A: The Fringe Benefits Tax (FBT) is a tax imposed on the fringe benefit which are granted or are paid by an emplyer to an employee with a managerial or supervisory position.

Q: What is the purpose of the FBT?

A: The FBT is a measure to ensure that an income tax is paid on fringe benefits (FBs). If there were given in cash, an income is automatically withheld and collected by government. An additional compensation which is given in non-cash form is virtually untaxed. This situation has caused inequity in the distribution of the tax burden. The FBT can enhance the progressivity and fairness of the tax system.

Q: Who should pay the FBT?

A: The FBT is a tax on the income of an employee which is paid by the employer on behalf of the employee.

The FBT is collected from the employer where he is an individual, professional partnership or a corporation. The FBT should be paid, even if the employer is a tax-exempt corporation, or by the Philippine government, or its instrumentalities.

A: Valuation of benefits is easier at the level of the firm. The problem of allocating the benefits among individual employees is avoided. Collection of the FBT is also ensured because the FBT is withheld at the source and does not depend on the self-declaration of the individual.

A: No, the FBT is not an additional tax on the employer. He can claim the fringe benefit and the FBT as a deductible expense from his gross income.

If the employer provides a compensation package to an employee in terms of salary (e.g. P50,000) and housing (e.g P35,000), he witholds an FBT of P17, 761 (i.e. 34% of P52, 239 which is the grossed-up monetary value of the fringe benefit). His total deductible expense is P102, 239. This is equivalent to his total deductible expense if he gave the compensation to the employee in the form of cash.

A: The FBT is imposed on fringe benefits given or furnished to managerial or supervisory employees on or after January 1, 1998. Fringe benefits granted to rank and file employees are not subject to FBT.

A: "Managerial employees" refers to those who are given 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 employees" are those who effectively recommend such managerial actions if the exercise of such authority is not merely routinary or clerical in nature but requires the use of independent judgement.

"Rank and file employees" means all employees who are holding neither managerial nor supervisory position.

A: 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:

A: "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. Examples given include -

A: The following fringe benefits are not subject to FBT for the reason that they are given primarily for the convenience of the employer:

The rate of the FBT is as follows:

A: Fringe benefits are grossed-up to determine the total value of the fringe benefit and put its taxation at par with the taxation of salaries and wages.

The total value of salary of an employee includes the income tax which should be paid on it.

The total value of the fringe benefit should also include the income tax which is payable on the benefit.

A: Fringe benefits are grossed-up by dividing the value of the benefit by the following factors:

In 1998, Manuel, a manager in Company A, posted a sales increase of 150% over his last year’s performance. In recognition of his outstanding work, the Company awarded him a brand new car worth P550,000.

A: The FBT rate is equivalent to the highest individual income tax rate. Thus, if an individual is under a special or preferential income tax rate, the FBT is equivalent to the special income tax rate.

Fringe benefits received by employees in special economic zones are also subject to FBT. The FBT rate is governed by the same rules discussed above. Thus, fringe benefits given to employees of a representative office located in the zone, are subject to a 15 percent (15%) FBT. Employees of a regular company within a zone is subject to the regular FBT rate.

A: 1. General Rules

FBs granted in cash or directly paid for FB is equivalent to the amount of

employees amount or paid for by the employer

FBs which are in the form of FBs is equivalent to the fair market

property under the name of the employee value of the property

FB pertains to the employee’s use of FB is equivalent to the depreciation

the property which is in the name of the value of the property

employer

Residential property is leased by the FB is equal to 50 percent of the rent

employer for the use of the employee for the property

Residential property is owned by the Annual FB is equal to 2.5% of the

employer and is provided for the use of total market value or zonal value of

the employee property

Residential property is bought by the Annual FB is equal to 2.5% of the

use of the employee interest charges

Residential property whose title of FB is equal to the full/total

ownership is transferred to the acquisition cost or zonal value

employee of the property*

Vehicle is given by the employer in the FB is equal to the acquisition cost, if

name of the employee purchased on an instalment basis,

annual FB is equal to the acquisition

Employer owns or leases yacht for the FB is based on depreciation of the

use of the employee yacht at an estimated useful life of

20 years

If employee is given a first class airfare, the monetary value of the benefit is equal to 30% of the cost of the airfare.

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.

5. Expense account

Personal expenses by the employee paid for or reimbursed by the employer are subject to FBT, regardless of whether or not they are 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.

The interest waived from loans granted by the employer is considered FB. The interest waived is computed at 12 percent (12%).

Subsidized interest, i.e. interest rate lower than 12 percent (12%) is also considered FB. The difference between twelve percent (12%) and the subsidized rate is the value of the FB.

This rule applies on instalment payment from loans which carry an interest rate lower than 12% (12%) from January 1, 1998 and the period after.

Scholarship for an employee on a program which is directly connected with the employee’s business is not subject to FBT if the employee has a written service-contract with the employer.

Scholarship for the dependents of employees under a competitive scholarship program of the company is not subject to FBT.

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.

The cost of premiums borne by the employer for the group insurance of his employees is not subject to FBT.

A: The FBT is paid by employer on a quarterly basis within a calendar year. The FBT return should be filed and the FBT should be paid within 25 days from the close of the quarter when the FBT was withheld.

A: 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 (i.e.ending March 1998) if the FBT was on or before July 25, 1998.