A final withholding tax called the Fringe Benefits Tax (FBT) is imposed on the grossed-up monetary value of fringe benefit furnished, granted or paid by an employer to an employee who is holding a managerial or supervisory position. The FBT will be imposed regardless of whether such employer is an individual, professional partnership or a corporation, or that the corporation is taxable or not, or the employer is the Philippine government or one of its instrumentalities.

Only fringe benefits given or furnished to managerial or supervisory employees are subject to FBT. For this purpose, the term "managerial employees" refers to those who are vested with 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 judgment. "Rank and file employees" means all employees who are holding neither managerial nor supervisory position.

Fringe benefits which have been paid prior to January 1, 1998 shall not be subject to FBT.

In general, the fringe benefit tax rate is 34% in 1998, 33% in 1999 and 32% in year 2000 and thereafter. The grossed-up monetary value of the fringe benefit is determined by dividing the monetary value of the fringe benefit by 66% in 1998; 67% in 1999 and 68% beginning January 1, 2000.

Fringe benefits given to certain managerial and supervisory employees are taxed at preferential rates, viz:

Fringe benefits received by employees in special economic zones are also covered by these regulations. The FBT rate to be applied would be governed by the same rules discussed above. Thus, if the fringe benefit is given to employees of a representative office located in the zone, the FBT rate is 15%. On the other hand, if the company providing the benefits is a regular company, the normal rate of FBT will apply.

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:

• Housing;
• Expense account;
• Vehicle of any kind;
• Household personnel, such as maid, driver and others;
• Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted;
• Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations;
• Expenses for foreign travel;
• Holiday and vacation expenses;
• Educational assistance to the employee or his dependents; and
• Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows.

However, the following benefits are not covered by the FBT.

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
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 of the employer

Although the benefit may be exempt from FBT, it may, however, still form part of the employee’s gross compensation income which is subject to income tax, which is required to be covered by the withholding tax on wages.

"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, such as the following:

• Monetized unused vacation leave credits of employees not exceeding ten (10) days during the year;
• Medical allowance for employee’s dependents not exceeding P125 per month;
• Rice subsidy of P350
• Uniform allowance
• Medical benefits
• Laundry allowance of P150 per month
• Employee achievement awards in the form of a tangible property, with an annual monetary value not exceeding ½ of the basic salary of employee;
• Christmas and major anniversary celebration for employees and their guests;
• Company picnics and sports tournaments in the Philippines exclusively participated in by employees
• Flowers, fruits or similar items given under special circumstances, e.g. illness, marriage, etc.

In addition, the following fringe benefits are also not subject to FBT because they are necessary to the business of the employer, or granted for the convenience of the employer:

• Housing privilege of military officials of the AFP located inside or near the military camps.
• A housing unit which is situated inside or at most 50 meters from the perimeter of the business premises.
• Temporary housing for an employee for 3 months or less.
• Expenses of the employee which are reimbursed by the employer if they are supported by receipts in the name of the employer and do not partake the nature of a personal expense of the employee.
• Motor vehicles used for sales, freight, delivery service and other non-personal uses
• The use of aircraft (including helicopters) owned and maintained by the employer
• Business expenses which are paid for by the employer for the foreign travel of his employees in connection with business meetings or conventions. The expenses should be supported by documents proving the actual occurrences of the meetings/conventions, or official communications from business associates

The computation of the fringe benefits tax would entail valuation of the benefit granted and determination of the proportion or percentage of the benefit which is subject to the FBT. In cases where the fringe benefits entail joint benefits to the employer and employee, the portion which shall be subject to the FBT and the guidelines for the valuation of fringe benefits are defined below.

In general, the valuation of fringe benefits shall be as follows:

1. If benefit is granted in money or is paid directly paid for by employer, then the value is the amount granted or paid for.
2. If the employer gave the employee a property and the title to the property is placed under his name, the fair market value of the property will be considered as the monetary value of the fringe benefit.
3. However, if the employee is only allowed to use the property, and the title to the property remains with the employer, the monetary value of the benefit is equal to the depreciation value of the property.

Certain guidelines are set for the valuation and determination of the monetary value of specific types of benefits.

1. Housing

2. Motor Vehicle

3. Foreign business travel

5. Loans Extended by Employers

6. Educational support

7. Insurance

The FBT is treated as a final income tax on the employee which is required to be withheld and paid by the employer on a calendar quarterly basis. The FBT return is required to be filed and the FBT withheld paid within 25 days from the close of the quarter when withholding was made.

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 ending March 1998 for as long as the FBT for the first quarter is paid not later than July 25, 1998.