TAX 5.

2 – FRINGE BENEFITS AND FRINGE BENEFIT TAX

 Definition of terms
Fringe benefit – an employee’s benefit supplementing a money wage or salary
Managerial employees – 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 – 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
Rank and file employees – all employees who are holding neither managerial nor supervisory
position

 Fringe Withholding Tax

Fringe benefit tax is a final tax

 Imposed on the grossed-up monetary value

It is imposed on the grossed-up monetary value of fringe benefits furnished granted or paid by
employer to employee except rank and file employees

 Withheld by employer
It shall be treated as a final tax on employee, which shall be withheld and paid by the employer
on a calendar quarterly basis

 Taxable Fringe Benefits

Any good and other benefit furnished or granted by an employer in cash or in kind, in addition
to basic salaries to employees (except rank and file) such as, but not limited to the following:
- Housing
- Expense account
- Vehicle of any kind
- Housing personnel, such as maid, driver, and others
- Interest on loan at less that market rate to the extent of the difference between the market
rate and the actual (12%benchmark rate)
- Membership fee to professional organization (social and athletic club or other similar
organizations)
- Expenses for foreign travel
- Holiday and vacation expense
- Educational assistance to the employee or his dependents
- Life or health insurance and other non-life insurance premium or similar amount in excess of
what the law allows
 Tax base and tax rate
Fringe benefit tax Employees other NRA-NETB Special alien
base and rate than rank and file (including Filipino
Counterparts) and
employees in special
economic zone**
Monetary value PXX PXX PXX
Divide by Gross 68% (TRAIN Law 65%) 75% 85% (TRAIN Law 65%)
monetary value factor
Grossed-up monetary PXX PXX PXX
value
X FBT Rate 32% (TRAIN Law 35%) 25% 15% (TRAIN Law 35%)
Fringe Benefit Tax PXXX PXXX PXXX

 Basic Rules on Fringe Benefit and Fringe Benefit Tax

- Fringe benefit given to rank and file employee is not subject to FBT
- Fringe benefit is given to a supervisory or managerial employee and subject to FBT
- De minimis benefit, whether given to rank and file employee or to a supervisory or
managerial employee is not subject to the FBT
- Any excess in de minimis benefit, whether given to rank and file employee or to a
supervisory or managerial employee part of other 13th month pay and other benefits

 Valuation of fringe benefits

- If money, the value is the amount granted
- If property, and ownership is transferred to the employee, the value is the fair market value
of the property
- If property, but ownership is not transferred to the employee, the value is equal to the
depreciation value of the property

 Computation of Monetary Value of Benefit of Housing Privilege and Motor Vehicle

- In case of housing privilege and motor vehicles:
o If there is no transfer of ownership, the monetary value of benefit is 50% of the
value of the benefit
o If there is transfer of ownership, the monetary value of the benefit is the same as
the value of the benefit
- In case of other fringe benefits > the monetary value of the benefit is the same as the value
of the benefit

 Deductible expense of the employer

-If the fringe benefit is given to a rank and file employee, or to a supervisory or managerial
employee, but is not subject to fringe benefit tax, the deduction for the employer is the
monetary value of the fringe benefit
 - If the fringe benefit is given to a supervisory or managerial employee and is subject to fringe
benefit tax, the deduction is the grossed-up monetary value of the fringe benefit which
compose to the fringe benefit expense and fringe benefit tax

 Fringe Benefits Explained

- Housing
o Employer leases residential property for the use of the employee
Value: Rental paid
Monetary value: 50% of the value of the benefits
o Employer owns residential property which was assigned to an officer for his use as
residence
Value: 5% of the (FMV in the real property declaration or Zonal Value, whichever is
higher) of the land and improvements
MV: 50% of the value of the benefits
o Employer purchases residential property on the installment basis and allows the
employee to use the same as his residence
Value: 5% of the acquisition cost exclusive of interest
MV: 50% of the value of the benefits
o Employer purchases a residential property and transferred the ownership in the
name of the employee
Value: The higher between the acquisition cost or FMV
MV: Entire value of the benefit
o Employer purchases a residential property and transfer ownership to his employee
for the latter’s residential use at a price less than the employer’s acquisition
Value: FMV less payment by employee (Higher between the assessed value and
zonal value as determined by the CIR)
MV: Entire value of the benefit