FAR EASTERN UNIVERSITY - MANILA

INCOME TAXATION
TAX1101

Fringe Benefit Tax

Definition
- As defined in section 33 (B) of the NIRC, fringe benefit means any good, service or other
benefit furnished or granted IN CASH or IN KIND by an employer to an individual employee(except
rank-and-file employees as defined herein)** such as, but not limited to, the following:

(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 or other similar organizations;
(7) Expenses for foreign travel;
(8) Holiday and vacation expenses;
(9) Educational assistance to the employee or his dependents; and
(10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of
what the law allows.

**NOTE: Basically, there are Three type of employees as to FUNCTIONS

1. Managerial employees – those who are given powers or prerogatives to lay down and execute
managerial policies and/or to hire, transfer, suspend, lay-off, recall, discharge., assign or discipline
employees.

2. Supervisory employees – those who 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
judgement.

3. Rank and File employees – refers to an employee holding neither managerial nor supervisory position
as defined under existing provisions of the Labor Code of the Philippines, as amended.

Fringe Benefit Tax as defined by the code applies ONLY to Nos. 1 and 2 of the above mentioned
employees, which are Managerial and Supervisory employees.

Fringe Benefit Tax DOES NOT APPLY to a Rank and File employees. Unless, amended or repealed by the
congress.
→ The regulations do not cover those benefits which are part of taxable compensation income because
such incomes are subject to withholding tax on compensation in accordance with RR-8-2018 as
amended and RMC-1-2018 annex A.

What is the treatment for fringe benefits received? Ans: it will depend on WHO receives the Fringe
benefits.

Summary:

Received by:
EMPLOYEE’S FUNCTION Part of Basic salaries Subject to Fringe benefit Tax
Rank and File employee Yes (CWT) No
Managerial and Supervisory employee NO Yes

Basically, What is a Fringe Benefit Tax? Ans: it is a FINAL TAX.

If it is a final tax then, what is its rate and its tax base?

Ans: it can be found in Revenue Regulations No. 11-2018. It states that; On the GROSS-UP
MONETARY VALUE of the fringe benefits granted or furnished by the employer to his employees
(except rank-and-file as defined in the Code).

Employee is a citizen/resident
alien/non-resident alien engaged in - Thirty-five percent (35%)
trade or business within the
Philippines

Employee is a non-resident alien not

engaged in trade or business within - Twenty-five percent (25%)
the Philippines

How is it computed?

Ans:

Classification of taxpayers CIT., RA, NRAET NRA-NETB

Monetary Value Pxx Pxx
Divide by gross monetary value factor 65% 75%
Grossed-up monetary value Pxx Pxx
x FBT Rate 35% 25%
Fringe benefit tax Pxx Pxx
Is this rule absolute? Does it have an exemptions?

Ans: No, it’s not absolute. it has several exemptions.

The following fringe benefits shall not be subject to basic tax or fringe benefit tax:

1. Fringe benefit which are authorized and exempted from income tax under any special aw such as:
• Contributions required under SSS law
• Contributions required under GSIS law
• Similar contributions under an existing law
• Premium for group insurance of employees

2. 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

3. De minimis benefits (Note. Each de minimis benefits has its own ceilings. Any amount in excess of
the said ceilings will form part of the P 90,000 exemption of 13th month pay and other benefits)

(a) Monetized unused vacation leave credits of PRIVATE EMPLOYEES not exceeding ten (10) days
during the year;

(b) Monetized value of vacation and sick leave credits paid to GOVERNMENT OFFICIALS AND
EMPLOYEES;

(c) Medical cash allowance to dependents of employees, not exceeding ₱1,500 per employee per
semester of ₱250 per month;

(d) Rice subsidy of ₱2,000 or one sack of 50kg. rice per month amounting to not more than ₱2,000;

(e) Uniform and clothing allowance not exceeding ₱6,000 per annum;

(f) Actual medical assistance given not exceeding P 10,000 per annum such as medical allowance to
cover medical and healthcare needs, annual medical/executive check-up, maternity assistance and
routine consultations;

(g) Laundry allowance not exceeding P300 per month.

(h) Employees achievement awards… with an annual monetary value bit exceeding P 10,000 under
an established written plan which does not discriminate in favor of highly paid employees

(i) Gifts given during Christmas and major anniversaries celebrations not exceeding P 5,000 per
employee per annum. (RR-8-2012)

(j) 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.
(k) 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
two items above combined, do not exceed P 10,000 per employee per taxable year (RR-1-2015)

4. If grant of benefits is for the CONVENIENCE OR ADVANTAGE OF THE EMPLOYER

Let’s try an example:

Suppose in 2019, Corona City Corporation paid P 650,000 to Racoon City Hotel, representing
vacation expenses of Ryan, a resident citizen and an executive of Corona City Corporation.

Question:
a. Is the vacation expenses shouldered by the company, subject to fringe benefit tax?
b. If so, how much is the tax base of the fringe benefit?
c. Should the taxable fringe benefit be included in the Income Tax Return of Ryan for the year
ended 2019?
d. How much is the fringe benefit tax collected or remitted to the BIR?
e. Who will remit taxes to the BIR? (Withholding Agent)
f. When is the Fringe Benefit tax remitted?
g. Assuming Ryan is a rank and file employee, is the fringe benefit subject to fringe benefit tax?

Answer:

A. Yes, the vacation expenses shouldered by the company is subject to fringe benefit tax. Because,
under section 33 (B) of the NIRC, fringe benefit means any good, service or other benefit furnished or
granted IN CASH or IN KIND by an employer to an individual employee(except rank-and-file employees
as defined herein) such as, but not limited to, the following:

(1)XXX
XXX
(8) Holiday and vacation expenses;
XXX
Here, it is expressly provided by the problem that the company shouldered vacation expenses of
Mr. Ryan. Hence, it is taxable as fringe benefit under the said provision of the law.

B. It can be found in Revenue Regulations No. 11-2018. It states that; On the GROSS-UP
MONETARY VALUE of the fringe benefits granted or furnished by the employer to his employees
(except rank-and-file as defined in the Code).

Classification of taxpayers CIT., RA, NRAET

Monetary Value P 650,000
Divide by gross monetary value factor 65%
Grossed-up monetary value P 1,000,000
C. No, it should not be included in Ryan’s Income tax return. Because, as we have discussed in the past,
the 3 schemes of taxation is “Mutually Exclusive”. Here, the income was already subjected to final tax,
which in this case, a Fringe benefit Final Tax. hence, it can not be subjected to other scheme of taxation.
Subsequently, should not be included in Ryan’s income tax return.

D. P 350,000.

Classification of taxpayers CIT., RA, NRAET

Monetary Value P 650,000
Divide by gross monetary value factor 65%
Grossed-up monetary value P 1,000,000
x FBT Rate 35%
Fringe benefit tax P 350,000

E. The payor. In which case, the Corona City Corporation.

F. Within 10th day of the month following the end of the calendar quarter in which the fringe benefits
were granted to the recipient.

G. No, it is not subject to Fringe Benefit Tax. But rather, it will form part of the Basic Salaries or ‘Taxable
Compensation’

Rule:

Received by:
EMPLOYEE’S FUNCTION Part of Basic salaries Subject to Fringe benefit Tax
Rank and File employee Yes (CWT) No
Managerial and Supervisory employee NO Yes

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Deductible expenses of the employer.

Comment: As you can see, this part is teaching us the accounting treatment and/or entries in of a Fringe
Benefit given by a company.
Concepts:

(A) 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 (meaning, forms part of the basic
compensation or is exempt from fringe benefit tax as stated in pages 141 and 142) the deduction for the
EMPLOYER is the MONETARY VALUE OF THE FRINGE BENEFIT.

Application of Journal entry.

Example: Company A gives cash as fringe benefits worth P 500,000 to its employees.

1. Assume that the fringe benefits were given to RANK AND FILE EMPLOYEES

Journal Entry:

Dr. Fringe benefit expenses P 500,000

Cr. Cash P 500,000
(To be recorded as Fringe benefits given to privilege rank and file employees)

2. Assume that the fringe benefits were given to SUPERVISORY OR MANAGERIAL POSITION but the
grant is for the convenience of the employer. Such as, the cash for paying the rent of the employees
who are staying nearby the premises of the company.

Journal Entry:

Dr. Fringe benefit expenses P 500,000

Cr. Cash P 500,000
( Same Entry)

(B) If the fringe benefit is given to a is subject to SUPERVISORY OR MANAGERIAL POSITION AND
IS SUBJECT TO FRINGE BENEFIT TAX, the deduction is the GROSS-UP MONETARY VALUE of the FRINGE
BENEFIT which is compose of the: 1. FRINGE BENEFIT EXPENSE; and 2. FRINGE BENEFIT TAX.

Application of Journal entry.

Example: Company A gives P 650,000 cash benefits

1. Assume that the fringe benefits were given to SUPERVISORY OR MANAGERIAL POSITION.

Comment: we need first to determine the corresponding fringe benefit tax for us to account the expense
that is due to the government and to segregate them from the fringe benefit due to the employees.
Monetary Value P 650,000
Divide by gross monetary value factor 65%
Grossed-up monetary value P 1,000,000
x FBT Rate 35%
Fringe benefit tax P 350,000

Now that we have the fringe benefit tax, let us make the journal entry:

• Assume first that the fringe benefit tax is not yet paid.

Journal Entry:

Dr. Fringe benefit expense P 650,000

Dr. Fringe benefit tax expense 350,000
Cr. Cash P 650,000
Cr. Fringe benefit tax payable 350,000
(To be recorded as Fringe benefits given to privilege supervisory and managerial employees )

• Assume that the fringe benefit tax is paid.

Journal Entry:

Dr. Fringe benefit expense P 650,000

Dr. Fringe benefit tax expense 350,000
Cr. Cash P 1,000,000
(To be recorded as Fringe benefits given to privilege supervisory and managerial employees )

• Assume that instead of cash, the company gives car as fringe benefit and the fringe benefit tax is
paid

Journal Entry:

Dr. Fringe benefit expense P 650,000

Dr. Fringe benefit tax expense 350,000
Cr. Company Vehicle (Car) P 650,000
Cr. Cash 350,000
(To be recorded as Fringe benefits given to privilege supervisory and managerial employees )

Fixed or Variable allowance

- in general, when received by a public officer or employees or officer or employee of a private
entity, in addition to the regular compensation, fixed for his position or office, is compensation subject to
income tax and consequently, creditable withholding tax on compensation
Business related expenses/ Allowances subject to liquidation

The following are the conditions to satisfy:

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

2. the employee is required to account/liquidate for the forgoing expenses in accordance with
the specific requirements of substantiation for each category of expenses pursuant to Sec 34 of the tax
code.

Comment:

Summary of the Rules:

1. if the company accounts for the expenses or liquidation, for example an officer expense account such
as gasoline expense incurred for by an officer and the company gets the gasoline receipt and reimbursed
the officer, such gasoline expense will be exempted from withholding tax on compensation.

The rationale here is that, the gasoline expense incurred by the officer will form part of the “Ordinary
Expenses” and not as compensation. Besides, as per our rule, it is one of the exempted from fringe tax
(as stated in Page 141 (2) of Tabag and Garcia Book 2019 Ed)

2. If the company does not account for the expenses or liquidation, the business related or allowance
subject to liquidation will form part of the FRINGE BENEFIT TAX if it were given to SUPERVISORY OR
MANAGERIAL POSITION employees; or Regular compensation if it were given to RANK AND FILE
employees.

The rationale here can be found in section 33 (B) of the NIRC. Which states that fringe benefit means
any good, service or other benefit furnished or granted IN CASH or IN KIND by an employer to an
individual employee(except rank-and-file employees as defined herein which is subject to regular
compensation).

If it were not accounted or liquidated by the company, the presumption is that it were furnished or
granted by the employer to its employee.
Special rules in computing the monetary value of housing benefits

• Employer leases a residential property Monetary value: Rental paid x 50%

for the use of the employee

Example: A company leases a residential house and lot for the use of its Vice President for P 60,000 per
month. Company shoulders the 3 months advanced rent.

Monetary value shall be:

Rental Paid (P 60,000 x 3 months ) = P 180,000
Multiply by 50% 50%
Monetary Value P 90,000

• Employer owns a residential property Monetary value: The higher between

for the use of the employee FMV in the real property and ZV x 5% x 50%

Example: Covid, Inc allowed one of its unused investment property costing P 3,500,000 with zonal value
of P 4,000,000 and assessed value of P 3,000,000 to be used by its vice president.

Monetary value shall be:

Higher of ZV and FMV x 5% (P 4M X 5%) = P 200,000
Multiply by 50% 50%
Monetary Value P 100,000

• Employer purchases residential property Monetary value: Acquisition cost exclusive of

in installment for the use of the employee interest X 5% X 50%

Example: The employer purchases a residential property on installment basis for P 3,000,000 acquisition
cost (inclusive of P 300,000 interest) and allows his employee to use the same as his usual place of
residence.

Monetary value shall be:

Acquisition cost exclusive of interest x 5% (P 3M – 300K X 5%) = 135,000
Multiply by 50% 50%
Monetary Value P 67,500

• Employer purchases residential property Monetary value: The higher between

for the use of the employee and transfers Acquisition cost as determined
ownership to employee by the CIR

Example: A non profit corporation bought a residential dwelling for P 5,000,000 and transferred
ownership to its president. The property has P 3,000,000 zonal value as determined by the CIR.

Monetary value shall be: (Higher of AC and ZV) P 5,000,000

• Employer purchases residential property Monetary value: The higher between
for the use of the employee and transfers Acquisition cost as determined
ownership to employee on a lesser amount by the CIR less cost to the employee

Example: Duts, a professional practitioner, transferred his residential property in the name of his
managerial employee for P 2,000,000. The property has a FMV of P 3,400,000 and P 5,000,000 zonal
value.

Monetary value shall be:

(Higher of AC and ZV less cost to the employee) P 5,000,000 – P 2,000,00 = P 3,000,000

Rules in computing the monetary value of Motor Vehicles

• Employer owns and maintains a fleet Monetary value: Acquisition cost of

of motor vehicle for the use of the business vehicle not normally used for business
and employee divided by 5 years x 50%

• Employer leases/maintains a fleet of motor Monetary value: Amount of rental

vehicles for the use of the business and the payments not normally used for
employees business purposes x 50%

• Employer purchases vehicle in the name of employee Monetary value: Acquisition cost

• Employer provides employee with cash for the Monetary value: Cash received
purchase of the vehicle, and ownership is placed
in the name of the employee

• Employer purchases the vehicle on installment and Monetary value: Acquisition cost
ownership is placed in the name of the employee exclusive of interest divided by
5 years

• Employer shoulders a portion of the amount of the Monetary value: Amount shouldered
purchase price of the vehicle and ownership is placed by the employer
Name of the employee.

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