Fringe Benefits Tax (“FBT”)

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.1

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.

(d) 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%2

Tax Base = Grossed up monetary value (“GUMV”) of the fringe benefit GUMV =
Monetary value (“MV”) of the fringe benefit ÷ 65%3

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.4

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 –
(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

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 taxable5 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.
(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

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.
(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 establishment in excess of US $300
similar establishment amounting to an per day;
average 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 scheme under a scholarship program of the company
the dependents of an employee
(J) Cost of Insurance

Subject to FBT Not Subject to FBT

Cost of life or health insurance and (a) Contributions of the employer for
other non-life insurance premiums the benefit of the employee pursuant
borne by the employer for his employee to 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.
 NOTE: Stock Options are not considered fringe benefits any more, but are considered
taxable compensation subject to CWT.

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 consequences6:

When the option is granted by an employer (involving its own shares of stock or
shares of another corporation) to its employee (whether rank-and-file, supervisory, or
managerial), 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.7, 8
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 Tax9

(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.

(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:10

(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.

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 “13 th 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%).

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
association dues, garbage dues, etc.
Difference
between 12% Value
(E) Less than Market Rate Interest on Loans and the interest
charged
(F) Social and Athletic Club Fees Amounts paid by Value
ER for EE
(G) Expenses for Foreign Travel
(1) No documentary evidence that the foreign Amounts
travel was in connection with business meeting or shouldered by Value
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 for ER
a certain period of time
(2) Education of EE’s dependents UNLESS
assistance is provided thru a competitive scheme Amount paid by Value
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 existing contributions Value
law (ex. SSS, GSIS, PhilHealth), or paid by ER
if the ER is paying for group insurance of the
employees