FRINGE BENEFIT TAX (FBT)

Fringe Benefit Tax

is a final withholding tax imposed on the grossed-up
monetary value of the fringe benefit furnished, granted
or paid by the employer to managerial or supervisory
employees, whether such employer is an individual,
professional partnership or corporation, regardless of
whether the corporation is taxable or not, or the
government and its instrumentalities. (sec. 33, RA
8424, RR No. 3-98)
 FRINGE BENEFITS
The term “Fringe Benefit” means any goods, services, or other
benefits furnished or granted by an employer in cash or in
kind, in addition to basic salaries, to an individual employee
(except rank-and-file employee).
 Rules on Fringe Benefits

Under the Tax Code, fringe benefits are taxable.

Employer has to withhold tax for the fringe benefits in order
for it to become deductible from business income in
computing income tax. The following rules apply to 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.
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 Reminders:
 The fringe benefit tax is computed only to those granted
with managerial and supervisory positions. Other than that,
the income is subject to normal income tax rate.

 Those allowances that are received by an employee in

fixed amounts and regularly received by the employee as
part of his salaries shall not form part of the taxable fringe
benefit but shall be treated as compensation income.
Fringe benefits are the following but not limited to:

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 the actual rate 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. Holiday and vacation expenses
8. Educational assistance to the employee or his dependents
9. Life or health insurance and other non-life insurance premiums or similar amounts in
excess of what the law allows
10. Expenses for foreign travel
The Following are Fringe Benefits NOT subject to
FBT:
1. Fringe benefits given to rank and file employees (not subject to FBT but subject to basic income tax)
2. Housing benefits/privilege:
 Of military officials of the Armed Forces of the Philippines (AFP).
 Which is situated inside or adjacent (within 50 meters from the perimeter of the business premises) to the premises
of a business factory.
 Which are “temporary” for an employee or for a temporary housing unit of 3 months or less
3. Expenses incurred by the employee which are paid by the employer and expenses paid for by the employee but
reimbursed by his employer, provided:
 The expenditures are duly receipted for and in the name of the employer
 It does not partake the nature of a personal expense attributable to the employee
4. Allowances subject to liquidation (tax exempt allowances)
 Allowances not subject to liquidation are taxable
 Representation and transportation allowances which are fixed in amounts and are regularly received by the
employees as part of their monthly compensation (exempt from FBT but subject to basic income tax)
 5. Reasonable business travel
expenses:

 Inland travel expenses (such as expenses for food,

beverages and local transportation) during foreign travel.
 Lodging cost in a hotel (or similar establishments)
amounting to an average of 300USD or less per day during
foreign travel
 Cost of economy and business class airplane ticket for
foreign travel
 70% of the cost of first-class airplane ticket for foreign travel
o Business travel expenses “within the Philippines” are
generally assumed to be reasonable in amount.
6.Educational assistance
•To the employee, provided:
o The education or study is directly connected with the employer’s trade,
business or profession; and
o There is a written contract between them that the employer for a period of
time they have mutually agreed upon
• To the dependents of the employee, provided that the assistance was
provided through a competitive scheme under scholarship program of the
company.
7. Contributions of the employer for the benefit of the employee on the
following:
• Pursuant to the provisions of existing law, such as under SSS and GSIS
• Similar contributions arising from provisions of any other existing law
• To retirement, insurance and hospitalization benefit plans
8. The cost of premiums borne by the employer for the group insurance of
his employees.
9. Fringe benefits which are/if:
• Authorized and exempted from income tax under the
Tax Code or under any special law
• The fringe benefit is required by the nature of or
necessary to the trade, business or profession of the
employer
• For the convenience or advantage of the employer
Computation of Fringe Benefits Tax
Fringe benefits provided to managerial and supervisory employees are
subject to the 35% fringe benefit tax. According to Section 33(A) of the NIRC,
fringe benefit is a final tax on employee’s income to be withheld by the
employer. It is the company that is liable for the fringe benefit tax and not the
employee. Employers are required to file fringe benefit tax remittances using
BIR Form 1603 on a quarterly basis.
 Computation of Fringe Benefits Tax

The tax base of fringe benefits is based on the grossed-up monetary value (GMV) of the
fringe benefits granted by the employer to the employees (except those rank-and-file
employees). The GMV of the fringe benefit is determined by dividing the monetary value
of the fringe benefits by 65% effective January 1, 2018 (RA. 10963). The rates of the
fringe benefit tax that shall be applied is 35% effective January 1, 2018 and thereafter
(RA. 10963). The grossed-up monetary value of the fringe benefit represents the whole
amount of income realized by the employee which includes the net amount of money or
net monetary value of property which has been received plus the amount of fringe benefit
tax thereon otherwise due from the employee but paid by the employer for and in behalf of
his employee.
Computation of Fringe Benefits Tax…

For a non-resident individual who is not engaged

in trade or business in the Philippines, the fringe
benefit tax is 25% imposed on the grossed-up
monetary value of the fringe benefit. The tax
base shall be computed by dividing the
monetary value of the fringe benefits by 75%.
Computation of Fringe Benefits Tax…

The fringe benefit tax of 15% shall be imposed on the grossed-up monetary value of the
fringe benefit and a tax base of 85% for the following individuals:
1. An alien individual employed by regional or area headquarters of a multinational
company or by regional operating headquarters of a multinational company.
2. An alien individual employed by an offshore banking unit of a foreign bank established in
the Philippines.
3. An alien individual employed by a foreign service contractor or by a foreign service
subcontractor engaged in petroleum operations in the Philippines.
4. Any of their Filipino individual employees who are employed and occupying the same
position as those occupied or held by the alien employees.
Computation of Fringe Benefits Tax…
Illustration

The employer granted P130,000 cash benefit representing

reimbursement of the personal expenses of his employee that is the
manager of the subsidiary. How much is the taxable amount of fringe
benefit, the fringe benefit tax, and the allowed deductible fringe benefit
expense of the employer?
Computation of Fringe Benefits Tax…
The taxable amount of the fringe benefit is computed as follows. This amount will be used as
our tax base when computing the fringe benefit tax.

Monetary value of the fringe benefit (cash payment)  130,000

Divided by the Grossed-Up Monetary Value      65%

Taxable Amount of the Fringe Benefit 200,000

Computation of Fringe Benefits Tax…
The taxable amount of the fringe benefit tax multiplied by the applicable tax rate
will be our fringe benefit tax.

Taxable Amount of the Fringe Benefit 200,000

Multiplied by the Fringe Benefit Tax Rate       35%

Fringe Benefit Tax   70,000

Computation of Fringe Benefits Tax…
The deductible fringe benefit expense for income tax purposes is the sum of the cash
payment and the fringe benefit tax. For income tax purposes, the total amount of the deductible
fringe benefit expense is a deductible expense from business income.

Cash Payment of the Personal Expenses   130,000

Plus, The Fringe Benefit Tax   70,000

Deductible Fringe Benefit Expense 200,000

In the books of the company upon payment of the fringe benefit to
the employee, the total deductible fringe benefit is debited to
fringe benefit expense and cash is credited to the amount of
payment to the employee and the withholding tax payable for the
fringe benefit tax computed.
 DE MINIMIS BENEFITS, 13TH MONTH PAY AND
OTHER BENEFITS

De minimis benefits are benefits of relatively small values provided by the

employers to the employee on top of the basic compensation intended for the
general welfare of the employees. De minimis benefits are not considered as
taxable compensation therefore not subject to income tax and withholding tax
on compensation. For the business this is an additional deductible salaries
expense.
 The following are de minimis benefits under RR10-2008 as amended by RA
10963(TRAIN Law); RR 8-2018, RR 11-2-12, RA 10653, RR 1-2015/RR 3-2015:

 Monetized unused vacation leave credits of private employees not

exceeding 10 days during the year and the monetized value of leave credits
paid to government officials and employees.

 Medical cash allowance to dependents of employees not exceeding P1,500

per employee per semester or P250 per month (RR 11-2018; TRAIN Law)

 Rice subsidy of P2,000 or 1 sack of 50kg rice per month amounting to not
more than P2,000 (RR 11-2018; TRAIN Law)

 Uniform and clothing allowance not exceeding P6,000 per annum (RR 11-
2018; TRAIN Law)
 The following are de minimis benefits under RR10-2008 as amended by RA
10963(TRAIN Law); RR 8-2018, RR 11-2-12, RA 10653, RR 1-2015/RR 3-2015:

 Actual yearly medical benefits not exceeding P10,000 per annum

 Laundry allowance not exceeding P300 per month

 Employees achievement awards, e.g., for length of service or safety

achievement, which must be in the form of a 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
 The following are de minimis benefits under RR10-2008 as amended by RA
10963(TRAIN Law); RR 8-2018, RR 11-2-12, RA 10653, RR 1-2015/RR 3-2015:

 Gifts given during Christmas and major anniversary celebrations not

exceeding P5,000 per employee per annum any excess shall form part of
the “Other Benefits” (RR 10-2008, as amended by RR 5-2011, RR 8-2012
and RR 1-2015)

 Daily meal allowance for overtime work and night /graveyard shift not
exceeding 25% of the basic minimum wage

 Starting January 1, 2015, benefits received by an employee by virtue of a

collective bargaining agreement (CBA) and productivity incentive schemes,
provided, that the total annual monetary value received from the 2 items
 13th Month Pay and Other Benefits
13th month pay and Other Benefits received by officials and employees of
public and private entities not exceeding P90,000 beginning January 1, 2018
under the TRAIN Law (P82,000 from 2015-2017; P30,000 before 2015) are
exempt from income tax and creditable withholding tax on compensation
income. Amount “in excess of P90,000” (as amended) should form part of an
individual’s gross income and would be subject to income tax and applicable
creditable withholding taxes.
“Other Benefits” under RR 2-98 as amended by RR 3-2015

 Christmas bonus

 Productivity incentive bonus

 Loyalty awards

 Gifts in cash or in kind and other benefits of similar nature actually received
by officials and employees of both government and private offices
De minimis benefits are benefits of relatively small values provided by the employers to
the employee on top of the basic compensation intended for the general welfare of the
employees.

Excess of De Minimis over the Ceilings & 13 th month pay

De minimis benefits “conforming” to the Tax exempt; excluded in determining the

ceiling P90,000 ceiling of “other benefits”

“Excess” of the de minimis benefits over their Included in determining the P90,000 ceiling
respective ceilings of “other benefits”
Amount in excess of P90,000 is subject to
basic income tax.
ILLUSTRATION 1. A private employee with P32,000 monthly salary received the following
benefits during the year:

1.15 days Monetized unused vacation leave (P1,000/ day)

2.Medical cash allowance to dependents of employees – P5,000.00
3.Actual Medical benefits (Employee) – P20, 000.00
4.Rice subsidy of P3,000 per month.
5.Uniform and clothing allowance – P10,000
6.Cash Gift - P20,000.00
7.Other benefits – P10,000.00
8.13th month pay – P32,000.00
Requirement: Compute the benefits subject to tax if any and compute the income tax
payable.
De minimis Amount Received Ceiling Form Part of other benefits & 13th
Monetized Vacation Leave (P1,000/day) 15,000.00 10,000.00 5,000.00

Medical Benefits (dependent) 5,000.00 3,000.00 2,000.00

Medical Benefits (employee) 20,000.00 10,000.00 10,000.00

Rice subsidy 36,000.00 24,000.00 12,000.00

Uniform & Clothing Allowance 10,000.00 6,000.00 4,000.00

Cash Gift 20,000.00 5,000.00 15,000.00

Other benefits     10,000.00

13th month pay     32,000.00

Total     90,000.00
Ceiling for other benefits and 13th month
    90,000.00
pay
Taxable benefits     -
       
Annual Salary (32,000/month)     384,000.00

      - 250,000.00

      134,000.00
      20%
Income Tax Due and Payable     26,800.00
ILLUSTRATION 2. A private employee with P32,000 monthly salary received the following
benefits during the year:

1.15 days Monetized unused vacation leave (P1,000/ day)

2.Medical cash allowance to dependents of employees – P5,000.00
3.Actual Medical benefits (Employee) – P20, 000.00
4.Rice subsidy of P3,000 per month.
5.Uniform and clothing allowance – P10,000
6.Cash Gift - P20,000.00
7.Other benefits – P50,000.00
8.13th month pay – P32,000.00
Requirement: Compute the benefits subject to tax if any and compute the income tax
payable.
De minimis Amount Received Ceiling Form Part of other benefits & 13th
Monetized Vacation Leave 15,000.00 10,000.00 5,000.00
Medical Benefits (dependent) 5,000.00 3,000.00 2,000.00
Medical Benefits (employee) 20,000.00 10,000.00 10,000.00
Rice subsidy 36,000.00 24,000.00 12,000.00
Uniform & Clothing Allowance 10,000.00 6,000.00 4,000.00
Cash Gift 20,000.00 5,000.00 15,000.00
Other benefits     50,000.00
13th month pay     32,000.00
Total     130,000.00
Ceiling for other benefits and 13th month
    90,000.00
pay
Taxable benefits     40,000.00
       

Annual Salary (32,000/month)     384,000.00

Total Taxable Income     424,000.00

      - 400,000.00

      24,000.00
      25%

      6,000.00

Plus     30,000.00

Income Tax Due and Payable     36,000.00

Magtatagumpay ako…!!!