FRINGE BENEFIT TAX

NOVEMBER 06, 2021

Fringe Benefits
Under the NIRC-, the term “Fringe Benefit” was
defined to pertain to goods, services or other
benefits furnished by the employer to the
employees.

Fringe benefits furnished to managerial and

supervisory-level employees by the employer are
subject to FBT. Benefits subjected to FBT are no
longer included in the employees’ taxable income.
General Categories of Fringe Benefits
Subject to Final Tax
• Management perquisite benefits

- Also called “management perks”

- highly privileged incentives given only to a
special group of employees.
- The term “perquisite” is often used
colloquially to refer to those benefits of a
more discretionary nature.
General Categories of Fringe Benefits
Subject to Final Tax
•Employee personal expenses shouldered by
the employer
- When an expense takes the nature of an employee
personal expense or expenditure and is paid or
assumed by the employer in default of a proximate
business necessity, it is deemed a fringe benefit in its
entirety even if the expense is receipted in the name of
the employer.
General Categories of Fringe Benefits
Subject to Final Tax
•Taxable de minimis benefits
a) Excess de minimis over their limits
b) Benefits not included in the de minimis list
 EXEMPT FRINGE BENEFITS
The following benefits are also not subject to final withholding tax as per
amended NIRC Sec. 33 (C):

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 with their legal limit.
 FRINGE BENEFITS SUBJECT TO FBT
1) Housing benefits
2) Expense account
3) Vehicles of any kind
4) Household personnel, such as maid, driver or others
5) interest for the difference between the market rate (12%) and the
actual interest granted.
6) Membership fees, dues and other expenses borne by the employer
for the employee in social and athletic clubs or other similar
organizations.
7) Expense for foreign travel
8) Holiday and vacation expenses
9) Educational assistance to the employee or his dependents
10) Life or health and other non-life insurance premiums or similar
accounts in excess of what the law allows
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.
CHARACTERISTICS OF THE FRINGE BENEFIT TAX

FINAL TAX
- Theemployee need not to report the fringe benefits in his
income tax return.

TAX UPON THE FRINGE BENEFITS OF

MANAGERIAL OR SUPERVISORY EMPLOYEES
- FBT is not a tax to the employer but a tax upon the fringe
benefit realized by managerial or supervisory employee,
it applies regardless of the identity of the employer.

 PAID BY THE EMPLOYER

- The tax is presumed withheld at source and remitted by
the employer to the government
CHARACTERISTICS OF THE FRINGE BENEFIT TAX

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.

 DUE QUARTERLY
- The FBT is due for remittance quarterly based on the
accounting period selected by the employer.
Procedures in Computing the FBT
1. Determine the monetary value.
- Monetary value (MV) refers to the taxable amount of benefits taken home
or realized by the managerial or supervisory employee. The MV is
presumed net of the final tax.
2. Determine the gross-up rate and fringe benefit tax rate applicable
for the taxpayer.
- The gross up rate is the complement of the fringe benefit tax rate. If the
FBT rate is 35%, the gross-up rate is 65%. If the FBT rate is 25% , the gross
up rate is 75%.
3. Determine the grossed-up monetary value by dividing the
monetary value by the gross-up rate.
Grossed-up monetary value = Monetary value ÷ 65% or 75%
4. Determine the FBT by multiplying the fringe benefit tax rate to
the grossed-up monetary value.
FBT = Grossed-up monetary value x 35% or 25%
Rules on Valuation of Fringe Benefits
• Benefits paid in cash – the monetary value of the amount paid for
in cash. (Except where the employer pays for the rent of the
residence of the employee, the MV is 50% of the rental payment.)
• Benefits paid in kind – the monetary value is the higher between
the fair value or the book value of the thing given.
Book value is the cost less any provision for depreciation for
the depreciable properties.
• Benefits that are furnished – when the benefit is given in the form
of free of 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.
a) 20 years for real properties
b) 5 years for movable properties
FRINGE BENEFIT TAX RATES
YEAR EMPLOYEES
Residents or citizens Non-resident aliens
1998 34%

1999 33%

2000 to 2017 32%

25%
2018 and thereafter 35%
FRINGE BENEFITS SUBJECT TO FBT
 Housing benefits
An employer pays the P20,000 monthly residential rental of his managerial
employee. Compute the quarterly monetary value and fringe benefit tax.
Monetary value =50% of the benefit
Quarterly Monetary Value = (P20,000 x 3) x 50% = P30,000
Grossed-up MV = P30,000 ÷ 65% = P46,153.85
Fringe Benefit Tax = P46,153.85 x 35% = P16,153.85
FRINGE BENEFITS SUBJECT TO FBT
 Housing benefits
ABC designated a residential property for the use of its managerial employee.
The lot has a zonal value of P3,500,000 and P2,000,000 value per tax
declaration. The assessed value on the improvement on the lot was P1,500,000.
The lot was purchased at a cost of P2,000,000. Compute the quarterly monetary
value and fringe benefit tax.
Monetary value =50% of the annual value of the benefit
Monetary Value = (P3,500,000 + 1,500,000) / 20 years x 50%= P125,000
Quarterly MV = P125,000 ÷ 4 = P31,250
Grossed Up Monetary Value = P31,250 ÷ 65% = P48,076.92
Quarterly Fringe benefit tax = P48,706.92 x 35% = P16,826.92
FRINGE BENEFITS SUBJECT TO FBT
 Housing benefits

Kalibo Company purchased a residential unit for P3,000,000 and transferred

ownership to its supervisory employee. The property has a zonal value of
P3,500,000. Compute the monetary value and fringe benefit tax.
Monetary value =higher between Market Value or Acquisition Cost
Monetary Value = P3,500,000
Fringe Benefit Tax = (P3,500,000 ÷ 65%) x 35% = P1,884,615.39
FRINGE BENEFITS SUBJECT TO FBT
 Housing benefits

Celebes Inc. owns a residential property it acquired for P2,000,000. It

transferred ownership thereto to its managerial employee for P1,2000,000 when
its fair value was P3,000,000. Compute the monetary value and fringe benefit
tax.
Monetary Value = % of the value benefit
Monetary Value = (P3,000,000 – 1,200,000) = P1,800,000
Fringe Benefit Tax = (P1,800,000 ÷ 65%) x 35% = P969,231
FRINGE BENEFITS SUBJECT TO FBT
EXPENSE ACCOUNT
- Expenses incurred by an employee but which are paid by his employer
or incurred and paid by employee but reimbursed or advances by the employer
are taxable fringe benefits. The monetary value is the amount paid by the
employer.

Ex. Mandaue reimbursed the following expense liquidation of its managerial

employee:
Purchase of office supplies P20,000
Personal meals & groceries 15,000
Gasoline for transportation (1/2 for business) 8,000
Office electricity, water and telephone bills 12,000

Monetary value = (P15.000 + 4,000) = P19,000

Fringe Benefit Tax = (P19,000 ÷ 65%) x 35% = P10,230.77
 FRINGE BENEFITS SUBJECT TO FBT
 Vehicles of any kind

 Purchased by employer of motor vehicle in the name of the employee

regardless of whether the same is partially in the business of the
employer.
MV = 100% of the cost of the motor vehicle
 Cash benefit to employee for the purchase of a vehicle, even if the
vehicle is partly used in the business of the employer.
MV = 100% of the cash benefit, except when the amount is
subjected to withholding tax on compensation
 Purchase of car on installment basis by the employer with ownership
placed in the name of the employee even if the car is used partly for the
employer’s business.
MV = (1/5) or 20% of the acquisition cost
 FRINGE BENEFITS SUBJECT TO FBT
 Vehicles of any kind
h Employer shoulders a portion and is placed in the name of the employee, even
if partially used in business.
Monetary value = the portion shouldered by the employer
 Fleet of motor vehicles owned for the use of the business and the employees,
the value of benefit is the cost of all motor vehicles not used for sales, freight,
delivery service, and other non-personal uses divided by 5 years.
Monetary Value = 50% of the value of benefit
 Fleet of motor vehicles leased for the use of the business and the employee, the
value of the benefits is the rental payments for motor vehicles not normally used
for sales, freight, delivery, service and other non-personal use.
Monetary value = % of the value of the benefit
 Aircrafts including helicopters are deemed solely for business use, hence, they
are not subject to fringe benefit tax.
 Yachts whether owned and maintained or leased by the employer are presumed
not for business use; hence, taxable as fringe benefits. If owned or maintained,
the value of the benefit is measured as the depreciation value over years.
 FRINGE BENEFITS SUBJECT TO FBT
Household Expense
Employee expenses borne by the employer for household personnel,
salaries of household help, personal driver of the employee, and other personal
expenses such as homeowners association dues, garbage dues, electricity and
water are taxable fringe benefits. The monetary value is the amount paid.

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 borne by the employer for his
employees in social and athletic clubs or other similar organizations
constitute taxable fringe benefits. The monetary value is the amount paid.
 FRINGE BENEFITS SUBJECT TO FBT
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.

Substantiation requirement:
a) Business meetings must be supported by an official communication from
business associates abroad indicating the purpose of the meeting.
b) Business conventions must be supported by an official invitation or
communication from than the host organization or entity abroad.
 FRINGE BENEFITS SUBJECT TO FBT
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 to the Employee or his Dependents

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 trade,
business or profession
2. there is a written contract that the employee is under obligation to remain at
the employ of the employer for a period of time they 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.
 FRINGE BENEFITS SUBJECT TO FBT
Lifeor 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.
• How much is the allowable deduction from business income of a domestic
corporation which granted and paid P97,500 fringe benefits to its key
officers in 2020?
• Answer: P150,000

Fringe benefits expense P97,500

Fringe benefits tax expense 52,500
Cash P97,500
Fringe benefit tax payable 52,500
• In 2020, ABC Corporation provided a 3-day vacation in Tagaytay to all of its
employees of which 80% are rank and file. Total expenses incurred by the
company for the said vacation amounted to P1,200,000. The fringe benefit
tax expense is:

• Answer: P129,231
( P1,200,000 x 20%) ÷ 65% x 35%
• In 2020, Mabuhay Corporation paid for the annual rental of a residential
house used by its general manager amounting to P637,500. The deductible
amount of Mabuhay Corporation is:
• Answer: P809,135

Fringe Benefit Expense P637,500

Fringe benefit tax expense 171,635
Cash P637,500
Fringe benefit tax payable 171,635

Monetary value = 50% of P637,500