QuestionsQuestions (POEA ADVISORY NO. 19)
BIR Regulations No. 3-98 is promulgated to implement Section 33 of the National Internal Revenue Code (as amended by R.A. 8424), in relation to collection at source of the FBT on fringe benefits furnished, granted, or paid by employers beginning January 1, 1998. It covers fringe benefits given to managerial or supervisory employees and expressly excludes rank and file employees, and benefits that properly form part of compensation income subject to withholding on compensation under RR No. 2-98.
“Rank and file employees” are employees holding neither managerial nor supervisory position. They are excluded from the FBT because the regulations state they cover only fringe benefits given to managerial or supervisory employees (not to rank and file employees).
FBT is imposed on grossed-up monetary value of fringe benefits except when (1) the fringe benefit is required by the nature of or necessary to the trade/business/profession of the employer, or (2) the fringe benefit is for the convenience or advantage of the employer.
FBT rate: 34% (1998), 33% (1999), 32% (2000). Gross-up factor (i.e., divide monetary value by these percentages): 66% (1998), 67% (1999), 68% (2000).
The FBT under Section 33 of the Tax Code is treated as a final income tax on the employee; hence, the employer withholds and pays it. The regulations state that it is withheld and paid on a calendar quarterly basis under the withholding and quarterly return/payment provisions (Sec. 57(A) and Sec. 58(A)) of the Code.
Compute grossed-up monetary value by dividing the monetary value of the fringe benefit by the applicable gross-up percentage: 66% for 1998, 67% for 1999, and 68% for 2000.
A fringe benefit is 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 (except rank and file), such as housing, expense account, vehicle, household personnel, low-interest loans, club memberships, foreign travel expenses, holiday/vacation expenses, educational assistance, and insurance premiums in excess of what the law allows.
The value is the amount of rental paid by the employer as evidenced by the lease contract, but the monetary value subject to FBT is 50% of that benefit amount. The regulations state the monetary value equals the rental paid multiplied by 50%.
Annual value is 5% of the market value of the land and improvement (as declared in the real property tax declaration) or zonal value as determined by the Commissioner under Sec. 6(E) of the Code—whichever is higher. Then, the taxable monetary value is 50% of that annual value.
Housing for military officials of the AFP (soldiers’ quarters within or accessible from military camp) is not taxable due to the doctrine that the State provides necessary quarters. Also not taxable: a housing unit inside/adjacent to business or factory premises located within 50 meters from the perimeter, and temporary housing for an employee staying three months or less.
Employer-paid expenses incurred by the employee are taxable fringe benefits unless duly receipted for and in the name of the employer and not of the nature of personal expenses attributable to the employee. Reimbursed expenses are generally taxable unless receipted for in the name of the employer and not personal. Personal expenses paid for or reimbursed by the employer are taxable regardless of whether receipted in the employer’s name.
They are not treated as taxable fringe benefits; they are considered taxable compensation income subject to income tax under Sec. 24 of the Code (and therefore fall under withholding on compensation, not FBT).
If employer purchases the motor vehicle in the employee’s name, the value is the acquisition cost and the monetary value subject to FBT is the entire value. If employer provides cash for the purchase with ownership in employee’s name, the value equals the cash amount received. The entire amount is treated as fringe benefit regardless of business/personal use, unless already subjected to withholding as compensation under RR No. 2-98.
Generally, taxable fringe benefit and the FBT due are allowable deductions from employer’s gross income. But when valuation basis uses depreciation value, zonal value, or fair market value, only the actual fringe benefit tax paid is deductible. The fringe benefit value itself is not deductible and is presumed tacked on to depreciation already claimed. If the zonal/fair market value exceeds cost subject to depreciation, the excess may be allowed as a deduction as fringe benefit expense amortized appropriately.
No. Reasonable business expenses paid by the employer for foreign travel for attending business meetings or conventions are not treated as taxable fringe benefits if supported by documents showing actual meetings/conventions and if local expenses (except hotel lodging) average US$300 or less per day; economy or business class tickets are not subject to FBT. In absence of documentary evidence of business meetings/conventions, the entire cost (including hotel and other incidentals) is treated as taxable fringe benefit.
Holiday and vacation expenses borne by the employer are treated as taxable fringe benefits.
Educational assistance costs borne by the employer are generally taxable fringe benefits. However, a scholarship grant to the employee is not taxable if the education is directly connected with the employer’s trade/business/profession and there is a written contract requiring the employee to remain in employment for a period mutually agreed upon.
Examples include monetized unused vacation leave not exceeding 10 days per year; medical cash allowance to dependents not exceeding ₱750 per semester or ₱125 per month; rice subsidy of ₱350 per month; uniforms; medical benefits; laundry allowance of ₱150 per month; employee achievement awards in tangible property (not cash or gift certificate) within an annual monetary value not exceeding half a month basic salary under a non-discriminatory written plan; Christmas/major anniversary celebrations; company picnics/sports tournaments in the Philippines participated exclusively by employees; and flowers/fruits/books or similar items given under special circumstances.