May 2022

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 employee, 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

(a) If the fringe benefit is granted in money, or is directly paid for by the employer, then
the value is the amount granted or paid for.

(b) If 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 benefit shall
be equal to the fair market value (“FMV”) of the property.

Note: The FMV of real property is the FMV determined by the BIR Commissioner
or the FMV determined by the Provincial or City Assessor, whichever is
higher.

(c) If the fringe benefit is granted or furnished by the employer in property but the
ownership is not transferred to the employee (i.e., only the “usufruct” or the right to
use the property is transferred), the value of the fringe benefit is equal to the
depreciation value of the property. If the property is not owned by the employer but
being leased out to the employer, the value of the fringe benefit is equal to the rental
or lease payment of the employer.

Rate of Tax and Tax Base

Tax rate = Final Tax of 35%1

Tax Base = Grossed up monetary value (“GUMV”) of the fringe benefit

GUMV = Monetary value (“MV”) of the fringe benefit ÷ 65%2

1
Before January 1, 2018, FBT rate was 32%.
2
Before January 1, 2018, GUMV = MV/68%.

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May 2022

Notes:

a) The final tax is imposed whether the employer is an individual, partnership,

or corporation, regardless of whether the employer is taxable or not, or the
government and its instrumentalities.

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 respect to employers enrolled with the Electronic Filing and Payment System
(“eFPS”), the deadline 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.3

Note: No actual withholding of the tax can take place because the payments are
generally made to persons/entities (ex. store, school, club, etc.) who are not the
taxpayer subject to the FBT.

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 –

3
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 th)
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 (15th) 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 by filing BIR Form No. 0619F for the first 2 months of the
quarter.

The quarterly FBT remittance return (BIR Form No. 1603Q) shall reflect therein the total fringe benefits
paid/given during the quarter and the resulting FBT due for the quarter. Whatever FBTs were previously
paid in the first 2 months shall be available as tax credits against the FBT due for the quarter. The resulting
amount payable shall be the FBT payable for the last month of the quarter.

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May 2022

(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 benefit - 50% of the value of the benefit

Case 2 – The employer owns residential property which was assigned to an

officer for his use as residence.

Annual value of the benefit - 5% of FMV of the land and improvements

as determined by the BIR Commissioner
or the Assessor, whichever is higher.

Monetary value of the benefit- 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 - 5% of the acquisition cost exclusive of

interest

Monetary value of the benefit - 50% of the value of the benefit

Case 4 – The employer purchases residential property and transfers ownership

thereof in the name of the employee.

Value of the benefit - 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.

Monetary value - the entire value of the benefit

Case 5 – The employer purchases residential property and transfers ownership

thereof to his employee for the latter’s residential use at a price less
than the employer’s acquisition cost.

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.

Monetary value of the benefit - entire value of the benefit

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May 2022

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 –

(a) 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 it is located within the maximum of fifty (50) meters
from the perimeter of the business premises.

(c) Temporary housing for an employee who stays in a housing unit for three
(3) months or less.

(B) Expense Accounts

(1) Expenses incurred by the employee which are paid by his employer. In this
case, the employee receives an entertainment or representation allowance
which is subject to liquidation.

(2) Expenses paid 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 taxable4 provided –

(a) the expenditures are duly receipted for and in the name of the employer,
and
(b) the expenditures are connected with the trade or business of the taxpayer,
that is, they are not personal expenses attributable to the employee.

(3) Personal expenses of the employee (like purchases of groceries for the personal
consumption of the employee and his family) paid for or reimbursed by 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.

Such allowances are taxable as compensation income subject to regular tax

rates.

4
Shall not be subject to the FBT, and shall not be included in the ITR of the employee.
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May 2022

(C) Motor Vehicle of Any Kind

Case 1 – The employer purchases the motor vehicle in the name of the
employee.

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 purchase of a
motor vehicle in the name of the employee.

Value of the benefit - amount of cash received by the 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 benefit - 50% of the value of the benefit

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May 2022

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 aircraft or helicopters owned and maintained by the employer
shall not be subject to the fringe benefit tax. The use shall be treated as
a business use.

(b) The use of a yacht, whether owned and 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 of 20 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 employee, or other.

(2) Similar expenses like payment for homeowners’ association dues, garbage
dues, etc.

(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 other expenses borne by the employer for his
employee, in social and athletic clubs or other similar organizations shall be treated
as tangible fringe benefits of the employee in full.

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May 2022

(G) Expenses for Foreign Travel

Not subject to FBT – reasonable expenses Subject to FBT

of the employee paid by the employer for
the purpose of attending business meetings
or foreign conventions:

(a) Inland travel expenses such as (a) 30% of the cost of first class airplane
expenses for food, beverage, and local tickets;
transportation;
(b) Lodging cost in a hotel or similar
(b) The cost of lodging in a hotel or similar establishment in excess of US $300
establishment amounting to an average per day;
of US $300 or less per day;
(c) 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;

(d) 70% of the cost of first class airplane (d) When there is no documentary
tickets. evidence showing that the employee’s
travel abroad was in connection with
business meetings or conventions, the
entire cost of the ticket, including the
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.

(I) Educational Assistance

Subject to FBT Not Subject to FBT

Cost of education assistance to If:
the employee which is borne (a) the education or study involved is directly connected
by the employer with the employer’s trade, business, or profession;
and
(b) 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 an employer to the scheme under a scholarship program of the company
dependents of an employee

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May 2022

(J) 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 benefit of the employee pursuant to
the 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.

(b) The cost of premiums borne by the

employer for the group insurance of
his employees.

(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 such compensation shall be the FMV of the stock options at the time
the services were rendered.

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 consequences5:

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 the 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 exercising the option is a supervisory or managerial

employee, such additional compensation shall be treated as a fringe benefit subject
to the final fringe benefit tax (“FBT”) under Section 33 of the Tax Code.6 (RMC
79-2014).

5
It goes without saying that the exercise of the option will result to additional income only if the stock is
worth more than the exercise price on the date the option is exercised. Otherwise, the option will not even
be exercised, and no additional income will be realized.
6
RMC No. 79-2014.
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May 2022

Tax Accounting for FB Expense and FB Tax

(a) The “fringe benefit expense” and “fringe benefit tax” shall constitute allowable
deductions from gross income of the employer.

Ex. The fringe benefit expense of ₱35,000 and fringe benefit tax of ₱18,846 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
Credit – Cash ₱53,846

(b) If the basis for the computation of the fringe benefits (“FB”) tax is the depreciation
value of the property, only the FBT shall constitute a deductible expense of the
employer.

Provided, however, if the zonal value or FMV of the said property is greater than its
cost subject to depreciation, the excess amount shall be allowed as a deduction from
the employer’s gross income as a fringe benefit expense.

Other Fringe Benefits Not Subject to Fringe Benefits Tax7

(A) Fringe benefits which are authorized and exempted from income tax under the Tax
Code or under special law;

(B) Contributions of the employer for the benefit of the employee to retirement,
insurance, and hospitalization benefit plans;

(C) Benefits given to the rank and file, whether granted under a collective bargaining
agreement or not;

(D) If the grant of fringe benefits to the employee is required by the nature of, or
necessary to the trade, business, or profession of the employer;

(E) If the grant of the fringe benefit is for the convenience or advantage of the
employer.

(1) In the case of meals, they must be furnished on the business premises 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 duties of his employment.

7
Sec. 33(A), (C), NIRC.
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May 2022

(F) “De minimis” Benefits

“De minimis” benefits which are exempt from the income tax on compensation
as well as from the FBT shall be limited to facilities or privileges furnished or
offered by an employer 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 employees, such as the following:8

(1) Monetized unused 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 ₱1,500 per
semester, or ₱250 per month (or ₱3,000 per year);

(4) Rice subsidy of ₱2,000 or one (1) sack of 50 kg. of rice per month amounting
to not more than ₱2,000, (or ₱24,000 per year);

(5) Uniform and clothing allowance not exceeding ₱6,000 per annum;

(6) Actual medical assistance, e.g. medical allowance to cover medical and
healthcare needs, annual medical/executive check-up, maternity assistance,
and routine consultations, not exceeding ₱10,000 per annum;

(7) Laundry allowance of ₱300 per month, (or ₱3,600 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

(c) the award must be given under an established written plan which does not
discriminate in favour of highly paid employees.

(9) Gifts given during Christmas and major anniversary celebrations not
exceeding ₱5,000 per employee per annum;

(10) Daily meal allowance for overtime work and night/graveyard shift not
exceeding twenty-five percent (25%) of the basic minimum wage on a per
region basis;

(11) Benefits received by an employee by virtue of a collective bargaining

agreement (“CBA”) and productivity incentive schemes. Provided, the total
annual monetary value received from both the CBA and productivity incentive
schemes combined, do not exceed Ten Thousand Pesos (₱10,000) per
employee per taxable year.

8
RR 3-98, as amended.
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May 2022

Notes:

a) The abovementioned eleven (11) items are not only exempt from the FBT
but also from the withholding tax on compensation income of managerial,
supervisory, and rank and file employees.

b) The amount of “de minimis” benefits conforming to the abovementioned

prescribed ceilings shall not be considered in determining the ₱90,000 ceiling
of “13th month pay and other benefits” excluded from gross income under
Section 32 (B)(7)(e) of the Tax Code.

Provided that, the excess of the “de minimis” benefits over their respective
ceilings shall be considered as part of “13th month pay and other benefits”
and the employee receiving it will be subject to tax only on the excess over
the ₱90,000 ceiling.

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:

Rate - twenty-five percent (25%)

Tax Base - the grossed-up monetary value of the fringe benefit

computed by dividing the monetary value of the fringe benefit
by seventy-five percent (75%).

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May 2022

Valuation of FBs subject to FBT

FB 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
(higher of zonal
Case 2: ER lets EE use ER-owned property 50% of Value
or assessor’s
value)
5% of
Case 3: ER buys property in installment and lets acquisition cost
50% of Value
the EE use the same exclusive of
interest
Higher of cost or Value
Case 4: Transfer to EE of ER’s property
FMV
Difference
Case 5: Transfer to EE of ER’s property at less between the
Value
than the acquisition cost of ER FMV and the
cost to EE

(B) Expense Accounts

Amounts paid by
(1) Allowance subject to liquidation Value
ER
Amounts
(2) Amounts reimbursed by ER reimbursed by Value
ER

(C) Motor Vehicle

Case 1: ER buys vehicle in the name of EE 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
20% of
Case 4: ER purchases vehicle on installment in acquisition cost
Value
the name of EE (exclusive of
interest)
20% of
Case 5: ER lets EE use ER-owned vehicle 50% of Value
acquisition cost
Rentals paid for
Case 6: ER lets EE use ER-leased vehicle 50% of Value
vehicle
5% of
Case 7: ER lets EE use ER-owned yacht Value
acquisition cost

(D) Household Expenses

Amount of
(1) Salaries of household help, driver, etc. Value
salaries paid
(2) Payment for other similar expenses like Amount paid Value

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May 2022

association dues, garbage dues, etc.

Difference
between 12%
Value
(E) Less than Market Rate Interest on Loans and the interest
charged
Amounts paid by
(F) Social and Athletic Club Fees Value
ER for EE
(G) Expenses for Foreign Travel
(1) 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;

Amounts paid by Value
(ii) Excess of lodging cost over $300/day
ER
(iii) Travelling expenses for the travel of
EE’s family

(H) Holiday and Vacation Expenses Amounts borne Value

by ER

(I) Educational Assistance

(1) Education of EE UNLESS education is
connected with the ER’s business and EE Amount paid by
Value
is obligated to remain in the employ of the ER
ER for a certain period of time
(2) Education of EE’s dependents UNLESS
assistance is provided thru a competitive Amount paid by
Value
scheme under a scholarship program of the ER
ER

(J) Cost of Insurance borne by ER for the EE

Premiums or
UNLESS the contribution is pursuant to
contributions Value
existing law (ex. SSS, GSIS, PhilHealth), or
paid by ER
if the ER is paying for group insurance of the
employees
Higher of book
value or FMV of
(K) Stock Options: Upon exercise of the stock Value
the shares, less
option by a managerial/supervisory employee
the exercise price

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