ADDITIONAL NOTES

FRINGE BENEFIT TAX

FRINGE BENEFITS
Under labor laws, fringe benefits pertain to all other benefits or incentives of employees other than
the basic pay. The basic pay is the fixed regukar salary ‘or wages of employees evrey payroll period.
Under the NIRC, the term “fringe benefit” was defined to pertain to goods, services or other benefits
furnished by the employer to the employees.

Tax treatments of fringe benefits

Under current tax rules, howerer, items of fringe benefits in the strict sense are treated differently
depending on their nature.

For example:
a. Fringe benefits taht are fixed every payroll period are considered regular compensation
For example: Fixed transportation allowance
b. Fringe benfits that are variable and performance-based are considered supplemental
compenstaion
For example: commission, profit sharing and overtime pay
c. Fringe benefits in the form of incentives are considered 13th month pay and other benfits.

d. Fringe benefits for the employer’s convenience or necissity are exempt from the income tax.
Other fringe benefits
As mentioned in the previous chapter, other fringe benfits not included or classifiable as items of
compensation and which are not exempted under the law are treated as follows:
1. For ranks and file employer – included as “ other benefits” under 13th month pay and other
benefits
2. For managerial and supervisory employees – excluded in compensation income and are
subjected to final fringe benefit tax

SCOPE OF THE FRINGE BENEFIT TAX

The fringe benefit tax covers only the taxable fringe benefits of managerial or supervisory employees.

For the purpose of the fringe benefit tax, RR3-98 clarifies thata taxable fringe benefit exclude those
items considered as compensation income. Hence, ana excellent understanding of the items of
compenstaion income is extremely important in subject to fringe benefit tax.

GENERAL CATEGORIES OF FRINGE BENEFIS SUBJECT TO FINAL TAX

1. Management perquisite benefits
2. Employee personal expenses shouldered by the employer
3. Taxable de minimis benefits
a. Excess de minimis over their limits
b. Benefits not included in the minimis list
Management perquisite benefits
Perquisite benefits, also called “management perks” are highly incentives given only to a specuial
group of employees. These benefits are non-performance based and are given as incentives to
management employees. Perquisite benefits are not considered as compensation income, but as fringe
benefits subject to fringe benefit tax.
In practice , the boundary between fringe benefit subject to final tax and compensation income
subject to regular tax sometimes overlaps, Based on past rullings, however, the BIR seemed to
maintain the view that performance-based benefits are compensation income while benefits in the
nature of incentives or perks are fringe benefits.
As a safety net, it is therefore best recommended for taxpayers to ensure BIR rulings on the proper
treatment of income in their compensation plans to avoid inconvenience.

Employee personal expenses

When an expense takes the nature of an employee personal expense or expenditure and is paid or
assumed by the employer in default of a proximate business necessity, it is deemed a fringe benefit in
its entirely even if the expense is receipted in the name of the employer.

Illustration
Mr. Lakewood, a managerial expatriate employee, was granted by hs employer a PHP 30,000 monthly
housing allowance in addition to his regular salary. The actual monthly rent of Mr. Lakewood’s
residence is PHP 25,000.
The PHP 25,000 personal expense assumed by the employer contitutes a taxable fringe benefit subject
to fringe benefit tax. The monthly fixed PHP 5,000 excess is a taxable additional compensation. (BIR
Ruling no. 521-2011)
Hybrid expenses
When the mployer incurs expenses which is purported partly for business and partly for employees
incentive, only 50% of the expense representing the employee incentive is subject to the fringe benefit
tax.
The following are hybrid expenses under RR3-1998:
1. Housing benefits in the form of rental accommodation
When an employer leases a residental unit for the use of the employee and business, the
rental expense is deemed half business expense and half fringe benefit to the employee.
2. Allowing an employee free use of business property
When the employer allows its employee to use business properties, the rental value or
depreciation value og the business property over the period of usage is deemed half business
expense and half fringe benefit to the employee.
Illustration 1
The University of Caceres pays for the PHP 50,000 monthly rental of the residential unit of its
President.
The amount of taxable fringe benefits shall be PHP 25,000 computed as 50% x PHP 50,000.

Illustration 2
A manufacturer and distributor of consumer products all over the Philippines leases cars and other
vehicles for the use of its employees. The company requires employees to share at least 40% of the
monthly rental deductible through their payroll while the company books the 60% as rent expense.
The BIR opined that only 10% of the monthly rental is taxable as fringe benefit since employees
shouldered 40% of their 50% counterpart (BIR ruling No. 009-2000)

Exempt fringe benefits

The following fringe benefits are exempt from the fringe benefit tax:
1. Fringe benefit which are authorized and exempted from tax under special laws.
2. Benefits required by the nature of, or necessary to the trade, business or profession of the
employer
3. Benefit given for the convenience or advantage of the employer
4. Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalzation benefit plans
5. Benefit given to rank and file employees whether or not granted under a collective
bargaining agreement
The taxable fringe benefits of rank and employees are exempt from fringe benefit tax but
are subject to regular income tax as part of compensation income.
6. De minimis benefits within their legal limits.

“Necessity or convenience of the employer” rule

If an expense is necessitated by the nature of the trade, business, or profession of the employer, or is
furnished principally for the employer’s convenience or advantage, it is an ordinary business expense.
The personal advantage of the employee is merely incidental to the expense. These fringe benefits are
not viewed as taxable fringe benefits under NIRC.

Example of exempt benefits under this rule:

1. Scholarship program for an employee to study and acquire competence for future use of the
business
2. Car incentives to medical doctors so they will be available for duty anytime.
3. Free transportation services to employees working distant facilities
4. Mobile phone allowance to corporate secretaries who are required to handle off duty client
inquires
5. Sleeping quarters to field engineers and staffs working on remote facilities.
6. Helicopters assigned to fishingemployees for locating schools of fish offshore or to mining
engineers for minera exploration purposes.
7. Personal aircraft to a chief executive officer managing business affiliates and subdidaries
spread across different countries
8. Car incentives to atravelling company salesman
9. Sleeping quarters near the camp furnished to military personnel so they will be available for
duty at any time of insurgency
10. Housing units for employee and his family near the employer’s place of business to ensure the
employee’s availability anytime when the employer needs him

THE FRINGE BENEFIT TAX

The fringe benefit tax is a final tax imposed on the fringle benefit furnished, granted or paid by the
employer to the employee, except rank and file employees, whether such employer is an individual, a
professional partnership or a coporation, regardless of whether the corporation is taxable or not, or
the government and its instrumentalities.
For the purpose of the fringe benefit tax, fringe benefit means any good, service, or other benefit
furnished or granted in cash or in kind by the employer to individual employees (except rank and file
employees) such as, but not limited to the following:
1. Housing benefits
2. Expense account
3. Vehicles of any kind
4. Household personnel, such as maid, driver or other
5. Interest, for the difference between the market rate (12%) and the actual interest
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. Expense for foreign travel
8. Holiday and vacation expenses
9. Educational assistance to the employee or his dependents
10. Life or health and other non life insurance premiums or similar accounts in excess of
what the law allows

CHARACTERISTICS OF THE FRINGE BENEFIT TAX

1. Final tax
The fringe benefit tax is a final tax which is withheld by the employer at source. Thus, the
employee need not report the fringe benefits in his income tax return.
2. Tax upon the fringe benefits of managerial or supervisory employees
The fringe benefit tax is not a tax to the employer. It is tax upon the fringe benefit realized by
the managerial or supervisory employee. It is a tax to the employee: hence, it applies
regardless of the identity of the employer. Therefore, it applies even if the employer is a sole
proprietor, parteneship, corporation whether taxable or exempt or the government.
3. Paid by the employer
As a final tax, the tax is presumed withheld at source and remitted by the employer to the
government.
4. Grossed-up tax
The monetary value or the amount of fringe benefit realized or taken home by the employee is
effectively net of the final tax which is to be withheld at source. Hence, the monetary value is
first grossed-up by the complement percentage of the applicable fringe tax rate before the
fringe benefit tax rate is applied.
5. Due quarterly
The fringe benefit tas is due for remittance quarterly based on the accounting period (fiscal or
calendar) seleted by the employer. The monetary value of each taxable fringe benefit is
determined and reported quarterly through BIR Form 160Q
The quarterly fringe benefit tax is due on or before the last day of the month following the
quarter in which withhoiding was made.

PROCEDURES IN COMPUTING THE FRINGE BENEFIT TAX

1. Determine the monetary value.
Monetary value, refers to the taxable amount of benefits taken home or realized by the
managerial or supervisory employee. The monetary value is presumed net of the final tax.
2. Determine the gross-sp rate and fringe benefit tax rate applicable fo the taxpayer.
The gross up rate is the complement of the fringe benefit tax rate. If the fringe benefit tax rate
is 35% the gross-up rate is (100% less 35%) or 65%. If the fringe benefit tax rate is 25% the
gross-up rate is at 75%.
3. Determine the grossed-up monetary value by dividing the monetary value by the gross-up
rate.
4. Determine the fringe benefit tax by multiplying rge fringe beenefit tax rate to the grossed-up
monetary value.

RULES ON VALUATION OF FRINGE BENEFITS

1. Benefits paid in cash
When benefit is given in cash or oaid in cash, the monetary value is the amount paid in cash.
Note: the only exception here is when the employer pays for the rent of the residence of the
employee. Monetary value is 50% of the rental payment.
2. Benefits paid in kind
When benefit is given in kind, the monetary value is the fair value of the thing given unless
its boo value is higher. The book value is the cost less any provision for depreciation for
depreciable properties.
Simply staed, the monetary value is the fair value or the book value of the thing given,
whichever is higher.
 When ownership over the property is transferred to thr employee, the monetary value is the
entire fair value of the property even if the property is partially used in the business of the
employer.
3. Benefits that are furnished
when the benefit is given in the form of free use of the employer’s property, the monetary
value is 50% of the rental value of the property. If the property has no available rental value,
the depreciation value is used.
For purposes of the depreciation value, the presumptive useful lives of the property are:
a. 20 years for real property
Hence, the deprecition value is computed as 1/20 or 5% of the vlue of the property.
b. 5 years for movable properties.
Hence the depreciation value is computed 1/5 or 20% of the velue of the property.

Since the fringe benefit tax is paid quarterly, the valuation and reporting of monetary value is also
done quarterly. In case of used of employer properties, the reporting of monetary value ceases from
month the free use is discountinued.

Illustration: Determination of depreciation value

A partnership trasferred the use of a property with a fair value of PHP 2,000,000 to its supervisor.

The annual depreciation value shall be:

1. If the property is an immovable such as a residential unit, the annual depreciation value shall
be PHP 100,000 computed as PHP 2,000,000 x 5%
2. If the property is movable such as car or other motor vehicles, the annual depreciation value
shall be P400,000 computed as P2,000,000 x 20%.
In quarterly reporting for the fringe benefit tax, the quarterly monetary value is determined by
dividing the annual value by 4.
SPECIAL GUIDELINES ON MONETARY VALUE DETERMINATION
Taxable Housing Benefits
1. Employer leases a residential property for the use of his employee and the said property is the
usual residence of the employee.
Monetary Value = 50% of the benefit

Illustration
A sole proprietorship business leases a residential house and lot for the use of his business
manager for P20,000/month.

The monetary value shall be:

Quarterly value = (P20,000 x 3 months) = P 60,000
Quarterly monetary value = P60,000 x 50% = P 30,000

2. Employer owns a residential property and assigns the same for the use of his employee as his
usual place of residence; the annual value of the benefit is 5% of whichever is higher of the
zonal or assessed value of the land and improvement.
Monetary Value = 50% of the annual value of the benefit

Illustration
Chamberly, Inc. allowed pne of its unused realty investment costing P3,500, 000 with zonal
value of P4,000,000 and assessed value of P3,000,000 to be used by its vise president.

The monetary value shall be determined as follows:

Annual Depreciation value = P4,000,000 x 5% P 200,000
Quarterly value = P200,0.00 / 4 quarters P 50,000
Quarterly monetary value = P50, 000 x 50% P 25,000

3. The employer purchases a residential property on installment basis and allows his employee
to use the same as his usual place of residence; the annual value is 5% or 1/20 of the
acquisition cost, exclusive of interest.
Monetary Value = 50% of the annual value of the benefit
This is the same with No. 2 except that the basis is the purchase price of the property.

Illustration
Cotabato Corporation purchased a residential property for the use of its manager.
The property is payable over 11 annual installments of P200,000 including interests but have
a cash price of P2,000,000. For accounting purposes, Cotabato Corporation opted to capitalize
the interest and recorded the P2,200,000 contract price as acquisition cost of the property.
 The monetary value shall be determined as follows:
Annual depreciation value = P2,000,000 x 5% P 100,000
Quarterly Value = P100,000 / 4 quarters P 25,000
Quarterly monetary value = P25,000 x 50% P 12,500

Note: The purchase price is the cost net of interest.

4. Purchase by the employer of residential property and transfer of ownership in the name of the
employee, the value of the benefit is whichever is higher of the acquisition cost or zonal value
Monetary Value = 100% of the annual value of the benefit
Illustration
A non-profit corporation bought a residential dwelling for P5,000,000 and transferred
ownership to its president The property has P3,000,000 zonal value.
Since there is transfer of ownership, the monetary value is the entire P5,000,000, the higher
of book value (i.e. cost in this case) and zonal value.
5. Purchase by employer of property and transfer of title to employee for less than adequate
consideration, the value is (fair market value or zonal value, whichever is higher) less
consideration paid by employee
Monetary Value = 100% of the annual value of the benefit

Illustration
Denzy, a professional practitioner, transferred his residential property in the name of his
managerial employee for P2,000,000. The property has fair value per tax declaration of
P3,400,000 and P5,000,000 zonal value.

Since there is a transfer of ownership (i.e. title), the monetary value is P3,000,000, computed
as P5,000,000 fair value less the P2,000,000 consideration paid.

Exempt housing privileges:

1. Military officials of the Armed Forces of the Philippines (AFP), Philippine Air Force(PAF),
Philippine Army, and Philippine Navy on their quarters which are within or accessible from
the military camp so they can be readily available on call to meet the exigencies of their
military service.
2. Housing unit situated or adjacent to the premises of a business or factory (within a maximum
of 50 meters) from the perimeter of the business premises.
The 50-meer rule nay be relaxed when upon the basis of health or safety requirements such
as in the case of chemical manufacturing, the housing needs to be located at a farther
location.

3. Temporary housing for an employee in a housing unit for 3 months or less (i.e., not exceeding
one quarter)
Expense Account
Expenses incurred by an employee but which are paid by his employer or incurred and paid by
employee but reimbursed or advanced by the employer are taxable fringe benefits. The monetary
value is the amount paid by the employer.
Properly documented employer expense
When the expense is receipted for and in the name of the employer and the expenditure does not
partake of the nature of a personal expense attributable to the employee, it is not a taxable fringe
benefit because it is a business expense.
Personal expense of the employee such as groceries for the personal consumption of the employee
and/or his family, if paid or reimbursed by the employer, are taxable fringe benefits whether or not
receipted in the name of the employer.
Fixed and regular RATA are treated as part of regular compensation income and are subject to
creditable withholding taxes, not to fringe benefits tax.

Illustration
Denver Corporation paid for the following expenses which were liquidated by its managerial employee:
Water and electricity bill at manager’s home P 15,000
Meals and groceries at manager’s home 18,000
Bill on personal telephone 2,000
Bill on personal phone 1,000
Transportation from office to and from clients 12,000
Transportation from office to and from manager’s home 10,000
Food and beverages for visiting business clients 8,000
The monetary value of fringe benefits shall be computed as follows:
Water and electricity bill at director’s home P 15,000
Meals and groceries at director’s home 18,000
Bills on personal phone 1,000
Transportation from office to and from home 10,000
Total Monetary value P 44,000
Note: Business telephone bills, office to client transportation and food and beverages for client
visitors are business expenses, not fringe benefits to the manager.

Motor Vehicles on Any Kind

1. Purchase by employer of motor vehicle in the name of the employee regardless of
whether the same is used partially in the business of the employer
Monetary Value = 100% of the cost of the motor vehicle

Note that the monetary value shall be reported in the quarter of purchase.

2. Cash benefit to employee for the purchase of a vehicle, even if the vehicle is partly used
in the business of the employer

Monetary value = 100% of the cash benefit, except when the amount is subjected to
withholding tax on compensation
Car benefits that are paid in cash and are subjected to withholding tax on
compensation are subject to regular tax, not to fridge benefit tax. If subject to fringe
benefit tax, the monetary value shall be reported in the quarter of payment.

3. Purchase of car on installment basis by the employer with ownership placed in the
name of the employee even if the car is used partly for the employer’s business, the
benefit is the acquisition cost divided by 5 years.
Monetary value = (1/5) or 20% of the acquisition cost

Illustration
An employer purchased a car for P1,000,000 payable in four installments plus 10%
interest on the outstanding unpaid balance of the car.

The entire acquisition cost shall be recognized as monetary value since there is transfer
of ownership but the regulation requires amortization over 5 years. Hence, the employer
shall recognize P1,000,000/5 or 200,000/4 or P50,000 monetary value until the cost is
fully reported over 5 years.

4. Employer shoulders a portion and is placed in the name of the employee, even if
partially used in business.
Monetary value = the portion shouldered by the employer

Illustration
An employer assisted its managerial employee in purchasing a brand-new car for
P4,000,000; 60% of the value is deductible against future salaries of the managerial
employee.

The monetary value shall be PHP 1,600,000 computed as PHP4,000,000 x 40%

representing the portion shouldered by the employer. Thi will be reported in the quarter
the employer’s share is paid.

5. Fleet of motor vehicles owned for the use of the business and the employees, the value
of benefit is the cost of all motor vehicles not used for sales, freight, delivery service,
and other non-personal uses divided by 5 years.
Monetary value = 50% of the velue of benefit
It should be noted that the cost of motor vehicles not used in business is amortized over
5 years. There being no transfer of title, 50% of the benefit is recognizable as monetary
value. The quarterly recognition of monetary value continue until free usage is
terminated

It must be noted that because of the inherent difficulty of tracing the realization of the
fringe benefits to a particular employee considering the collective enjoyment of the
benefit by the employees(managerial, supervisory, or possibly including rank and file
alike), the regulations simply subjected it to the fringe benefit tax.
 6. Fleet of motor vehicles leased for the use of the business and the employee, the value of
the beneits is the rental payments for motor vehicles not normally used for sales,
freight, delivery, service, and other non-personal use.
Monetary value = 50% of the value of the benefit

7. Aircrafts including helicopters are deemed solely for business use; hence, they are not
subject to fringe benefit tax.
8. Yachts whether owned and maintained or leased by the employer are presumed not for
business use; hence, taxable as fringe benefits. If owned or maintained, the value of the
benefit is measured as the depreciation value over 20 years.

Illustration
Assume a corporation acquired a PHP 10,000,000 yacht for the use of its executives,
The monetary value shall be determined as:
Annual depreciation value = 10,000,000 / 20 PHP 500,000
Quarterly monetaryvalue = 500,000 / 4 PHP 125,000

A yacht is considered immovable by virtue ofthe fact that it is fixed and cannot be removed from
water. Hence, the 20-year presumptive useful life for real properties is used. If this leased, the entire
rental payment is the monetary value. Note that the 50% rule is not applied by the regulation.
Supposing the yacht is purchased and transferred to the name of the executives, the monetary value
shall be the entire PHP 10,000,000.
Note on aircrafts and yachts
The high cost of ownership of aircraft makes it inherently prohibitive or impractical to be for personal
use. Thus, aircrafts are deemed by the regulations as solely for business use; hence, they are exempt
from fringe benefit tax. Yachts, though pricely on the other hand, generally lack any sensible
business purpose aside from being for personal pleasure; hence, its depreciation value is subject to
fringe benefit tax in full.

Exceptionally, if the yacht is used solely for the entertainment of guests or prospective clients. It is
not subject to the fringe benefit tax. In this case, the depreciation of the yacht qualifies as
“entertainment, amusement and recreation expense”

Household Expenses
Employee expenses borne by the employer for household personnel, salaries of household help,
personal driver of the employee, and other personal expenses such as homeowners association dues,
garbage dues, electricity, and water are taxable fringe benefits. The monetary value is amount paid.

Illutration
Henesy Corporation granted the following benefits to a managerial employee:

Salary of household personnel P12,000/month

Salary of personal driver P10,000/month
Home owner’s association dues P4,000/year

The quarterly monetary value of the benefit shall be determined as folows:

Salary of household personnel P 12,000 x 3 P 36,000

Salary of personal driver P 10,000 x 3 P 30,000
Home owner’s association dues* P 4,000 / 4 P 1,000
P 67,000
Note : a year is composed of 4 quarters.
Interest on Loan at Less than Market Rate
The interest forgone by employer representing the difference between 12% and the actual interest
rate. The monetary value shall be computed as follows:

Annual monetary value = (12% - 3%) x P 1,000,000 P 90,000

Quarterly monetary values = P 90,000 / 4 P 22,500

Membership fees, dues, and other expenses borne by the employer gor his employees in social
and athelic clubs or other similar organizations constitute taxable fringe benefits. The monetry
value is the amount paid.

Expenses for Foreign Travel

Reasonable business expenses for foreign travel ffor attending business meetings and conventions are
exempt, such as the following:
1. Inland travel expenses, such as food, beverage and local transportation costs
 2. Lodging costs in hotel or similar establishment amounting to an average of $300/day or
less
3. Economy and business class airplane tickets
4. 70% of the cost of first-class ticket

Note that 30% of the cost of first-class ticket in foreign travel is considered deminimis.
Note also that the foregoinh rules apply only on foreign travels. The cost of domestic
travel is generally considered as reasonable and hence deductible.

Substantiation requirement
The above rules apply if the expenses were supported by documentations proving the actual
occurencies of the meeting or convention; otherwise, they shall be subject to fringe benefit tax.
- Benefit meetings must be supported by an official communication from business associates
abroad indicating the purpose of the meeting.
- Buiness conventions must be supported by an official invitation or communication from host
organization or entity abroad.
Expenses for the family members of the employee shouldered by the employer are taxable fringe
benefit in full.

Illustrations
MIG, Inc. allowed its VP Finace, Mr. Lasuna, attend a convention abroad with the privillege to bring
his wife. The expenses of the foreign travel were:

Mr. Lasuna Mrs. Lasuna Total

First class plane ticket P 70,000 P 70,000 P 140,000
Lodging cost P 91, 000 P 91,000 P 182,000
Foods & inland transportation P 50,000 P 50,000 P 100,000
P 211,000 P 211,000 P 422, 000
*the applicable exchande rate is P52:$1 x $350 x 5 days each to Mr. And Mrs. Lasuna
The monetary value shall be determine as folows:

Items Remarks Amount

First class plane ticket:
Mr. Lasuna P 70,000 x 30% P 21,000
Mrs. Lasuna P 70,000 x 100% P 70,000
Lodging cost:
Mr. Lasuna ($350-$300) x P 52 x 5 P 13,000
Mrs. Lasuna Fully taxable P 91,000
Food & local transportation
Mr. Lasuna Exempt de minimis 0
Mrs. Lasuna Fully taxable P 50,000
Total monetary value P 245,000

Holiday and vacation Expenses

Holiday and vacation expenses are taxable fringe benefits if shouldered by the employer. The
monetary value is the amount paid or shouldered by the employer.
Educational Assistance to the Employee or his Dependents
Educational assistance to the employee is generally taxable of the employer’s business, such as:
1. The education or study is directly connected with the employer’s trade, business or
profession: and
2. There is a written contract (i.e., employee bond) that the employee is under obligation to
remain at the employ of the employer for a period f time they mutually agreed upon.
Educational assistance granted to depedents of the employee is generally taxable exept when the
assistance was provided through a competitive scheme under a scholarship program of the company.
Illustration
Cleopatra Marketing, a distributor of cosmetics products, provides educational assistance to the
following employees under an employment bond:

Position Field of study Amount per semester

VP for Management Doctor in Business
Administration P 50,000
VP for Marketing Master in Marketing
Management P 35,000
Operation Manager BS Cosmetology P 25,000
Accounting supercisor BS Criminology P 24,000
Accounting staff BS Accountancy P 20,000
Only the tuition fee of the accounting supervisor is subject to fringe benefit tax and shall be reported
in the quarters it is paid. Even if covered by an employee bonds, his field of study is neither related to
the nature of his job nor to the employer’s business. The fringe benefit of all the other employees will
neither be subject to the fringe benefit tax nor the regular income tax under the “convenience of the
employer” rule.
Life or health Insurancee and other non-life insurance premiums or similar amounts in excess
of what the law allows
These are taxable fringe benefit except the following insurance or premium contributions allowed or
required by law:
1. Contributions of the employer for the benefit of the employee pursuant to the provisions
of existing law such as contributions to SSS, GSIS, PhilHealth, and HDMF
2. Cost of premium for group insurance of employees.

Illustration
Queensdale Company made the following insurance premium payment during a calendr quarter:
P 30,000 prmium for the life insurance of the Chief executive Officer (CEO) with Queensdale
Company as the beneficiary of the policy
- P 20,000 premium for the life insurance of the company Chief operating Officer (COO) with his
wife as the beneficiary
- P 15,000 insurance premium of the personal car of the company manager
- P 40,000 premium for group insurance of employees
- P 80,000 premium share in SSS, PhilHealth, and Pag-ibig dues of employees
- P 10,000 fire insurance premium for the company building

The quarterly monetary value of fringe benefits shall be computed as follows:

Life insurance premium of COO where his wife

is the beneficiary P 20,000
Car insurance of company manager P 15,000
Quarterly monetary value P 35,000

Note:
1. The insurance premium on the life of the CEO where the company itself is the
beneficiary is not a fringe benefit to the executive employee but a business expense.
2. Group insurance premiums and those required by special laws are not taxabble
3. The premium for fire insurance on companu building is a business expense.

FRINGE BENEFIT TAX RATES

The fringe benefit tax rates are as follows:
Year Employees

Residents or citizens* non-resident alliens

1998 34%
1999 33% 25%
2000 to 2017 32%
2018 and thereafter 35%

*includes resident citizens, non-resident citizens, and resident alliens

GROSSED-UP MONETARY VALUE

The basis of the fringe benefit tax is the grossed-up monetary value of the fringe benefit. The grossed-
up monetary value is the monetary value of benefits divided by the appropiate grossed-up rate for the
employee. The grossed-up monetary value is inclusive of the benefit tax.
The following are the grossed-up rate:
Year Employees

Residents or citizens* non-resident alliens

1998 66%
1999 67% 75%
2000 to 2017 68%
2018 and thereafter 65%
Illustration
Assume an employer grants fringe benefits with monetary value of P 58,500 to a resident citizen
manager employee.
The grossed-up monetary value is computed as P58,500/65% = P 90,000. If the employee is a non-
resident alien, the grossed-up monetary value shall be computed as P58,500/75% = P 78,000

ILLUSTRATIONS: FRINGE BENEFIT TAX COMPUTATIONS

Illustration 1: Resident citizen
In the lst quarter of 2019, alexander, a Filipino supervisory employee, was given P 13,000 worth of
groceries for personal use.

Monetary value P 13,000

Divide by: Gross-up rate 65%
Grossed-up monetary value P 20,000
Multply by: Fring benefit tax rate 35%
Fringe benefit tax P 7,000
Alternatively, the fringe benefit tax can be directly computed as P 13,000 x 35% / 65%.
Illustration 2: Resident alien
An offshore banking unit (OBU) reimbursed the following personal expenses of its managerial
employee during a calendar quarter:
Golf club membership dues – 100% in the
name of the employer P 10,000
Groceries – 50% in the name of the employer P 24,000
Homeowner’s association dues P 5,000
Total P 39,000
The fringe benfits tax shall be computed as: P39,000 x 35% / 65% = P 21,000
Note : Personal expenses are taxable fringe benefits in full even if they are receipted in full or in part
in the name of the employer.
Illustration 2: Non-resident alien
On january 2014, Cyberspace Company purchased a P3,000,000 car and designated it for the
personal use of its non-resident alien executives.
Monetary value (P 3,000,000/5) x 50% P 300,000
Quarterly monetary value (P 300,000/4) P 75,000

The fringe benefit tax shall be computed as P75,000 x 25% / 75% = P 25,000
Note : the fringe benefit tax continues to be payable for s long as the employee uses the property for
personal use and/ or business use.