 SEC.

33, National Internal Revenue Code

A) Imposition of Tax. – Effective January 1, 2018 and onwards, a final tax of

thirty-five percent (35%) is hereby imposed on the grossed-up monetary value of
fringe benefit furnished or granted to the employee (except rank and file
employees defined herein) by the employer, whether an individual or a
corporation (unless the fringe benefit is required by the nature of, or necessary to
the trade, business or profession of the employer, or when the fringe benefit is for
the convenience or advantage of the employer). The tax herein imposed is
payable by the employer which tax shall be paid in the same manner as provided
for under Section 57 (A) of this Code. The grossed-up monetary value of the
fringe benefit shall be determined by dividing the actual monetary value of the
fringe benefit by sixty-five percent (65%) effective January 1, 1998; sixty-seven
percent (67%) effective January 1, 1999; and sixty-eight percent (68%) effective
January 1, 2000 and thereafter: Provided, however, That fringe benefit furnished
to employees and taxable under Subsections (B), (C), (D) and (E) of Section 25
shall be taxed at the applicable rates imposed thereat: Provided, further, That the
grossed -up monetary value of the fringe benefit shall be determined by dividing
the actual monetary value of the fringe benefit by the difference between one
hundred percent (100%) and the applicable rates of income tax under
Subsections (B), (C), (D), and (E) of Section 25. [4]

(B) Fringe Benefit Defined. - For purposes of this Section, the term 'fringe
benefit' means any good, service or other benefit furnished or granted in cash or
in kind by an employer to an individual employee (except rank and file employees
as defined herein) such as, but not limited to, the following:

(1) Housing;
(2) Expense account;
(3) Vehicle of any kind;
(4) Household personnel, such as maid, driver and others;
(5) Interest on loan at less than market rate to the extent of the difference
between the market rate and actual rate 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) Expenses for foreign travel;
(8) Holiday and vacation expenses;
(9) Educational assistance to the employee or his dependents; and
(10) Life or health insurance and other non-life insurance premiums or similar
amounts in excess of what the law allows.

 (C) Fringe Benefits Not Taxable. - The following fringe benefits are not taxable
under this Section:

(1) Fringe benefits which are authorized and exempted from tax under special
laws;
 (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 employees, whether granted under a
collective bargaining agreement or not; and
(4) De minimis benefits as defined in the rules and regulations to be promulgated
by the Secretary of Finance, upon recommendation of the Commissioner.

 The Secretary of Finance is hereby authorized to promulgate, upon

recommendation of the Commissioner, such rules and regulations as are
necessary to carry out efficiently and fairly the provisions of this Section, taking
into account the peculiar nature and special need of the trade, business or
profession of the employer.

 Fringe Benefits, Definition

- Labor laws: pertain to all other benefits/incentives of employees other than basic pay
- NIRC: goods, services or other benefits furnished by the employers to the employees
 Coverage of Fringe Benefit Tax
- Covers only the taxable fringe benefits of managerial or supervisory employees
- Taxable fringe benefits exclude those items considered as compensation income
- General categories of fringe benefits subject to final tax
o Management perquisite benefits
o Employee personal expenses shouldered by the employer
o Taxable de minimis benefits
 Excess de minimis over their limits
 Benefits not included in the de minimis list
 Managerial employee vs. Supervisory Employee vs. Rank and File employees
Managerial employee – employee who is vested w/ power/prerogatives to lay down and
execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign
or discipline employees
Supervisory Employee – employee, who, in the interest of the employer, effectively
recommends managerial actions if the exercise of such authority is not merely routinary or
clerical in nature but requires the use of independent judgment
Rank and file employees – employee who does not fall under the definition of managerial and
supervisory employee

 Tax Rate and Tax base

Tax Rate: 35% final tax on employee’s income to be withheld by the employer
Tax Base: grossed-up monetary value of the fringe benefits granted by the employer to the
employees (except those rank-and-file employees)

 Valuation of Fringe Benefits

1. Amount paid in money in relation to the benefit granted
 - When benefit is given in cash or paid for in cash, monetary value is the amount paid for in
cash
- Exception: when the employer pays for the rent of the residence of the employee. Monetary
value is 50% of the rental payment.
2. FMV of the property in which the ownership is transferred to the employee
- When benefit is given in kind, monetary value is the fair value of the thing given unless its
book value is higher.
- Book value = cost – provision for depreciation (depreciable properties)
- Monetary value = Book value/ FMV (whichever is higher)
- When ownership over the property is transferred to the employee, monetary value is the
entire fair value of the property even if the property is partially used in the business of the
employer
3. Depreciation value of the property which is furnished to the employee for his use or
enjoyment
- When 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 no available rental value, depreciation value is used
- For purposes of depreciation value, the presumptive useful lives of the property are:
o 20 years for real properties
 Depreciation value is computed as 1/20 or 5% value of the property
o 5 years for movable properties
 Depreciation value is computed as 1/5 or 20% of the value of property
 Filing of Return and Payment of tax
1. Monthly filing
2. Quarterly filing

CHAPTER 6: TAXATION OF FRINGE BENEFITS

Introduction

 One of the major changes introduced in the Tax Reform Act of 1997 (RA 8424)
o Imposition of final withholding tax on the benefits furnished or granted by the employer
to the employees who do not belong to the rank and file
 Scope or coverage of the new law (Sec. 33 of Tax Code)
o Broad and comprehensive
o Imposes a final withholding tax on the value of every conceivable benefit/advantage
furnished by the employer to the employee

Fringe benefit defined

 Fringe benefit
o Any good, service or other benefit furnished or granted in cash or in kind by an
employer to an individual employee, except rank and file employees

Coverage
  Those benefits given or furnished to managerial/supervisory employees and not the rank and
file
 Managerial employee
o One who is vested w/ powers or prerogatives to lay down and execute management
policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline
employees
 Supervisory Employee
o One who, in the interest of the employer effectively recommends such managerial
actions if the exercise of such authority is not merely routinary or clerical in nature, but
requires the use of independent judgment

Rate of Tax and Tax Base

 Final withholding tax rate of 35%

o Imposed on the grossed-up monetary value of the fringe benefit furnished, granted or
paid by the employer to the employee
 Whether such employer is an individual, professional partnership or a
corporation
 Regardless of whether the corporation is taxable or not, or the gov’t and its
instrumentalities
 Grossed-up monetary value
o Shall be determined by dividing the monetary value of the fringe benefit by 65%

Grossed-up monetary value

 Represents the whole amount of income realized by the employee w/c includes:
o Net amount of money/net monetary value of property which has been received, plus
o Amount of fringe benefit tax thereon otherwise due from the employee but paid by the
employer for and in behalf of the employee

Valuation of Fringe Benefits

 If the fringe benefit is granted in money, or is directly paid for by the employer
o The value is the amount granted or paid for
 If the fringe benefit is granted or furnished by employer in property and ownership is
transferred to the employee
o Value shall equal to the fair market value of the property
o Note: the FMV is the FMV determined by the BIR Commissioner or the FMV determined
by the Provincial or City Assessor whichever is higher
 If fringe benefit is granted/furnished by the employer in property but the ownership is not
transferred to the employee
o Value is equal to depreciation value of the property

Filing of Return and Payment of Tax

 A final income tax on the employee to be withheld by the employer

  Employer shall file the Quarterly Remittance Return of Final Income Taxes Withheld on Fringe
Benefits Paid to Employees other than Rank and File (BIR Form no. 1603Q)
o Pay the tax withheld on or before the last day of the month following the close of the
quarter during w/c the withholding was made
o Employers enrolled in the Electronic Filing and Payment System (EFPS)
 Deadline for e-filing BIR Form no. 1630Q and e-paying the tax due thereon shall
be five days later than the deadline of manual filing
 Note: the Bir has obligated withholding agents/employers to remit the FBT monthly by filing the
BIR Form no. 0619F every 10th day of the following month when the withholding was made,
regardless of the amount withheld
o For the employers using the eFPS
 Due date is on the 15th day of the following month
o Employers with zero remittance
 Still required to use and file the same return
o Employers shall thus pay the FBT monthly by filing BIR Form No. 0619F for the first 2
months of the quarter
o Quarterly FBT Remittance Return
 Shall reflect therein the total fringe benefits paid/given during the quarter and
the resulting FBT due for the quarter
 FBTs paid during the first 2 mos.
 Available as tax credits against the FBT due for the quarter
 Resulting amount payable – shall be the FBT payable for the last month of the
quarter

Taxable Fringe Benefits

a. Housing
b. Expense Accounts
c. Vehicle of Any Kind
d. Household personnel (maid, driver and others)
e. Interest on loan at less than the market rate to the extent of the difference between the market
rate and actual rate granted
f. Membership fees, dues and other expenses borne by the employer for the employee in social
and athletic clubs or other similar organizations
g. Expenses for foreign travel
h. Holiday and vacation expenses
i. Educational assistance to the employee or his dependents
j. Life or health insurance, & other non-life insurance premiums or similar amounts in excess of
what the law allows

Valuation Guidelines

A. Housing Privilege
 Case 1 – employer leases (as a lessee) residential property for the use of the employee
o Value of the benefit – rental paid by the employer under the lease contract
o Monetary Value of the Benefit – 50% of the value of benefit
 o Tax Base (taxable value) – grossed-up monetary value
 Case 2 – Employer owns a residential property which was assigned to an officer for his use as
residence
o Annual value of the benefit – 5% of FMV of land & land improvements as determined by
the BIR Commissioner or the Assessor whichever is higher
o Monetary value – 50% of the value of benefit
o Tax base – grossed-up monetary value
 Case 3 – Employer purchases residential property on the installment basis and allows the
employee to use the same as his residence
o Annual value – 5% of the acquisition cost exclusive of the interest
o Monetary Value – 50% of the value of benefit
o Tax Base – grossed-up monetary value
 Case 4 – Employer purchases residential property and transfers ownership thereof in the name
of the employee
o Value of the benefit – Employee’s acquisition cost or FMV (whichever is higher)
 FMV is higher between the BIR Commissioner’s zonal value and the Assessor’s
value
o Monetary Value – entire value of the benefit
o Tax Base – grossed-up monetary value
 Case 5 – Employer purchases residential property and transfers ownership thereof to his
employee for the latter’s residential use at a price less than the employer’s acquisition cost
o Value of the benefit – difference between the higher of the Commissioner’s zonal value
and Assessor’s value, and the cost to the employee
o Monetary Value – entire value
o Tax Base – grossed-up monetary value
 Case 6 – Housing benefits which are not taxable
a. Housing privilege of military officials of the AFP consisting of the officials of the Philippine
Army, Philippine Navy and Philippine Air Force
b. A housing unit which is situated inside/adjacent to the premises of a business/factory
- If located within the maximum of 50 meters from the perimeter of the business premises
B. EXPENSE ACCOUNTS
1. Expenses incurred by the employee which are paid by his employer
- Taxable fringe benefits
2. Expenses paid for by the employee but reimbursed by his employer shall be treated as
taxable fringe benefits
- Taxable fringe benefits
 Expenses in (1) and (2) above shall not be treated as fringe benefits and therefore not taxable if:
a. Expenditures are duly receipted for and in the name of employer
b. Expenditures are connected with the trade or business of the taxpayer, that is they
are not personal expenses attributable to the employee
3. Personal expenses of the employee
- Paid for or reimbursed by the employer to the employee shall be treated as taxable fringe
benefits of the employee (whether or not the same are duly receipted for in the name of the
employer)
 4. Representation & transportation allowances which are fixed in amounts and are regularly
received by the employees as part of their monthly compensations – not be treated as
taxable fringe benefits
- Subject to regular tax rates
C. Motor Vehicle of Any Kind
 Case 1 – employer purchases the motor vehicle in the name of the employee
o Value of the benefit – Acquisition cost
o Monetary value – entire value of the benefit
o Tax Base – grossed-up monetary value
 Case 2 – employer provides the employee with cash for the purchase of a motor vehicle in the
name of the employee
o Value of the benefit – amount of received by the employee
o Monetary value – entire value of the benefit
o Tax base – grossed-up monetary value
 Case 3 – employee shoulders a portion of the amount of the purchase price of a motor vehicle in
the name of an employee
o Value of the benefit – amount shouldered by the employee
o Monetary value – entire value of the benefit
o Tax base – grossed-up monetary value
 Case 4 – employee purchases the car on installment in the name of an employee
o Value of benefit – acquisition cost (exclusive of the interest) divided by 5 years
o Monetary value – entire value of benefit
o Tax base – grossed-up monetary value

NOTE: In cases 1 to 4, the monetary value of the fringe benefit shall be the entire value of the benefit
(regardless of the whether the motor vehicle is used by the employee partly for personal purposes and
partly for the benefit of the employer)

 Case 5 – employer owns & maintains a fleet of motor vehicles for the use of the business and
the employees
o Value of the benefit – acquisition cost of all motor vehicles not normally used for
business purposes divided by 5 years
o Monetary value – 50% of the value of the benefit
o Tax base – grossed-up monetary value
 Case 6 – employer leases and maintains a fleet of motor vehicles for the use of the business and
the employees
o Value of the benefit – amount pf rental payments for motor vehicles not normally used
for business purposes
o Monetary value of the benefit – 50% of the value of benefit
o Tax base – grossed-up monetary value
 Case 7
a. Use of aircraft/helicopters owned & maintained by the employer shall not be
subject to FBT
 b. Use of yacht, whether owned and maintained or leased by the employer shall be
subject to FBT.
i. Value – measured based on the depreciation of the yatch at an estimated
useful life of 20 years
D. Household Expenses
- Ff. personal expenses of the employee which are borne by the employer shall be treated as
taxable fringe benefits –
1. Salaries of household help, personal driver of the employee, or other
2. Similar expenses like payment for homeowners’ association dues, garbage dues, etc.
E. Interest on Loans at Less Than Market Rate
1. If the employer lends money to his employee free of interest or at a rate lower than 12%
a. Such interest income foregone by the employer (the difference of interest assumed
by the employee and the rate of 12%) – taxable fringe benefit
2. Benchmark rate of 12% shall remain in effect until revised by a subsequent regulation
3. Regulation shall apply to installment payments/loans with interest rates lower than 12%
starting January 1, 1998
F. Social and Athletic Club Fees
- Membership fees, dues and other expenses borne by the employer for his employee, in
social and athletic clubs or other similar organizations
o Treated as taxable fringe benefits of the employee in full
G. Expenses for Foreign Travel
1. Fringe benefits of foreign travel w/c are not taxable
- Reasonable foreign travel expenses of the employee paid by the employer for the purpose
of attending business meeting or foreign conventions
o Inland travel expenses such as expenses for food, beverage and local transportation
o Cost of lodging in a hotel or similar establishment amounting to an average of US
$300 or less per day
o The cost of economy and business airplane tickets
o 70% of the cost of first class airplane tickets
2. Fringe benefits of foreign travel which are taxable
a. 30% of the cost of first class airplane tickets
b. Lodging cost in a hotel/similar establishment in excess of $300 per day
c. Travelling expenses paid by the employer for the travel of the family members of
the employee
d. When there is no documentary evidence showing that the employee’s travel abroad
was in connection w/ business meetings or convention, the entire cost of the ticket,
including the cost of hotel accommodations and other expenses incident thereto
shouldered by the employer (taxable fringe benefits)
i. Business meetings – evidenced by official communications from business
associates abroad indicating the purpose of the meetings
ii. Business conventions – evidenced by official invitations/communications
from the host organization or entity abroad
H. Holiday and Vacation Expenses
- Treated as taxable fringe benefits
 I. Educational Assistance
 Cost of education assistance to the employee which is borne by the employer
- Treated as taxable fringe benefit
- Exception – a scholarship grant to the employee by the employer shall not be treated as
taxable fringe benefit if
o Education/study is directly connected with the employer’s trade, business or
profession
o There is written contract that the employee is under obligation to remain in the
employ of the employer for a period of time mutually agreed upon
 Cost of educational assistance extended by an employer to the dependents of an employee shall
be treated as taxable fringe benefits of the employee
o Exception: When the assistance is provided through a competitive scheme under a
scholarship program of the company
J. Cost of Insurance
1. Taxable fringe benefits – cost of life or health insurance and other non-life insurance
premiums borne by the employer for his employee
2. Non-taxable fringe benefits
a. Contributions of the employer for the benefit of the employee pursuant to the
provisions of existing laws, such as contributions to the SSS, GSIS and similar
contributions under the provisions of any other existing law
b. Cost of premiums borne by the employer for the group insurance of his employees

Tax Accounting for FB Expense and FB Tax

a. Fringe benefit expense & fringe benefit tax – constitute allowable deductions from the gross
income of the employer
b. If the basis for the computation of the FBT is the depreciation value of the property
- Only the FBT shall constitute a deductible expense of the employer
- If the zonal value or FMV of the property is greater than its cost subject to depreciation
o Excess amount shall be allowed as a deduction from the employer’s gross income as
a fringe benefit expense
o Example:
Annual value of fringe benefit (5% of 1,200,000) 60,000
Monetary value (50% of 60,000) 30,000
Tax base (grossed-up monetary value) 46,154
Fringe benefit tax (35% of 46,154) 16,154

- FBT is deductible from the gross income of the employer

- FBE is not deductible because there is no actual cash disbursement and is presumed to have
already been claimed as depreciation expense by the employer

Fringe Benefits not subject to Fringe benefits tax

A. Fringe benefits which are authorized and exempted from the income tax under the Tax Code or
under special law
B. Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefit plans
C. Benefits given to rank and file, whether granted under collective bargaining agreement or not
D. If the grant of fringe benefits to the employee is required by the nature of or necessary to the
trade, business or profession of the employer
E. If the grant of the fringe benefit is for the convenience or advantage of the employer
Note: Convenience of the employer rule
- Test employed to determine whether or not the value of the meals and lodging furnished by
the employer to the employee constitutes taxable income to the employee
- Value of meals and lodging is not taxable if they are furnished to the employee for the
convenience of the employer, and they meet the ff. requirements:
o In case of meals, they must be furnished on the business premises of the employer
o In case of lodging, it must be furnished on the business premises of the employer
and employee must be required to accept such lodging as a condition of his
employment in order for the employee to properly perform the duties of his
employment
F. De minimis benefits
- Exempt from income tax on compensation as well as from the FBT
- Shall be limited to facilities/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 ff.:
o Monetized unused vacation leave credits of employees not exceeding ten days
during the year
o Monetized value of vacation and sick leave credits paid to gov’t officials and
employees
o Medical cash allowance to dependents of employees not exceeding 1,500 per
employee per semester or 250 per employee per month
o Rice subsidy of 2,000 or one sack of 50 kg, of rice per month amounting to not more
than 1,000
o Uniform and clothing allowing not exceeding 6,000 per annum
o Actual medical assistance, eg. Medical allowance to cover medical and healthcare
needs, annual medical/executive check-up, maternity assistance & routine
consultations not exceeding 10,000 per annum
o Laundry allowance of 300
o Employee achievement awards. To be exempt:
 Award must be in the form of tangible personal property other than cash or
gift certificates
 Annual monetary value must not exceed 10,000
 Award must be given under an established written plan which does not
discriminate in favour of hifhly paid employees
o Gifts given during Christmas and major anniversary celebrations not exceeding
5,000 per employee per annum
 o Daily meal allowance for overtime work and night/graveyard shift not exceeding
25% on the basic minimum wage on a per region basis
o Benefits received by an employee by virtue of a collective bargaining agreement
(CBA) and productivity incentive schemes
o Total annual monetary value received from both the CBA and productivity incentive
schemes combined – do not exceed 10,000 per employee per taxable year
- Notes
o These items are not subject to income tax as well as to the withholding tax on
compensation income of both managerial and rank and file employees
o Amount of “de minimis” benefits conforming to the abovementioned prescribed
ceilings shall not be considered in determining the 90,000 ceiling of the 13 th month
pay and other benefits excluded from gross income
 Excess of the “de minimis” benefits over their respective ceilings shall be
considered as part of the 13th month pay and other benefits
 Employee receiving it will be subject to tax only on the excess over
the 90,000 ceiling
o Any amount given by the employer as benefits to its employees (whether “de
minimis” or “fringe benefits”)
 Constitute as deductible expenses of such employer

Taxation of Fringe Benefit of NRA Not ETB

- Subject to fringe benefit tax

o Rate – 25%
o Tax Base – Grossed-up monetary value of the fringe benefit computed by dividing
the monetary value of the fringe benefit by 75%
- Example:
Monetary value of the fringe benefit 90,000
Grossed up monetary value 120,000
FBT (120,000 X 25% ) 30,000

Final Notes on Fringe Benefits

A. Any amount given by the employer as benefits to its employees (whether de minimis
benefits/fringe benefits) – constitute a deductible expense of the employer
B. When compensation is paid in property other than money
- Employer shall make necessary arrangements to ensure that the amount of tax required to
be withheld is available for payment to the BIR
C. Exemption of any fringe benefit from the fringe benefit tax provided in Rev. Reg. no. 3-98
- Shall not be interpreted as an exemption from any other income tax imposed
- Thus if the FB is exempted from the FBT
o The same may however still form part of the employee’s gross compensation
income which is subject to income tax hence likewise subject to withholding tax on
compensation income payments
- The ff. fringe benefits are not taxable to the employee but may be deducted by the
employer:
o SSS and GSIS employer contributions for the benefit of the employee
o Employer contributions for the benefit of the employee to retirement, insurance
and hospitalization benefit plans