Scope and Coverage
- Applies only to managerial and supervisory employees, excludes rank and file.
- Definition of managerial and supervisory employees based on Labor Code criteria.
- Does not cover fringe benefits already part of compensation income.
- Benefits paid before Jan 1, 1998, not covered.
Determination and Valuation of Fringe Benefit Taxable Amount
- Two-step process: valuation of benefit and determination of taxable portion.
- Fringe benefits necessary for employer excluded from tax.
- Valuation guidelines: • If monetary or paid by employer: amount granted or paid. • If property transferred: fair market value. • If property used but not transferred: depreciation value.
Special Taxation for Non-Resident Aliens and Certain Employees
- 25% tax on grossed-up value for non-resident alien individuals not engaged in Philippine trade/business.
- 15% tax for certain aliens employed by multinational/regional HQ, offshore banking units, foreign service contractors, and their Filipino counterparts.
- Special economic zone employees subject to normal or special reduced rates.
Definition of Fringe Benefits
- Benefits provided in addition to basic salary to managerial or supervisory employees.
- Examples include housing, expense accounts, vehicles, household personnel, below-market loans, membership fees, foreign travel, vacation expenses, educational assistance, insurance premiums.
Valuation Guidelines for Specific Fringe Benefits
- Housing: • Lease: 50% of rental paid. • Owned property: 5% of higher of declared market or zonal value, then 50% of this. • Purchased property transferred at less than cost: difference between fair market and employee cost. • Military housing and certain housing near business premises exempt.
- Expense account: • Personal expenses reimbursed treated as taxable fringe benefits. • Representation/transportation allowances as regular compensation income.
- Motor vehicles: • Purchase in employee’s name: acquisition cost fully taxable. • Provided cash for vehicle purchase: full cash amount taxable. • Employer-owned fleet used personally: 50% of acquisition cost divided over 5 years.
- Other: • Household expenses for personal personnel taxable. • Interest difference on loans below 12% treated as taxable benefit. • Membership fees, social club expenses fully taxable. • Foreign travel business-related expenses partly exempt; otherwise taxable. • Holiday/vacation expenses taxable. • Educational assistance generally taxable except scholarship directly related to employer’s trade with contract. • Insurance premiums in excess of statutory contributions taxable.
Fringe Benefits Exempt from Tax
- Benefits exempt by law or special law.
- Employer contributions to retirement, insurance, hospitalization plans.
- Benefits given to rank and file.
- De minimis benefits including limited monetized leave, medical cash allowances, rice subsidy, uniforms, medical benefits, laundry allowance, achievement awards within limits, company celebrations, company picnics, and certain gifts.
- Benefits necessary or convenient to employer.
- Exemption from fringe benefit tax does not imply exemption from other income tax.
Tax Accounting and Deductions
- Fringe benefit amount and tax are deductible expenses for employer.
- When based on depreciation or zonal/fair market value, only actual tax paid deductible.
- If zonal/fair market value exceeds cost, excess deductible as fringe benefit expense.
- Illustrative examples provided for accounting treatment of housing fringe benefits.
Repealing Clause
- Supersedes inconsistent existing rules or parts thereof.
Effectivity
- Regulations effective for fringe benefits furnished from January 1, 1998.
Transitory Provisions
- No penalty for late payment in first quarter of 1998, provided return filed and tax paid by July 25, 1998.