Fringe Benefits Tax

Question 1

Fringe Benefits

Answer 1

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).

Question 2

Fringe Benefits to Rank & File employees

Answer 2

Taxable Fringe Benefits to Rank and File Employees:

1 Meals furnished or subsidized by employer (except OT meal which is subject to a de minimis benefit)

2. Rental value of quarters furnished by an employee.
3. Premium on life insurance of an employee where the insured employee is directly or indirectly the beneficiary - in essence a form of additional income for the employee.
4. Fixed or variable transportation, representation and other allowance given to an employee. Advance or reimbursement-type allowance is
   exempt.
5. Performance bonus, relay station allowance, and danger exposure allowance.
6. Personnel economic relief allowance (PERA) granted to government employees.
7. Salaries and allowances during leaves of absences (vacation and sick leave).
8. Fees received by an employee (including director’s fees) for the performance of a service for the employer.
9. Dismissal payments (this is different with separation pay).

Exempt Fringe Benefits to Rank and File Employees

1. Meals, living quarters, de minimis entertainment, medical services, courtesy discounts on purchases, sack or rice, etc given for the convenience of the employer or for promoting the contentment, health, efficiency or goodwill of the employee.
2. Reimbursement-type traveling, representation and other allowance. Excess advances retainable by the employee is taxable
3. Retirement and separation benefits exempt under the law

Question 3

Fringe Benefits to Managerial/Supervisory employees

Answer 3

1. Housing Benefits

Exception:

• Housing benefits provided to military officials of the Armed Forces of the Philippines consisting of officials of the Philippine Army, Philippine Navy and Philippine Air Force
• Housing unit which is within or adjacent to the premises of a business or factory. Adjacent means within 50 meters of the perimeter of the business premises of the employer
• Temporary housing for an employee who stays in a housing unit for 3 months or less

2. Interest on loans at less than market rate or at o% rate

The differential interest from 12% (as fixed by regulation) shall be the taxable fringe benefit.

3. Membership fees, dues, and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations - these are taxable employee benefits of the employee in full.
4. Expense for foreign business travel

• First class airplane ticket -30% of the cost of ticket
• Lodging cost in a hotel or similar establishment in excess of US$300 per day.
• Traveling expense paid by the employer for the travel of the family members of the employee

In connection with this, there must be documentary evidence to support that the foreign travel was for business meetings or convention; otherwise the entire cost of the ticket including hotel accommodation and other expenses incidental thereto shouldered by the employer shall be treated as taxable fringe benefits.

• Business meetings- to be supported by official communication from business associates abroad indicating the purpose of the
• Business conventions- to be supported by invitations or communications from the host organization or entity abroad

Reasonable foreign travel expenses are exempt under fringe benefit tax; hence, inland travel expenses such as for food, beverages and local transportation; cost of economy and business class airplane ticket; and those within the limits as set out in above.

5. Household personnel

If shouldered by the employer the following personal expenses shall be taxable fringe benefit:

• Salaries of household help
• Personal driver of the employee (if not for the convenience of the employer such as doctor on call)
• Similar expenses as payment for homeowners’ association duties, garbage dues, etc.

6. Expense account

General Rule: expenses of the employees that are paid for the employer are taxable fringe benefit:

• expenses of a reimbursement type (direct payment by the employer is not necessary since subsequent reimbursement for the expense of the employee, makes him the indirect payer of the expense)
• personal expenses (groceries etc.) even if receipted in the name of the employer

Exception:

• Regular fixed entertainment and representation allowance - this is treated as additional compensation to the employee
• Expenses connected with the trade of the employer and is duly received in the name of the employer- these are expenses of the employer

7. Holiday and vacation expense

If incurred by the employees and shouldered by the employer, this constitute taxable fringe benefit.

8. Life and Health insurance and other non-life insurance premium or similar amounts in excess of what the law

Exception:

• contributions of the employer for the benefit of the employee pursuant to the provision of existing laws, i.e.. SSS, GSIS, PhilHealth;
• the cost of premium by the employer for the group insurance of its employees

9. Vehicle of any kind

The same rules in housing benefits apply herein.

Exception:

• Aircraft or helicopter owned and maintained by the employer - are treated for business purposes only and hence, not subject to fringe benefit tax. (Note: it is very impractical to provide managerial or supervisory personnel with aircraft or helicopters for personal use due to the cost of maintaining them.)
• Yatch whether owned or leased by the employer is considered not for business purposes (by nature for pleasure), and hence taxable fringe benefits. Note: Yatch for purposes of determining the depreciation value is assumed to have a life of 20 years.

10. Educational assistance granted by employer to:

A. the employee- generally, taxable as a fringe benefit

Exception:

• the education or study involved is directly connected with the employer’s trade, business or profession; and
• there is a written contract that the employee is under an obligation to remain in the employ of the employer for a period of time mutually agreed upon

B. the dependents of employees - generally, taxable as a fringe benefit

Question 4

Benefits not subject to fringe benefit tax

Answer 4

1. Fringe benefits which are authorized and exempt from tax under special laws
2. Benefits given to rank and file employee, whether given on a Collective Bargaining Agreement or not
3. Benefits given as required by the nature of, or necessary to the trade, business or profession of the employer
4. Benefits given for the convenience or advantage of the employer
5. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; and
6. De minimis benefits promulgated by the Bureau of Internal Revenue

Question 5

Tax Rates for Fringe Benefits

Answer 5

The final tax rates that apply to the gross-up monetary amount of the taxable fringe benefit with the corresponding gross-up percentage are as follows:

If the employer paying the fringe benefit is a regular domestic or resident corporation:

NIRC (until 2017)

• Resident/Citizen- 32%/68%
• NRA-NETB- 25%/75%

TRAIN (2018 onwards)

• Resident/Citizen- 35%/65%
• NRA-NETB- 25%/75%

Question 6

Valuation of Taxable Fringe Benefits

Answer 6

1. If granted in money or is directly paid by the employer, the value is the amount of granted or paid for
2. If furnished by the taxpayer in property and ownership is transferred to the employee, the value of the fringe benefit shall be the fair market value of the property transferred.
3. If furnished by the taxpayer in property without transfer of ownership, the value of the fringe benefit is equal to the depreciation value of the property.

For this purpose,

• personal property is assumed to be a depreciable life of 5 years (20%) while
• real property shall have a presumptive life of 20 years (5%)

Furthermore, since the supervisory or managerial employee cannot reasonably be expected to use the property all the time, it is assumed that usage is 50% for business use and 50% for personal use.

Question 7

Deductible Amount of Fringe Benefits

Answer 7

General Rule: Deductible amount = taxable fringe benefits + fringe benefit tax

Exception Rule: Deductible amount = fringe benefit tax paid (If fringe benefit tax is based on the depreciation value, zonal value or assessed value)

Question 8

Filing of Return

Answer 8

The fringe benefit tax withheld by the employer shall be remitted to BIR within 10 days after the end of each calendar quarter however, for EFPS, 5 days later