| Fringe Benefits Tax
What is the Fringe Benefits Tax?
The FBT is a final withholding tax on the grossed-up monetary value of the fringe benefit granted by the employer to an employee who holds a managerial or supervisory position. This is tax is effective regardless of whether the employer is an individual, professional partnership or a corporation (regardless of whether the corporation is taxable or not).
Who is covered by the FBT tax?
The FBT Tax Regulations cover only those fringe benefits given or furnished to managerial or supervisory employee. The Regulations do not cover those benefits which are part of compensation income, because these are subject to withholding tax on compensation in accordance with RR No.2-98.
How does one compute for the amount of the FBT?
The FBT is imposed on the Grossed-up Monetary Value of fringe benefits at the following rates:
Effective January 1, 1999 – 33%
Effective January 1, 2000 – 32%
(FBT = Grossed-up Monetary Value x 33% or 32%, depending on time frame)
When is the FBT paid?
As a final withholding tax on the employee, the FBT is withheld and paid by the employer on a calendar quarterly basis.
What is the Grossed-up Monetary Value and how is it determined?
The grossed-up monetary value of the fringe benefit is simply a figure meant to represent the entire income earned by the employee. This includes the net amount of money received, the net monetary value of any property received, and the amount of FBT received by the employee from the employer.
The grossed-up monetary value of the fringe benefit is determined by dividing the monetary value of the fringe benefit by the following percentages:
Effective January 1, 1999 – 67%
Effective January 1, 2000 – 68%
(Grossed-up Monetary Value = Monetary Value / 67% or 68%, depending on time frame)
How is the monetary value of a fringe benefit computed?
In general, the computation of the fringe benefits tax is done by:
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a) evaluating the benefit granted; and
b) determining the proportion or percentage of the benefit which is subject to the FBT.
The valuation of fringe benefits is as follows:
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a) If the fringe benefit is granted in money, then the value is the amount granted.
b) If the fringe benefit is granted by in property and ownership is transferred to the employee, then the value of the fringe benefit is the fair market value of the property.
c) If the fringe benefit is granted or furnished by the employer in property but ownership is not transferred to the employee, the value of the fringe benefit is equal to the depreciation value of the property.
What are fringe benefits subject to the FBT?
Fringe benefits simply mean any good, service, or other benefit furnished or granted by an employer in cash or in kind, to an individual managerial or supervisory employee. Fringe benefits are granted in addition to the basic salary. Examples of fringe benefits are the following:
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a) Housing
b) Expense Account
c) Vehicle of any kind
d) Household expenses, such as maids, drivers and others
e) Interest on loan at less than market rate
f) Membership fees, dues, and other expenses paid for by the employer for the employee in social clubs, athletic clubs, or other similar organizations
g) Expenses for travelling abroad
h) Holiday and vacation expenses
i) Educational assistance to the employee or his dependents
j) Life or health insurance and other non-life insurance premiums, or similar amounts that are in excess of what the law requires
How does one determine the monetary value of specific fringe benefits subject to the FBT?
1) Housing
*The following are not considered as taxable under FBT:
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- Housing privilege of military officials of the Armed Forces of the Philippines.
- Housing unit situated inside or within 50 m of the premises of a business or factory.
- Temporary housing for an employee who stays there for three months or less.
2) Expense Account
Personal expenses of an employee, whether paid by employer or by the employee and reimbursed by his employer, are taxable fringe benefits. However, fixed representation and transportation allowances that are part of the monthly compensation income of employees are not taxable under FBT, since they fall under the compensation income tax.
3) Motor Vehicle of Any Kind
All vehicles purchased (either wholly or partially) by an employer for an employee, and placed in the employee’s name, are considered taxable fringe benefits. This is regardless of whether the vehicle is entirely for the employee’s personal use or partly for the benefit of his employer.
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a) Employer purchases or provides money to purchase motor vehicle, and transfers ownership to the employee
The monetary value of the fringe benefit is the entire value of the vehicle.
(Monetary value = value of vehicle)
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*This is no longer considered a taxable fringe benefit if the cash given to the employee to buy the motor vehicle has already been subjected to withholding tax as compensation income.
b) Employer purchases the vehicle on installment basis and places ownership in the name of the employee
The value of the benefit is the acquisition cost exclusive of interest, divided by five years. The monetary value of the fringe benefit is the entire value of the vehicle.
(Monetary value = Acquisition cost exclusive of interest/ 5 years)
c) Employer pays partial amount for the purchase of a motor vehicle for the employee
c) Employer pays partial amount for the purchase of a motor vehicle for the employee
The value of the benefit is the amount shouldered by the employer. The monetary value of the fringe benefit shall be the entire value of the benefit.
(Monetary value = Amount paid by employer)
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d) Employer owns and maintains a fleet of motor vehicles for the use of the business and the employees
The value of the benefit is the acquisition cost of all the motor vehicles not usually used for delivery, freight, and other non-personal use, divided by five years. The monetary value of the fringe benefit is 50% of the value of the benefit.
(Monetary value = Acquisition cost / 5 years x 50%)
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e) Employer leases and maintains a fleet of motor vehicles for the use of the business and the employees
The value of the benefit is the amount of rental payments for motor vehicles not normally used for sales, freight, delivery service, and other non-personal use. The monetary value of the fringe benefit shall be 50% of the value of the benefit.
(Monetary value = Rental payments x 50%)
*Although aircraft owned and maintained by the employer are treated as vehicles for business use and therefore not subject to the FBT, a yacht either maintained or leased by the employer is treated as taxable fringe benefit. The value of the benefit is based on the depreciation of a yacht at an estimated useful life of 20 years.
4) Household Expenses
Expenses of the employee which are borne by the employer for household personnel (i.e., salaries of household help) or other similar personal expenses (like payment for garbage dues, etc.) are also treated as taxable fringe benefits.
5) Interest on Loan at Less than Market Rate
If the employer lends money to his employee free of interest or at a rate lower than 12%, the difference between the interest assumed by the employee and the rate of 12% is treated as a taxable fringe benefit. (12% is the current benchmark interest rate; it may be revised by subsequent regulations.)
6) Membership Fees, Dues, and Other Expenses Paid for by the Employer for his Employee, in Social Clubs, Athletic Clubs and Other Similar Organizations
These expenses paid by the employer are treated as taxable fringe benefits of the employee in full.
7) Expenses for Foreign Travel
Foreign travel expenses for business purposes (such as attending meetings, conferences, etc.) which are paid for the employee by the employer are not considered taxable fringe benefits. Inland travel expenses (food expenses, local transportation expenses, etc.) are not taxed if they amount to an average of US$300 or less per day (not including the expenses of staying in a hotel or other similar establishments). The cost of economy and business class airplane tickets are not subject to FBT. However, 30% of the cost of first-class airplane tickets are subject to FBT.
For a trip to be considered a business trip, it must be evidenced by official communications from business associates abroad showing the reason for these business meetings, or by official invitations (in the case of business conventions). Otherwise, the trip is not considered to be a business trip. The travel expenses paid for by the employer are then considered taxable fringe benefits of the employee.
Traveling expenses paid by the employer for the travel of family members of the employee are also considered taxable fringe benefits of the employee.
 Holiday and Vacation Expenses
Holiday and vacation expenses of the employee borne by the employer are considered taxable fringe benefits.
9) Educational Assistance to the Employee or His Dependents
The cost of the educational assistance paid by the employer for an employee or his dependents is considered a taxable fringe benefit. However, if a scholarship is granted to the employee by the employer wherein the education received is directly related to the employee’s profession, and there is a written contract between them that the employee must stay in the employ of the employer for a agreed upon period of time, the education expense covered by the employer is considered an expense for business purposes (to increase the efficiency of the employee). This expense is then not subject to FBT. If educational assistance to an employee’s dependents is obtained through a competitive scholarship program of the company, the educational expense is also not considered a taxable fringe benefit.
10) Life or Health Insurance and Other Non-life Insurance Premiums or Similar Amounts in Excess of What the Law Requires
The cost of life or health insurance and other non-life insurance premiums borne by the employer for his employee are considered taxable fringe benefit. The exemptions to this rule are if:
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a) The insurance being provided are under the provisions of the law, such as the SSS, or
b) The employer is paying for the group insurance of his employees.
Are there any fringe benefits NOT subject to fringe benefits tax?
Yes, there actually are fringe benefits not subject to the FBT. These are:
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a) Fringe benefits which are authorized and exempted from income tax under law
b) Contributions of the employer for the employee’s retirement, insurance, and hospitalization benefit plans
c) Benefits given to the rank and file
d) De minimis benefits
e) Fringe benefits which are necessary to the trade, business, or profession of the employer
f) Fringe benefits granted for the employer’s convenience
*Although a fringe benefit may be exempted from the FBT, it may still fall under a different tax under another law, such as the compensation income tax or the like.
What are de minimis benefits?
De minimis benefits are benefits that are relatively small in monetary value, and provided by the employer in goodwill. Examples of such are:
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a) Monetized unused vacation leave credits of employees (not more than ten days in a year)
b) Medical cash allowance for an employee’s dependents (not more than P750 for every 6 months or P125 per month)
c) Rice subsidy of P350 per month for employees
d) Uniforms given to employees by the employer
e) Medical benefits given to the employees
f) Laundry allowance of P150 per month
g) Employee achievement awards such as awards for length of service (These must be in the form of personal property, not in cash or gift certificate, with an annual monetary value of not more than half a month’s salary of the employee receiving the award. The award should also follow a written plan which does not discriminate in favor of highly paid employees)
h) Christmas and major anniversary celebrations for employees and their guests paid for by the employer
i) Company picnics and Philippine sports tournaments exclusive to employees
j) Small gifts (books, clothes, etc.) given to employees under special circumstances, e.g., on account of illness, marriage, birth of a baby, etc.
How does one handle the accounting for the FBT?
Like all taxes, the FBT is considered an expense. It is therefore entered in the books as a tax expense.
So how does one REALLY compute for the FBT in a given case?
The best way to show the computation would be with an example. For example, an employer owns a residence worth P23,000,000, and assigns an employee to live here. How does one compute for the FBT? (Assuming the time frame is within 1999)
a) Following the given equations to calculate for FBT and grossed-up monetary value, we have:
FBT = Grossed-up Monetary Value x 33%, wherein
Grossed-up Monetary Value = Monetary value / 67%
b) Monetary Value
How does one compute for the monetary value of this particular fringe benefit?
In one of the sections of the advisory is the question: How does one determine the monetary value of specific fringe benefits subject to the FBT? The answer section details many specific cases. For cases wherein the employer owns a residence and assigns an employee to live there, the monetary value is calculated to be annual value of the benefit (5% of the market value of the property) multiplied by 50%, or
Monetary value (of the annual benefit)= 5% Market value x 50%
Given that the market value of the property is P23,000,000,
Monetary value (of the annual benefit) = 5% P23,000,000 x 50% = P575,000.
However, one must bear in mind that in this particular case, we have calculated for the annual amount of the benefit. Because the FBT is paid quarterly, then the amount should also be quartered so that the employer is paying the amount due for one quarter of the year.
Monetary value (quarterly) = Monetary value (annual) / 4
= P575,000 / 4
= P143,750.
c) Grossed-up Monetary Value
Now that we have the monetary value, the grossed-up monetary value is calculated by following the equation:
Grossed-up Monetary Value = Monetary Value / 67%
Therefore, in this case:
Grossed-up Monetary value = P143,750 / 67%
= P214,552.24
d) FBT
The FBT is calculated by following the equation:
FBT = Grossed-up Monetary Value x 33%
Therefore:
FBT = P214,552.24 x 33%
= P70, 802.24
*Tip: You will know that you are on the right track if your FBT is approximately half of the monetary value of the fringe benefit.
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