Fringe Benefit Tax

CHAPTER 3
Fringe Benefit
Is any goods, services or other benefits furnished or granted by an
employer in cash or in kind, in addition to basic salaries.

It is a form of pay which may be in form of property, services, cash or

cash equivalent to supplement a stated pay for the performance of
services.

FBT cover only those fringe benefits given or furnished to a

managerial or supervisory employee.
Fringe Benefit
Table 3-1: Tax Treatment of Fringe Benefits
Part of Basic Subject to
Fringe Benefits given to: Salaries or Basic Tax and Subject to
Taxable CWT on FBT
Compensation compensation
Rank and File Yes Yes No
Supervisory/Managerial No No Yes
Manager
An employee who is vested with powers of prerogatives to lay down
and execute management policies and/or to hire, transfer, suspend,
lay-off, recall discharge, assign or discipline employees, or to
effectively recommend such managerial actions.
Supervisor
Person in the first-line management who monitors and regulates
employees in their performance of assigned or delegated tasks.
Supervisors are usually authorized to recommend and/or effect
hiring, disciplining, promoting, punishing, rewarding, and other
associated activities regarding the employees in their departments.
Fringe Benefit Tax
FBT is a monetary burden imposed by the sovereignty on 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, other than a rank and file employee.

FBT is a final tax imposed on the employee withheld by the

employer, computed at 35% (beginning January 1, 2018) on the
grossed-up monetary value (GUMV) of the fringe benefit granted by
the employer to an employee who holds a managerial or supervisory
position.
Fringe Benefit Tax
FBT is collected or withheld at source by the employer, meaning, at
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 a corporation (regardless of whether the
corporation is taxable or not), the government or its
instrumentalities
Fringe Benefit Tax
FBT shall be withheld and paid by the employer (thus, the employer
is the one liable to pay the FBT) on or before the 10th day of the
month following the calendar quarter
Items of Fringe Benefit subject to Tax:
1. Housing
2. Expense Account
3. Vehicle of any kind
4. Household personnel, such as maid, driver and others
5. Interest on loan at less than market rate to the extent of the
difference between the market rate and actual rate granted
6. Membership fees, dues and other expenses borne by the
employer for the employee in social and athletic clubs and similar
organizations
Items of Fringe Benefit subject to Tax:
7. Expenses for foreign travel
8. Holiday and vacation expenses
9. Educational assistance to the employee or his dependents
10. Life or health insurance and other non-life insurance premiums or
similar amounts in excess of what the law allows
Sample Problem:
Ana was hired by Earl to be the latter’s secretary and personal
assistant. To enable her to perform her duties well, Earl provide a
condo unit (adjacent to his) unit which Ana could use as her
temporary residence.

Is the fair market value of the use of the condo by Ana a “fringe
benefit” that is subject to FBT imposed under Section 22 of the
National Internal Revenue Code?
Tax Exempt Fringe Benefits
The ff. fringe benefits which are authorized and exempted from
income tax under any special law such as:

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

any special law such as:
a. Contributions required under SSS law
b. Contributions required under GSIS law
c. Similar contributions under an existing law
d. Premium for group insurance of employees
Tax Exempt Fringe Benefits
2. If the grant of the FB to the employee is required by the nature of, or
necessary to the trade, business or profession of the employer.
Example:
Outstanding Allowance (covers meals and trip-related expenses) are
granted to the Managerial and Supervisory employees of Philippine
Gaming Management Corporation (PGMC) who will be away from the
office site for at least 8 hours to visit lotto franchise holders for repairs
and/or inspection of equipment leased by PGMC from Philippine Charity
Sweepstakes Office PCSO.

Should the aforementioned allowance be subject to tax?

Tax Exempt Fringe Benefits
3. De Minimis Benefits
4. If the grant of benefits is for the convenience or advantage of the
employer
Example:
Ana was hired by Earl to be the latter’s secretary and personal
assistant. To enable her to perform her duties well, Earl provide
a condo unit (adjacent to his) unit which Ana could use as her
temporary residence.
Computation of Fringe Benefits Tax
In general, FBT is 35% upon the effectivity of TRAIN Law. However, FBT rate
for Nonresident Alien not-engaged in trade or business is 25%. The
computation of the FBT 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 fringed benefit by
dividing the monetary value of the FB by the gross monetary value
factor; and
4. Multiplying the grossed-up monetary value factor by the FBT rate
Fringe Benefit Tax Base and Rate
Table 3-2: Fringe Benefit Tax Base and Rate
Classification of CIT; RA; NRA-NETB SAEs/SFEs
Taxpayer NRA-ETB
Monetary Value __________ __________ __________
Divide by GMVF 68% 75% 85%
Gross-up Monetary Value __________ __________ __________
X FBT Rate 32% 25% 15%
FBT __________ __________ __________
Fringe Benefit Tax Base and Rate
Table 3-2: Fringe Benefit Tax Base and Rate
Classification of CIT; RA; NRA-NETB SAEs/SFEs
Taxpayer NRA-ETB
Monetary Value __________ __________ __________
Divide by GMVF 65% 75% 65%
Gross-up Monetary Value __________ __________ __________
X FBT Rate 35% 25% 35%
FBT __________ __________ __________
Sample Problem
Determine the gross-up monetary value and the fringe benefit tax of the ff
for the 2018 taxable year:
1. P39,000 grocery allowance for the personal consumption of an
executive (RC) of ABC Corporation
2. P40,800 expenses paid by an executive of ABC Corporation duly
receipted for in the name of ABC Corporation and is not in the nature
of personal expense
3. P40,800 expenses incurred by an executive of ABC Corporation in
connection with attending business meeting or convention
4. P40,800 grocery allowance for the personal consumption of one of
ABC Corporation’s rank and file employee
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 fair market value 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 Expenses of the Employer
If the FB is given to a rank and file employee, or to a supervisory or
managerial employee but is not subject to FBT, the deduction for the
employer is the monetary value of the FB. On the other hand, if the
FB is given to a supervisor or managerial employee and is subject to
FBT, the deduction is the grossed-up monetary value of the FB which
compose of the FB expense and the FBT.
Sample Problem:
Assume an employer furnished cash fringe benefit subject to FBT
amounting to P975,000.

What should be the appropriate journal entry in the books of the

employer?
Sample Problem:
Assume an employer furnished cash fringe benefit NOT subject to
FBT amounting to P975,000.

What should be the appropriate journal entry in the books of the

employer?
De Minimis Benefits
Facilities and privileges such as entertainment, medical services or so
called “courtesy” discounts on purchases furnished or offered by an
employer to his employee are NOT considered as compensation
subject to income tax and consequently to withholding tax, if such
facilities or privileges are of RELATIVELY SMALL VALUE are offered or
furnished by the employer merely as means of promoting the health,
goodwill, contentment or efficiency of his employees
De Minimis Benefits
The ff. shall be considered de minimis benefits not subject to income
tax as well as withholding tax on compensation income of both
managerial and rank and file employees:
1. Monetized unused vacation leave credits of private employees
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 a month
De Minimis Benefits
4. Rice subsidy of not more than 2,ooo per month or 1 sack (50kg)
rice per month
5. Uniforms given to employees b the employer not exceeding 6,000
per annum
6. Actual medical assistance given not exceeding 10,000 per annum
such as medical allowance to cover medical and healthcare needs,
annual medical/executive check-up, maternity assistance and
routine consultations
7. Laundry allowance not exceeding 300 per month
De Minimis Benefits
8. Employees achievement award (e.g. length of service) which must
be in the form of a tangible personal property other than cash or
gift certificate with the annual monetary value NOT EXCEEDING
10,000 under an established written plan which does not
discriminate in favor of highly paid employees
9. Gift given during Christmas and major anniversary celebrations
NOT EXCEEDING 5,000 per employee per annum
De Minimis Benefits
10. Daily meal allowance for overtime work and night/graveyard shift
not exceeding 25% of the basic minimum wage on a per region
basis provided such benefit is given on account of overtime work
or if given to employees on night/graveyard shift
11. Benefits received by an employee by virtue of a collective
bargaining agreement (CBA) and productivity incentive schemes.
Provided that the monetary value received from the two items
above combined, do not exceed 10,000 per employee per taxable
year
Excess of De Minimis Benefits over their
respective ceilings
The amount of de minimis benefits conforming to the ceiling of de
minimis benefits shall not be considered in determining the 90,000
ceiling of “other benefits” excluded from the gross income under
TRAIN Law. On the other hand, the excess of the de minimis benefits
over their respective ceilings prescribed under this regulation shall be
considered as part of other benefits subject to tax only on the excess
over the 90,000 ceiling
Excess of De Minimis Benefits over their
respective ceilings
All other benefits given by employers which are not included in the
enumeration of de minimis benefits shall not be considered de
minimis benefits but should fall under the classification of “other
benefits” and is therefore subject to the 90,000 ceiling. The excess of
the benefits over the 90,000 limit would form part of an individual’s
gross income and would be subject to income tax and applicable
creditable withholding taxes
90,000 Ceiling for 13th Month pay/bonuses
and “Other Benefits”
13th month pay and other benefits received by officials and
employees of public and private entities are exempt from income tax
and creditable withholding tax on compensation provided, however,
upon the effectivity of TRAIN Law, the total exclusion shall not exceed
90,000. Otherwise, the excess would form part of an individual’s
gross income and would be subject to income tax and applicable
creditable withholding taxes.
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
Exclusion form Gross Income is not applicable
to:
1. Self-employed individuals
2. Income generated from business
Business Related Expenses / Allowances
Subject to Liquidation
Any amount paid specifically, either as advances 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, if the following conditions are
satisfied:
1. It is for ordinary and necessary travelling and representation or
entertainment expenses paid or incurred by the employee in the
pursuit of the trade, business or profession; and
Business Related Expenses / Allowances
Subject to Liquidation
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 pursuant to the tax
code
Representation and Transportation Allowance
(RATA)
RATA granted to the officials and employees of the government are
considered reimbursements for the expenses incurred in the
performance one’s duties rather that as additional compensation.
However, the excess of RATA, if not returned to the employer,
constitutes taxable compensation income of the employee.
Representation and Transportation Allowance
(RATA)
Representation and Transportation Allowance
(RATA)
The foregoing rule shall likewise apply to reasonable amounts of
reimbursements or advances for travelling and representations of
private employees which are pre-computed on a daily basis and
which are paid to any employee while on assignment duty.

On the other hand, transportation and representation allowances

which are fix in amounts and are regularly received by the employees
as part of their monthly compensation are subject to basic tax
Communication Allowance
Communication Allowance (Phone Allowance) granted to employees
are not subject from FBT and tax on compensation on the basis that
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
Sample Problem
In 2018 a domestic corporation paid for the monthly rental of a rental of a
residential house of its branch manager, Mr. Juan Dela Cruz, amounting to
156,000. (assume there is no transfer of ownership)
Questions:
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 FBT?
4. Total amount deductible by the employer from its gross income
5. What is the appropriate journal entry to record the provision of the
above benefit?
Non-taxable Housing Benefits
1. Housing unit inside or adjacent (within 50 meters) from the
perimeter of the business premises
2. Temporary housing for a stay in the housing unit for 3 months or
less
3. Housing privilege of military officials of the Armed Forces of the
Philippines
Use of Aircraft and Helicopters
The use of Aircraft and helicopters owned and maintained by the
employer is not a taxable benefit but treated as business expense of
the employer.
Filing of Returns / Filing of FBT
10th day of the month following the end of the calendar quarter in
which the fringe benefits were granted to the recipient