 or 1.25%
Movable Property 5 years 1/5 or 20% 1/20 or 5%

Illustration 11.2
A partnership transferred the use of a property with a fair value of P2,000,000 to its supervisor.

The monetary value would be:

Real Property Movable Property
Fair Value 2,000,000 2,000,000
Presumptive Useful Life 20 5
Annual Depreciation Value 100,000 400,000
Quarters 4 4
Quarterly Depreciation Value 50,000 100,000

HOUSING PRIVILEGES
The housing fringe benefits shall use the following formula for the monetary values.

Housing Privilege Monetary Value

Lease of residential property for residential use of
50% of rental payments
employees
 Assignment of residential property for use of 5% x 50% x higher between Assessed
employees Value and Zonal Value
Purchase of residential property on instalment basis
5% x 50% x Acquisition Cost
for the use of employees
Purchase of residential property and ownership is Higher between Acquisition Cost
transferred in the name of employee and Zonal Value
Purchase of residential property and ownership is
Higher between Fair Value and
transferred in the name of employee for less than
Zonal Value less Consideration Paid
adequate consideration

Illustration 11.3
Vacation Company purchased a residential property for P5,500,000. The zonal and assessed
value of the property are P6,000,000 and P5,000,000, respectively.

Compute for the fringe benefit tax under the following independent scenario.
1. Assigned for use of employees
2. Purchased on instalment for use of employees
3. Purchased for transfer of ownership to employees
4. Purchased for transfer of ownership to employees for a payment of P2,000,000

The fringe benefit tax for the year would be:

Scenario 1 Scenario 2 Scenario 3 Scenario 4
Monetary Value 150,000 137,500 6,000,000 4,000,000
Grossed-up Rate 65% 65% 65% 65%
Grossed-up Monetary Value 230,769 211,538 9,230,769 6,153,846
Fringe Benefit Tax Rate 35% 35% 35% 35%
Fringe Benefit Tax 80,769 74,038 3,230,769 2,153,846

Nontaxable Housing Fringe Benefit

The following housing benefits are not subject to fringe benefit tax:

1. Housing privilege of the Armed Forces of the Philippines (AFP) officials - i.e., those of
the Philippine Army (PA), Philippine Navy (PN) or Philippine Air Force (PAF);
2. 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 it is
located within the maximum of fifty (50) meters away from the perimeter of the business
premises; and
 3. Temporary housing for an employee who stays in a housing unit for three (3) months or
less.

EXPENSE ACCOUNT
The following are treated as taxable fringe benefits:

1. Expenses incurred by the employee but paid by his employer;

2. Expenses paid by the employee but reimbursed by his employer. However, if the above
expenditures are duly receipted for and in the name of the employer and these do not
partake the nature of a personal expense attributable to the employee, the same shall not
be subject to fringe benefit tax; and
3. Personal expenses of the employee (like purchases of groceries for the personal
consumption of the employee and his family members) paid for or reimbursed by the
employer to the employee whether or not the same are duly receipted for in the name of
the employer.

Representation and transportation allowances that are fixed in amounts and regularly received
by the employees as part of their monthly compensation income shall be considered as taxable
compensation income subject to Withholding Tax on Wages.
 Illustration 11.4
Mushroom. Corporation allows its Chief Operation Officer, Mr. Candido Perez, to incur
expenses subject to reimbursement. Mr. Perez presents the following itemized receipts:
Light and Power (75% in the name of the company) 8,000
Grocery items 15,000
Clothing 5,000
Gasoline of company car 3,000
Transportation for business trip 12,000

The following are the items subject to FBT and the resulting amount of FBT.
Light and Power 2,000
Grocery items 15,000
Clothing 5,000
Total Fringe Benefits 22,000
Grossed-up rate 65%
Grossed-up Monetary Value 33,846
FBT Rate 35%
Fringe Benefit Tax 11,846

MOTOR VEHICLES
The housing fringe benefits shall use the following formula for the monetary values.

Motor Vehicle Privilege Monetary Value

Purchase of motor vehicle in the name of employee Acquisition Cost

Cash is given to employee for the purchase of vehicle, Cash received by the employee
However, if the cash given is subjected to WTC, it
ownership is placed in the name of the employee
shall not be subject to FBT anymore.
Purchase of car on instalment basis the ownership of
Acquisition Cost ÷ 5
which is placed in the employee
Employer shoulders a portion of the purchase price,
Portion shouldered by the employer
the ownership is placed in the name of employee
Employer owns and maintains a fleet of motor vehicles
Acquisition Cost x 20% x 50%
for the use of the business and the employees
Employer leases and maintains a fleet of motor
50% x Rental Payments
vehicles for the use of the business and the employees
Aircrafts Not applicable
Yachts Acquisition Cost x 5%
HOUSEHOLD EXPENSES
Expenses of the employee which are borne by the employer for household personnel, such as
salaries of household help, personal driver of the employee, or other similar personal expenses
(like payment for homeowners association dues, garbage dues, etc.) shall be treated as taxable
fringe benefits.

INTEREST ON LOAN AT LESS THAN MARKET RATE

The interest forgone by the employer representing the difference between 12% and the actual
interest charged is a taxable fringe benefit.

MEMBERSHIP FEES, DUES AND OTHER EXPENSES

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

The entire expenditures shall be treated as taxable fringe benefits of the employee.

EXPENSES FOR FOREIGN TRAVEL

Reasonable business expenses for foreign travel for attending business meetings and conventions
are exempt, such as the following:

1. Inland travel expenses such as food, beverage and local transportation costs
2. Lodging costs in hotel or similar establishment amounting to an average of $300/day or
less.
3. Economy and business class airplane tickets
4. 70% of the cost of first-class ticket

Note that 30% of the cost of first-class ticket in foreign travels is considered de-minimis. Note also
that the foregoing rules apply only on foreign travels. The cost of domestic travel is generally
considered as reasonable and hence deductible.

Expenses in excess of the aforementioned limits and for the family members of the employee
shouldered by the employer are taxable fringe benefits.
 Illustration 11.5
Payaman Company allowed its President, Mr. Cong, to attend a convention abroad for five
days and nights with the privilege to bring his wife, Viy. The company shouldered the
following expenses for their foreign travel: P70,000 each for their first class plane ticket, $350
each for their daily lodging cost and P50,000 each for their foods and inland transportation.
The exchange rate is $1:P50.

All expenses related to Viy are taxable.

Taxable Exempt
Plane Ticket 91,000 49,000
Lodging Costs 100,000 75,000
Foods and Local Transportation 50,000 50,000
Total 241,000 174,000

HOLIDAY AND VACATION EXPENSES

Holiday and vacation expenses are taxable fringe benefits if shouldered by the employer. The
monetary value is the amount paid or shouldered by the employer.

EDUCATIONAL ASSISTANCE
Educational assistance to the employee is generally taxable except when it is incurred for the
convenience or furtherance of the employer's business, such as:

1. the education or study is directly connected with the employer's business or profession: and

2. there is a written contract (i.e., employee bond) that the employee is under obligation to remain
at the employ of the employer fora period if time ther mutually agreed upon.

Educational assistance granted to dependents of the employee is generally taxable except when
the assistance was provided through a competitive scheme under a scholarship program of the
company.
 Illustration 11.6
E-Low Cost is a travel and tours company which provides educational assistance to the
following employees under an employment bond:
Position Degree Program Monthly Stipend
VP for Management Doctor in Business Administration P 10,000
VP for Marketing Master in Marketing Management 8,000
Operations Manager BS in Tourism Management 5,000
Accounting Supervisor BS in Architecture 3,000
Accounting Staff BS in Accounting Information System 3,000
Only the tuition fee of the accounting supervisor is subject to fringe benefit tax and shall be reported in
the quarters it is paid. Even if covered by an employee bond, his field of study is neither related to the
nature of his job nor to the employer's business. The fringe benefit of all the other employees will neither
be subject to the fringe benefit tax nor the regular income tax under the "convenience of the employer"
rule.

INSURANCE PREMIUMS
This includes life or health insurance and other non-life insurance premiums or similar amounts
in excess of what the law allows. These are taxable fringe benefits except the following insurance
or premium contributions allowed or required by law:

1. Contributions of the employer for the benefit of the employee pursuant to the provisions
of existing law such as contributions to SSS, GSIS, PhilHealth, and HDMF
2. Cost of premium for group insurance of employees

Illustration 11.7
Kingsdale Company made the following insurance premium payments during a calendar
quarter:
P30,000 premium for the life insurance of the Chief Executive Officer (CEO) with Kingsdale
Company as the beneficiary of the policy
P20,000 premium for the life insurance of the Company Chief Operating Officer (COO) with
his wife as the beneficiary
P15,000 insurance premium of the personal car of the company manager - P40,000 premium
for group insurance of employees
P80,000 premium share in SSS, PhilHealth, and Pag-Ibig dues of employees
P10,000 fire insurance premium for the company building
 The quarterly monetary value of fringe benefits shall be computed as follows:
Life insurance premium of COO where his wife is the beneficiary 20,000
Car insurance of company manager 15,000
Quarterly monetary value 35,000
The insurance premium on the life of the CEO where the company itself is the beneficiary is not a fringe
benefit to the executive employee but a business expense. Group insurance premiums and those required
by special laws are not taxable. The premium for fire insurance on company building is a business
expense.

ACCOUNTING
The following are the pro-forma accounting entries in recording in the books of the employer.
MV means that this is usually the monetary value

Fringe Benefit Expense [mv]

Benefits paid for in cash or in Fringe Benefit Tax Expense xx
kind Cash/Property xx
Fringe Benefit Tax Payable xx

Benefits which do not involve Fringe Benefit Tax Expense [mv]

payment of cash or properties Fringe Benefit Tax Payable xx

Exempt benefits paid for in Fringe Benefit Expense [mv]

cash or in kind Cash/Property xx

Tax Treatment
The total fringe benefit expense including the fringe benefit tax expense is a deductible expense
of the employer against his gross income in the computation of his taxable income. It must be
noted that a deductible fringe benefit expense exists only when the benefit is paid in cash or in
kind. The expense is measured at the actual cost or tax basis of consideration given as fringe
benefits.

FILING AND DEADLINE OF FORMS

There is only one form relevant to fringe benefit taxes. The quarterly withholding tax remittance
return shall be filed in triplicate by every Withholding Agent (WA / payor) required to deduct
and withhold taxes on fringe benefits furnished or granted to employees other than rank and file
employees subject to Final Withholding Taxes. [You may click the form code to access the link to
the pdf file of said form.]

Deadline
Form Name
Manual Filing eFPS Filing
Quarterly Remittance Return of last day of the month following the close of
Final Income Taxes Withheld the quarter during which withholding was
1603Q on Fringe Benefits Paid to made
Employees Other than Rank
and File)
Self-Check!
Basing on your readings, answer the following questions.
1. What is the difference between fringe benefit and de minimis benefit?
2. What are the characteristics of the fringe benefit tax?
3. What is the tax base of the tax? How is it computed?
4. What are the special considerations in the computation of the monetary value of
different kinds of fringe benefit?
5. How are the fringe benefits and the related tax recorded in the books of the employer?

Exercise 11.1 TRUE OR FALSE

Determine whether the following statements are true or false.
___________1. The fringe benefit tax is a final tax.
___________2. The fringe benefit tax is a tax on the employer.
___________3. Only managerial and supervisory employees working in the private sector is
subject to fringe benefit tax.
___________4. Lodging costs on foreign travel is a taxable fringe benefit regardless of
amount.
___________5. 30% of first-class tickets in foreign travel is an exempt fringe benefit.
___________6. The annual depreciation value of a real property is 20% of the value of the
property.
___________7. The monetary value of use of leased property is the full amount of rental
payments.
___________8. When a residential property is purchased to be transferred in the name of
employee for inadequate consideration, the monetary value is the excess of
the zonal value over the acquisition cost.
___________9. The grossed-up monetary value is the benefit expense of the employer.
___________10. The liability of the employer is to withhold the corresponding income tax
from the fringe benefit earned by the employee.
___________11. All scholarship grants to employees are nontaxable fringe benefits.
___________12. Fringe benefits granted for the convenience of the employer is nontaxable.
___________13. A fringe benefit not subject to FBT is also not subject to compensation income
tax.
___________14. Fringe benefits are forms of incentives to managerial employees.
___________15. The fringe benefit tax rate shall be the same with the normal corporate tax rate
for income taxes.
Exercise 11.2 MULTIPLE CHOICE
Choose the best answer from the choices provided.
______1. Which value should be used as tax base to compute the fringe benefit on property
assigned for the use of employees?
a. FMV of the property
b. Cost of the property
c. Equivalent rental value of the property
d. Fringe benefit value

______2. The following are nontaxable housing fringe benefit, except

a. Housing for military officials of the AFP
b. Housing within 50 meters of business premises
c. Temporary housing within three months or more
d. Free housing privileges to a corporate officer

______3. Interest on loans granted by the employer to employee are taxable fringe benefit
when the interest rate is
a. More than 12%
b. At least 12%
c. At most 12%
d. Less than 12%

______4. Which of the following business travel expenses is not subject to fringe benefit tax?
a. Hotel accommodation for $300 per day.
b. Cost of economy airplane ticket
c. Inland travel expense
d. All of the above

______5. Education grant to the employee or his dependent by the employer is not subject to
fringe benefit tax, except when
a. The study grant involved is connected with the trade
b. There is a written contract that the employee will remain to work for a period of
time.
c. The assistance was through competitive scholarship program.
d. The study grant is not connected with the trade.
Problem 11.1 MONETARY VALUE
An employer remitted P196,700 pertaining to amount withheld from the cash benefit granted
to its managerial employee.

_______________1. How much is the monetary value of fringe benefit paid?

_______________2. How much is the total deductible expense of the employer?

Problem 11.2 PERSONAL EXPENSES

Gecko Company paid the following fringe benefits during the calendar quarter of its
managerial employee.
Salaries of household help 8,000/month
Salary of personal guard 18,000/month
Personal driver 9,000/month
Annual association dues 6,000
Garbage dues 100/week

Compute for the quarter’s fringe benefit tax assuming the employee is:
______________1. A resident alien
______________2. Non-resident alien not engaged in trade or business

Problem 11.3 MOTOR VEHICLES

Violette Company maintains a fleet of motor vehicles for business use and employee use. The
following related to the calendar quarter just ended.
Cost of three motor vehicles used exclusively for sales and 4,500,000
delivery services
Cost of motor vehicles from employee’s business use and 500,000
employee use
Rental payments for additional motor vehicle for employee’s 30,000
personal use

Compute for the fringe benefit tax.

Problem 11.4 COMPREHENSIVE

Miss Mary Gatan, a supervisory employee, received the following benefits during the last
calendar quarter of 2019.
Salaries 120,000
Performance Bonus 20,000
13th Month Pay 40,000
Excess de minimis 12,000
Cash price of car given to her 300,000

Compute for the fringe benefits tax.

Problem 11.5 HOUSING PRIVILEGES
On July 1, 2019, Crème Company designated the use of its residential unit for its managerial
employee. The residential unit was acquired for P4,500,000 and has a zonal value of P2,000,000.
The land has assessed value of P1,000,000 while the improvement has assessed value of
P2,000,000.

_____________1. How much is the fringe benefit tax for the third quarter of 2019?
_____________2. How much is the total deductible expense for the year 2019?

Problem 11.6 INTEREST

On April 1, 2020, Divoc Company granted the following loans to its employees as help for the
pandemic.
Employee Position Principal Interest Rate
A Factory Supervisor 100,000 8%
B Factory Assemblyman 20,000 0%
C Vice President for Operations 120,000 4%
D Head Accountant 80,000 5%

How much is the total fringe benefit tax expense?

Problem 11.7 ACCOUNTING

During the calendar quarter, Graham Company reimbursed its managerial employee relating
to a internet service fees for P80,000. Forty percent of said amount was incurred for the
convenience of the operations of the offices of Graham Company due to the community
quarantines.

Determine the effects of the reimbursement on the Assets, Liabilities and Capital of the company.