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Income

taxation

Fringe Benefit
Definition

In the Philippines, fringe benefits are defined and regulated in Section 33 of the
National Internal Revenue Code (NIRC), as amended, and the Revenue
Regulations 3-1998 re: Implementing Section 33 of the National Internal
Revenue Code, as Amended by Republic Act No. 8424 Relative to the Special
Treatment of Fringe Benefits.
Is not among the items of gross income for purposes of computing the income
tax liability of an individual employee. Fringe benefit tax is subject to final
withholding tax. Generally the amount of taxable benefit and the fringe benefits
tax constitute allowable deductions from the gross income of the employer.
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 addition to
basic salaries, to an individual employee such as, but are not limited to the
following:

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 actual rate
granted;
Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or
other similar organizations;
Expenses for foreign travel;
Holiday and vacation expenses;
Educational assistance to the employee or his dependents; and
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
One reason why fringe benefits are granted by the employer to the employee is
to provide incentive to encourage employees productivity and loyalty to the
employer. It could be in form of vehicle to be used for business meetings and
personal travels, or personal benefits like providing for house maids and family
drivers. During financial difficulties, the employer may decrease or discontinue
previously given fringe benefits. The employer may increase the fringe benefits
in times of economic boom.
RULES ON FRINGE
BENEFITS
1.) Fringe benefits to rank-and-file employees are not taxable with fringe benefit tax, but
instead are taxable as compensation income subject to normal income tax rate in Section
24(A) of the NIRC, except for de minimis benefits and benefits provided for the convenience
of the employer. A rank-and-file employee is an employee not holding a managerial or a
supervisory position.
2.) Fringe benefits to managerial and supervisory employees are taxable with the 32% fringe
benefit tax, which is a final tax and is the subject of this article, except for de minimis
benefits and benefits provided for the convenience of the employer. A managerial employee
is one who is vested with powers or prerogatives to lay down and execute management
policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline
employees. Supervisory employees are those who, in the interest of the employer, effectively
recommend such managerial actions if the exercise of such authority is not merely routinary
or clerical in nature but requires the use of independent judgment.
Tax Base

Generally Fringe benefit Tax


Acquisition Cst 408,000.00
Effective Jan 1, 1998 34%
Effective Jan 1, 1999 33% Divide by 68%

Effective Jan 1, 2000 32% Grossed up monetary value 600,000.00

Grossed-up monetary value


Multiply by 32%

Effective Jan 1, 1998 66%


Fringe Benefit Tax 192,000.00
Effective Jan 1, 1999 67%
Effective Jan 1, 2000 68%
Fringe Benefit received by non resident alien individual not engaged in trade or
business in the Philippines. 25% grossed up value, 75% monetary value

Acquisition Cst 408,000.00

Divide by 75%

Grossed up monetary value 544,000.00

Multiply by 25%

Fringe Benefit Tax 136,000.00


Fringe Benefit 15%, monetary
value 75%
Special alien employees of ROHQ (regional operating headquarters of a
multinational company
Offshore banking of foreign bank
Foreign service subcontractor petroleum operations in the Phils
Employees who are employed and occupying the same position as those
occupied or held by the alien employees.
Acquisition Cst 408,000.00
Divide by 85%
Grossed up monetary value 480,000.00
Multiply by 15%
Fringe Benefit Tax 72,000.00
Fringe Benefit and monetary
value
Housing privilege
If employer leases a residential property where the employee resides, monetary
value is 50% of the rental paid
If owed by employer the fringe benefit is
Market value or Zonal value w/c ever higher 8,040,000.00
multiply by 5%
Annual value 402,000.00
multiply by 50%
monetary value 201,000.00
Divide by 68%
Grossed up monetary value 295,588.24
multiply by 32%
Fringe benefit tax 94,588.24
If the employer purchases a
residential property where the
employee resides,
Acquisition cost exc of unterest 8,040,000.00
multiply by 5%
Annual value 402,000.00
multiply by 50%

monetary value 201,000.00

Divide by 68%
Grossed up monetary value 295,588.24
multiply by 32%
Fringe benefit tax 94,588.24
If employer purchase a residential property and transfer ownership to the
employee, the monetary value of the fringe benefit is the acquisition cost or
zonal value which ever is higher
If employer purchase a residential property and transfer ownership to the
employee for residential use at a price less than the employers acquisition cost
the monetary value us
FMV or zonal value w/c ever is higher
Less Cost to employee
Monetary value
Motor vehicle of any kind

If the employer purchases the motor vehicle in the name of the employee monetary value = acquisition cost
If the employer gives the employee cash to purchase and own a motor vehicle, monetary value = cash received
If employer purchases on installment basis with the employee as owner, monetary value is the acquisition cost,
exclusive of interest, divided by 5 years
If the employer owns and maintains a fleet of motor vehicles for the use of the business and employees, the
monetary value of the benefit is the acquisition cost of all the motor vehicle not normally used for sales, freight,
delivery service and other non-personal use divided by 5 years x 50%
If the employer leases and maintains a fleet of motor vehicle for the use of the business and employees, the
monetary value, rental payment not normally used sales, freight, delivery service and other non-personal use
divided by 5 years x 50%
The used of aircraft treated as for business use and not be subject to fringe benefit
The used of yach whether owned and maintained or leased by the employer shall be treated as taxable fringe
benefit. Monetary value shall be based on the depreciation of a yacht at an estimated useful life of 20 years
Household expenses
Interest on loan at less than
market rate
If the employer lends money to his employee free of interest or at a rate lower
thaan 12%, such interest forgone by the employer or the difference of the
interest assumed by the employee and the rate of 12% shall be treated as a
taxable fringe benefit.
Membership fee, dues and other
expenses borne by the employer
Expenses for foreign travel

Foreign travel to attend business meeting or convention are not treated as


fringe benefit.
Inland travel expenses (food, beverages and local transpo) Except lodging cost in
a hotel or similar establishment amounting to an average of US300 or less per
day, shall not be subject to a fringe benefit tax
Cost of economy ticket and business class not subject to fringe benefit.
However 30% of the cost of the firstclass airplane ticket shall be subject to
fringe benefit tax
Educational assistance to the
employee or his dependent
Generally taxable as fringe benefit except if employees education is directly
connected with the employers trade or business.
Life or Health insurance ad other
non life insurance premium

Taxable as fringe benefit except


SSS, GSIS
Cost of premium borne by the employer for the group of insurance of his employee
FB not subject to FBT
(a) FB authorized & exempted from tax under
special laws
(b) Contributions of ER for the benefit of
the employee to retirement, insurance &
hospitalizations benefit plan
(c) Benefits given to the rank & file employees,
whether granted under a CBA or not
(d) De minimis benefits
De Minimis Benefits
a) Monetized unused vacation leave credits
of private employees not exceeding 10
days during the year and monetized value of
leave credits paid to government officials
and employees
b) Medical cash allowance to dependents
of employees not exceeding P750 per
semester or P125 per month
c) Rice subsidy of P1,500 or 1 sack of 50
kg rice amounting to not more than P1,500
d) Uniform and clothing allowance not
exceeding P5,000 per year
e) Actual yearly medical benefits not
exceeding P10,000
f) Laundry allowance of P300 per month
g) Employee achievement awards, for length
of service or safety achievement in the form
of tangible personal property other than cash
or gift certificate, with an annual monetary
value not exceeding P10,000 received by
the employee under an established written
plan which does not discriminate in favor of
highly paid employees
h) Christmas and major anniversary
celebrations not exceeding P5,000 per
employee per annum
i) Flowers, fruits, books or similar items
given to employees under special
circumstances on account of illness,
marriage, birth of a baby, etc
j) Daily meal allowance of overtime work
not exceeding 25% of basic minimum wage