FRINGE BENEFITS FOR

MANAGERIAL POSITIONS
 TAX TREATMENT OF FRINGE BENEFITS
IN THE PHILIPPINES

• FRINGE BENEFITS – are special form of benefits

given to the employees apart from their basic
compensation.
• These benefits may be in the form of goods,
services or any other benefits in cash or in kind
granted by the employer – whether corporation,
partnership or sole proprietorship to its employees.
• However, the law has its own specific requirements
and procedures as to which fringe benefits are
taxable with the normal income tax rate or which
are subject to the fringe benefit tax.
 STATUTORY DEFINITION
OF FRINGE BENEFITS
• Section 33(B) of the National Internal Revenue Code (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 limited to the following:
• Housing, expense account, vehicle, household personnel,
interest on loan at less than market rate, membership fees
and dues in social and athletic clubs, foreign travel expenses,
holiday and vacation expenses, educational assistance to the
employee or his dependents, life or health insurance and
other non-life insurance premiums or similar amounts in
excess of what the law allows.
 OBJECTIVES OF FRINGE BENEFITS
• To create and improve sound industrial relations
• To boost up employee morale
• To motivate the employees by identifying and satisfying their unsatisfied
needs
• To provide qualitative work environment and work life
• To provide security to the employees against social risks like old age
benefits and maternity benefits
• To protect the health of the employees and to provide safety to the
employees against accidents
• To promote employees’ welfare by providing welfare measures like
recreation facilities
• To create a sense of belongingness among employees and to retain
them. Hence, fringe benefits are called golden hand-cuffs.
• To meet requirements of various legislations relating to fringe benefits.
 RULES ON FRINGE BENEFITS
• Under the Tax Code, fringe benefits are taxable. As an
employer, you have to withhold tax from the fringe benefits
in order for it to become deductible from business income in
computing income tax.
• 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.
• 2) fringe benefits to managerial and supervisory
employees are taxable with the 32% fringe benefit tax,
which is a final tax.
 WHAT IS THE NATURE OF THE
FRINGE BENEFIT TAX?
• Fringe benefit tax (FBT) is a final income tax
imposed on the managerial or supervisory
employee and withheld by the employer who
files the return and remits the tax withheld
to the BIR within 25 days from the close of
each calendar quarter Sec. 33(A), NIRC.
 Under Section 33(C), the following employee
benefits are not covered by fringe benefit tax:
• 1) 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
• 2) Contributions of the employer for the benefit of the employee to
retirement, insurance and hospitalization benefit plans
• 3) Benefits given to the rank and file, whether granted under a
collective bargaining agreement or not
• 4) De minimis benefits as defined in the rules and regulations by the
Secretary of Finance, upon recommendation of the Commissioner
• 5) Benefits granted to employee as required by the nature of, or
necessary to the trade, business or profession of the employer
• 6) Benefits granted for the convenience or advantage of
the employer:
– a) Housing privilege of military officers inside or near the military
camps
– b) housing unit situated inside or at a most 50 meters from the
perimeter of the business premises
– c) temporary housing of an employee for 3 months or less
– d) expenses of the employee which are reimbursed by the employer
which are:
• Receipted under the name of the employer
• Not personal expenses of the employee
– e) business expenses which are paid for by the employer for the
foreign travel of his employees in connection with business meetings
or conventions (RR3-1998)
 What are De Minimis Benefits?

• The term “De Minimis” benefits which are

exempt from the fringe benefit tax shall, in
general, be limited 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.
 The following are considered as “de minimis” benefits
granted to each employee as updated by
Revenue Regulation (RR) 5-2011:
• Monetized unused vacation leave credits of private employees not exceeding 10 days during the year
• Monetized value of vacation and sick leave credits paid to government officials and employees
• Medical cash allowance to dependents of employees not exceeding Php750.00 per employee per
semester or Php125 per month
• Rice subsidy of Php1,500 or one (1) sack of 50kg rice per month amounting to not more than Php1,500
• Uniforms and clothing allowance not exceeding Php4,000 per annum
• Actual medical assistance to cover medical and healthcare needs, annual medical/executive check-up,
maternity assistance and routine consultations, not exceeding Php10,000 per annum
• Laundry allowance not exceeding Php300 per month
• Employees achievement awards for length of service or safety achievement which must be in the form
of a tangible personal property other than cash or gift certificate with an annual monetary value not
exceeding Php10,000 received by the employee under an established written plan which does not
discriminate in favor of highly paid employees
• Gifts given during christmas and major anniversary celebrations not exceeding Php5,000 per employee
per annum
• Daily meal allowance for overtime work and night/graveyard shift not exceeding 25% of the basic
minimum wage on a per region basis
 How to compute the FBT?
• The final withholding tax on fringe benefit shall be computed based on
the taxable grossed up monetary value multiplied by the applicable tax
rate
• A) grossed-up monetary value (GMV) of the fringe benefit shall be
determined by dividing the monetary value of the fringe benefit as
provided for in Revenue Regulations No. 3-98 (as amended by RR5-2011)
by the percentage divisor in accordance with the following schedule:
• In general, for Citizen, resident alien and non-resident alien engaged in
trade or business in the Philippines – 68%
• Non-resident alien not engaged in trade or business in the Phils.-75%
• Alien or Filipino individuals employed by Foreign Petroleum Service
Contractors/subcontractors, offshore banking units and regional or area
headquarters and regional operating headquarters of multinational
companies occupying executive/managerial and technical positions-85%
 WHAT IS GROSSED-UP
MONETARY VALUE?
• Grossed-up monetary value consists of:
• a) the net amount of money or net
monetary value of property received
• b) the amount of fringe benefit tax due and
paid thereon by the employer for and in
behalf of the employee
B) Applicable tax rates-FBT shall be imposed at
the following rates:
• In general-32%
• For non-resident alien individual not engaged in trade or
business in the Philippines-25%
• For Alien or Filipino individuals employed by Foreign
Petroleum Service Contractors/subcontractors, offshore
banking units and regional or area headquarters and
regional operating headquarters of multinational companies
occupying executive/managerial and technical positions-15%
• Received by employees in a special economic zone -25% or
15% (depends)
 Illustration:
• The employer granted Php85,000 cash
benefit representing reimbursement of the
personal expenses of his employee that is the
manager of the subsidiary.
• How much is the taxable amount of fringe
benefit, the fringe benefit tax, and the
allowed deductible fringe benefit expense of
the employer?
• The taxable amount of the FB is computed as follows:
• This amount will be used as our tax base when computing the FBT:
– MVFB (cash payment) - Php85,000
– Divided by the GMV - 68%
– Taxable amount of the FB- Php125,000

Taxable amount of the FBT x by the applicable tax rate will be our
FBT
- Taxable amount of the FB- Php125,000
- X by the FBT rate - 32%
- FBT - Php40,000
The deductible FB expense for income tax purposes is the sum of the
cash payment and the FBT. For Income tax purposes, the total
amount of the deductible FB expense is a deductible expense from
business income

Cash Payment of the personal expenses Php85,000

Plus the FBT 40,000
Deductible FB expense 125,000

In the books of the company upon payment of the FB to the

employee, the total deductible FB is debited to FB expense and cash
is credited to the amount of payment to the employee and the
withholding tax payable for the FBT computed
 Sample computation of FBT
• Danmil Company – a domestic employer/company granted
• Mr. Santos – a Filipino branch manager employee, in addition to his basic salary
• Php4,000.00 cash per quarter for his membership fees at
• Wilmiles Gym – a fitness and athletic club
• How much is the FBT that Danmil Company should withhold and remit to BIR per
quarter?
• Monetary Value of FB = Php4,000.00
• % divisor applicable=68%
• FBT Rate = 32%
• FBT = (MVFB/68% )x 32%
• FBT = (Php4,000/68%)x 32%
• FBT = Php5,882.35
• FBT = PHP1,882.35
HOW IS THE NET MONETARY VALUE OF PROPERTY RECEIVED
AS FRINGE BENEFIT DETERMINED?

• It depends:
– If ownership of the property is transferred to the
employee, the net monetary value is the fair
market value of the property (FMV as
determined by the BIR Commissioner [zonal
value] or FMV as determined by the local
assessor, whichever is higher)
– If ownership of the property is not transferred to
the employee, the net monetary value is the
depreciation value of the property.
 How to file FBT Return?
• What is the BIR Form used to file FBT?
– BIR Form no. 1603 – quarterly remittance return
of final income taxes withheld on fringe benefits
paid to employees other than rank and file
Who are required to file?
- every withholding agent/payor who is either an
individual or non-individual required to deduct
and withhold taxes on fringe benefits furnished
to employees other than R/F employees subject to
final withholding tax
 What are the procedures
in filing BIR Form 1603
• Read instructions indicated in the tax return
• Accomplish BIR Form 1603 in triplicate copies
• If there is tax required to be remitted:
– Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue
District office where you are registered or taxpayer concerned is
registered and present the duly accomplished BIR Form No.1603,
together with the required attachments and your payment
– In places where there are no AAB, proceed to the Revenue Collection
Officer or duly authorized City or Municipal Treasurer located within
the Revenue District Office where you are registered or taxpayer
concerned is registered and present the duly accomplished BIR Form
No. 1603, together with the required attachments and your payment
– Receive your copy of the duly stamped and validated form from the
teller of the AAB’s/Revenue Collection Officer/duly authorized City
or Municipal Treasurer.
 If there is no tax
required to be remitted:
• Proceed to the RDO where you are
registered or taxpayer concerned is
registered and present the duly
accomplished BIR Form No. 1603,
together with the required attachments
• Receive your copy of the duly stamped
and validated form from the RDO
representative
 DEADLINE
• Filing and Payment Via EFPS
– On or before the 15th day of the month following
the end of the calendar quarter in which the
fringe benefits were granted to the recipient

Manual filing and Payment

- On or before the 10th day of the month
following the end of the calendar quarter in which
the fringe benefits were granted to the recipient