REVENUE REGULATIONS NO.

3-98
FBT Gross-
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(May 21, 1998) Factor

FRINGE BENEFITS TAX

These regulations govern the collection at source of the tax on fringe benefits Alien individual who is not engaged in trade 25% 75%
which have been furnished, granted or paid by the employer beginning orbusiness in the Philippines
January 1, 1998. ……………………………………

A final withholding tax called the Fringe Benefits Tax (FBT) is imposed on the
grossed-up monetary value of fringe benefit furnished, granted or paid by an
employer to an employee who is holding a managerial or supervisory Alien employed by
position. The FBT will be imposed regardless of whether such employer is an
individual, professional partnership or a corporation, or that the corporation is  regional or area headquarters
taxable or not, or the employer is the Philippine government or one of its  representative office
instrumentalities.  regional operating headquarters
 foreign service contractor/subcontractor
Only fringe benefits given or furnished to managerial or supervisory  engaged in petroleum
employees are subject to FBT. For this purpose, the term"managerial operations…………………………
employees" refers to those who are vested with powers or prerogatives to lay
15% 85%
down and execute management policies and/or to hire, transfer, suspend,
lay-off, recall, discharge, assign or discipline employees. "Supervisory
employees" are those who effectively recommend such managerial actions if Filipino individual employees who are employed
the exercise of such authority is not merely routinary or clerical in nature but and occupying the same position as those
requires the use of independent judgment. "Rank and file employees" means occupied or held by the alien employees in the
all employees who are holding neither managerial nor supervisory position. entities listed
above…………………………………………… 15% 85%
Fringe benefits which have been paid prior to January 1, 1998 shall not be
subject to FBT.

Fringe benefits received by employees in special economic zones are also

FBT rates
In general, the fringe benefit tax rate is 34% in 1998, 33% in 1999 and 32%
in year 2000 and thereafter. The grossed-up monetary value of the fringe
benefit is determined by dividing the monetary value of the fringe benefit by
66% in 1998; 67% in 1999 and 68% beginning January 1, 2000.
covered by these regulations. The FBT rate to be applied would be governed
by the same rules discussed above. Thus, if the fringe benefit is given to
employees of a representative office located in the zone, the FBT rate is
15%. On the other hand, if the company providing the benefits is a regular
company, the normal rate of FBT will apply.

Fringe benefits given to certain managerial and supervisory employees are

taxed at preferential rates, viz:
Fringe benefits refer to goods, services or other benefits furnished or granted
by an employer in cash or in kind, in addition to basic salaries, to managerial
or supervisory employees such as, but not limited to the following:
o Housing;
o Expense account;
o Vehicle of any kind;
o Household personnel, such as maid, driver and others;
o Interest on loan at less than market rate to the extent of the
difference between the market rate and actual rate granted;
o Membership fees, dues and other expenses borne by the
employer for the employee in social and athletic clubs or
other similar organizations;
o Expenses for foreign travel;
o Holiday and vacation expenses;
o Educational assistance to the employee or his dependents;
and
o Life or health insurance and other non-life insurance
premiums or similar amounts in excess of what the law
allows.
However, the following benefits are not covered by the FBT.
a. Fringe benefits which are authorized and exempted from
income tax under the Code or under special law. Separation
benefits which are given to employees who are involuntarily
separated from work are not subject to FBT.
b. Contributions of the employer for the benefit of the employee
to retirement, insurance and hospitalization benefit plans;
c. Benefits given to the rank and file, whether granted under a
collective bargaining agreement or not;
d. De minimis benefits
e. Benefits granted to employee as required by the nature of, or
necessary to the trade, business or profession of the
employer
f. Benefits granted for the convenience of the employer
Although the benefit may be exempt from FBT, it may, however, still form
part of the employee’s gross compensation income which is subject to
income tax, which is required to be covered by the withholding tax on wages.
"De minimis" benefits refer to facilities or privileges furnished or offered by an
employer to his employees that are of relatively small value and are offered
or furnished by the employer merely as a means of promoting the health,
goodwill, contentment or efficiency of his employees, such as the following:
o Monetized unused vacation leave credits of employees not
exceeding ten (10) days during the year;
o Medical allowance for employee’s dependents not exceeding
P125 per month;
o Rice subsidy of P350
o Uniform allowance
o Medical benefits
o Laundry allowance of P150 per month
o Employee achievement awards in the form of a tangible
property, with an annual monetary value not exceeding ½ of
the basic salary of employee;
o Christmas and major anniversary celebration for employees
and their guests;
o Company picnics and sports tournaments in the Philippines
exclusively participated in by employees
o Flowers, fruits or similar items given under special
circumstances, e.g. illness, marriage, etc.
In addition, the following fringe benefits are also not subject to FBT because
they are necessary to the business of the employer, or granted for the
convenience of the employer:
o Housing privilege of military officials of the AFP located
inside or near the military camps.
o A housing unit which is situated inside or at most 50 meters
from the perimeter of the business premises.
o Temporary housing for an employee for 3 months or less.
o Expenses of the employee which are reimbursed by the
employer if they are supported by receipts in the name of the
employer and do not partake the nature of a personal
expense of the employee.
o Motor vehicles used for sales, freight, delivery service and
other non-personal uses
o The use of aircraft (including helicopters) owned and
maintained by the employer
o Business expenses which are paid for by the employer for
the foreign travel of his employees in connection with
business meetings or conventions. The expenses should be
supported by documents proving the actual occurrences of
 the meetings/conventions, or official communications from
business associates
Valuation of Benefits
The computation of the fringe benefits tax would entail valuation of the
benefit granted and determination of the proportion or percentage of the
benefit which is subject to the FBT. In cases where the fringe benefits entail
joint benefits to the employer and employee, the portion which shall be
subject to the FBT and the guidelines for the valuation of fringe benefits are
defined below.
In general, the valuation of fringe benefits shall be as follows:
1. If benefit is granted in money or is paid directly paid for by
employer, then the value is the amount granted or paid for.
2. If the employer gave the employee a property and the title to
the property is placed under his name, the fair market value
of the property will be considered as the monetary value of
the fringe benefit.
3. However, if the employee is only allowed to use the property,
and the title to the property remains with the employer, the
monetary value of the benefit is equal to the depreciation
value of the property.
Certain guidelines are set for the valuation and determination of the
monetary value of specific types of benefits.
a. Housing
If employer leases a residential property for the use of his
employee, the value of the benefit shall be the amount of
rental paid by the employer, as evidenced by the lease
contract. The monetary value shall be equal to fifty percent
(50%) of the value of the benefit.
If the property provided for the use of the employee belongs
to his employer, the annual value of the benefit shall be
equal to 5% of the market value of the land and
improvement as declared in the Real Property Tax
Declaration Form or zonal value thereof as determined by
the BIR, whichever is higher. The monetary value of the
fringe benefit shall be fifty percent (50%) of the value of the
benefit.
If the employer purchases property on installment basis and
allows it to be used by its employee, the annual value of the
benefit shall be five percent (5%) of the acquisition cost of
the property, exclusive of interest. The monetary value of
fringe benefit shall be fifty percent (50%) of the value of the
benefit.
If the employer purchases a residential property and
transfers ownership thereof in the name of the employee, its
monetary value is equal to the full amount of the acquisition
cost or zonal value as determined by the BIR, whichever is
higher. In case the property is sold to the employee at a
price less than the acquisition cost, the difference between
the fair market value or zonal value, whichever is higher, and
the cost of the property to the employee will be the basis for
FBT.
b. Motor Vehicle
If the employer purchases the motor vehicle in the name of
the employee, the acquisition price will be the value of the
benefit. The monetary value of the fringe benefit shall be the
entire value of the benefit, regardless of whether the motor
vehicle is used by the employee partly for his personal
purpose and partly for the benefit of the employer.
If the employer pays for the car on installment basis and
ownership of the car is placed in the name of the employee,
the value of the benefit shall be the acquisition cost
exclusive of interest, divided by five (5) years. The monetary
value shall be the entire value of the benefit.
If instead of buying the car directly, the employer gave the
employee money to purchase the car, whether the full
amount or just a portion of the price, the cash received by
the employee will be used as basis for FBT. However, the
subsidy given by the employer is not subject to FBT if it was
declared as part of the employee’s taxable compensation
income subject to withholding tax.
 If the employer owns and maintains, or leases a fleet of
motor vehicles for the use of the business and employees,
the value of the benefit is equal to the acquisition cost of all
motor vehicles not normally used for sales, freight, delivery
service and other non-personal use divided by five (5) years.
The monetary value shall be fifty percent (50%) of the value
of the benefit.
The use by the employee of the yacht owned or being
leased by his employer is subject to FBT and the value of
the benefit is measures based on the depreciation of the
yacht at an estimated useful life of 20 years.
c. Foreign business travel
If employee is given a first class airplane ticket, the monetary
value of the benefit is equal to 30% of the cost of the first
class airplane ticket.
The full amount of the travelling expenses of the family
members of the employee which are paid for by the
employer is subject to FBT.
d. Expense account
In general, expenses incurred by the employee which are
paid by his employer, and expenses paid for by the
employee but reimbursed by his employer shall be treated
as taxable benefits. However, expenditures which are not in
the nature of a personal expense of the employee are not
subject to FBT provided that these are supported by receipts
in the name of the employer.
Personal expenses of the employee paid for or reimbursed
by the employer are subject to FBT, even if the same are
duly receipted in the name of the employer.
Representations and transportation allowances which are
fixed in amounts and regularly received by the employee as
part of their monthly compensation income will be
considered as taxable compensation income.
e. Loans Extended by Employers
If the employer lends money to his employee free of interest,
the interest waived which will be computed at the rate of
12% is considered as a benefit to the employee.
If the loan was given with interest but at a rate lower than
12%, the difference of the interest assumed by the employee
and the rate of 12% shall be treated as taxable fringe
benefit.
This rule will apply to installment payments or loans with
interest rate lower than 12% starting January 1, 1998.
f. Educational support
The cost of the educational assistance to the employee
which are borne by the employer shall be treated as taxable
fringe benefit.
However, if the employer granted a scholarship to the
employee for an education or study which is directly
connected with the employer’s business, it is not subject to
FBT if there is a written contract between them that the
employee is under obligation to remain in the employ of the
employer for a period of time that they have mutually agreed
upon.
The cost of educational assistance extended to the
employee’s dependents is not taxable if such assistance was
provided through a competitive scheme under the
scholarship program of the company.
g. Insurance
The cost of life or health insurance and other non-life
insurance premiums borne by the employer for his employee
shall be treated as taxable fringe benefits.
However, the cost of life or health insurance borne by the
employer if made under the SSS or GSIS or similar
contributions arising from the provisions of any other existing
law is not taxable. Likewise, the cost of premiums borne by
 the employer for the group insurance of his employees is not
subject to FBT.

Payment of FBT

The FBT is treated as a final income tax on the employee which is required
to be withheld and paid by the employer on a calendar quarterly basis. The
FBT return is required to be filed and the FBT withheld paid within 25 days
from the close of the quarter when withholding was made.

Effectivity

FBT must be paid on all benefits granted starting January 1, 1998. Since the
rules were released only in April, no penalty will be imposed for late payment
of the fringe benefit tax for the first quarter ending March 1998 for as long as
the FBT for the first quarter is paid not later than July 25, 1998.