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In the Philippines, fringe benefits are defined and regulated in Section 33 of the
National Internal Revenue Code (NIRC), as amended, and the Revenue
Regulations 3-1998 re: Implementing Section 33 of the National Internal
Revenue Code, as Amended by Republic Act No. 8424 Relative to the Special
Treatment of Fringe Benefits.
Section 33(B) of the NIRC defines Fringe Benefits as any good, service, or
other benefit furnished or granted by an employer, in cash or in kind, in
addition to basic salaries, to an individual employee such as, but are
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.
Revenue Regulations No. 3-1998(B) further explains the composition of each on
the list above, the rules, and the valuation of the fringe benefits.
One reason why fringe benefits are granted by the employer to the employee is
to provide incentive to encourage employees productivity and loyalty to the
employer. It could be in form of vehicle to be used for business meetings and
personal travels, or personal benefits like providing for house maids and family
drivers. During financial difficulties, the employer may decrease or discontinue
previously given fringe benefits. The employer may increase the fringe benefits
in times of economic boom.
Under the Tax Code, fringe benefits are taxable. As an employer, you have 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.
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.
1.
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.
There are fringe benefits under Section 33(C), however, that are not taxable as
the following:
1.
2.
3.
4.
5.
6.
Fringe benefits which are authorized and exempted from tax under
special laws;
Contributions of the employer for the benefit of the employee to
retirement, insurance and hospitalization benefit plans;
Benefits given to the rank and file employees, whether granted under a
collective bargaining agreement or not; and
De minimis benefits as defined in the rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the
Commissioner.
If the grant of fringe benefits to the employee is required in the nature
of, or necessary to the trade, business or profession of the employer;
If the grant of the fringe benefit is for the convenience of the employer.
DE MINIMIS BENEFITS
This refers to a benefit provided by the employer for the employee but which
would be more beneficial to the former than the latter. As such, they are not
considered as taxable.
Ex. A is a technical manager of a refrigeration plant in Laguna where a single
power loss of 10 mins would bring about millions of losses. To prevent such
losses, A was provided a housing benefit in Laguna because it would take
him 2 hours to travel from his Bulacan residence to the Laguna plant.