BAINCTAX

Income Taxation
1TAY2022

Final Withholding Taxes

Fringe Benefit
Tax
 FRINGE BENEFIT
Section 33 (B) of the NIRC defines Fringe Benefits as "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 such as, but are not limited to, the following:

a. Housing;
b. Expense account;
c. Vehicle of any kind;
d. Household personnel, such as maid, driver and others;
e. Interest on loan at less than 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; and
j. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows.

Rationale of Granting Fringe Benefits

The following reasons may justify the granting of fringe benefits:
1. A fringe benefit, given to employees is a form of incentive to encourage employees' productivity and loyalty to employer;
Final Withholding Taxes Fringe Benefit Tax page 1
 2. During financial difficulties, the employer may decrease or discontinue previously given fringe benefits, but cannot
reduce the wage or salary of a specified amount once it is given to employees; and
3. Additional remunerations for overtime and separation pay do not include fringe benefits.

FRINGE BENEFIT TAX

The fringe benefit tax is a final tax imposed on the fringe benefit furnished, granted or paid by the employer to the employee,
except rank-and-file employees, whether such employer is an individual, a professional partnership or a corporation, regardless
of whether the corporation is taxable or not, or the government and its instrumentalities.

The fringe benefit tax covers only the taxable fringe benefits of managerial or supervisory employees. For
purposes of the fringe benefit tax, RR3-98 clarifies that taxable fringe benefits exclude those items
Scope considered as compensation income. Hence, an excellent understanding of the items of compensation
income is extremely important in highlighting the bounds between compensation income and the fringe
benefits subject to fringe benefit tax.
The following are the general categories of fringe benefits subject to final tax.
General 1. Management perquisite benefits
Categories 2. Employee personal expenses shouldered by the employer
3. Taxable de minimis benefits

Final Withholding Taxes Fringe Benefit Tax page 2

 a. Excess de minimis over their limits
b. Benefits not included in the de minimis list
The following fringe benefits are exempt from the fringe benefit tax:
1. Fringe benefits which are authorized and exempted from tax under special laws
2. Benefits required by the nature of, or necessary to the trade, business or profession of the employer
3. Benefit given for the convenience or advantage of the employer
Exemption 4. Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefit plans
5. Benefit given to rank and file employees whether or not granted under a collective bargaining
agreement
6. De minimis benefits within their legal limits

Characteristics
The fringe benefit tax is a final tax which is withheld by the employer at source. Thus, the employee need
Final tax
not report the fringe benefits in his income tax return.
Tax upon the The fringe benefit tax is not a tax to the employer. It is a tax upon the fringe benefit realized by the
fringe benefits of managerial or supervisory employee. It is a tax to the employee; hence, it applies regardless of the identity
managerial or

Final Withholding Taxes Fringe Benefit Tax page 3

 supervisory of the employer. Therefore, it applies even if the employer is a sole proprietor, partnership, corporation
employees whether taxable or exempt, or the government.
Paid by the As a final tax, the tax is presumed withheld at source and remitted by the employer to the government.
employer
The monetary value or the amount of fringe benefit realized or taken home by the employee is effectively
Grossed-up tax net of the final tax which is to be withheld at source Hence, the monetary value is first grossed-up by the
complement percentage of the applicable fringe benefit tax rate before the fringe benefit tax rate is applied.
The fringe benefit tax is due for remittance quarterly based on the accounting period (fiscal or calendar)
selected by the employer. The monetary value of each taxable fringe benefit is determined and reported
Due quarterly
quarterly through RIR Form 1603Q. The quarterly fringe benefit tax is due on or before the last day of the
month following the quarter in which withholding was made.

Procedures for Computation

The following are the general steps in the computation of the fringe benefit tax.

Step 1: Determine the Monetary value refers to the taxable amount of benefits taken home or realized by the
monetary value. managerial or supervisory employee. The monetary value is presumed net of the final tax.

Final Withholding Taxes Fringe Benefit Tax page 4

 Step 2: Determine the fringe The fringe benefit tax rate for non-resident aliens not engaged in trade or business is 25% and
benefit tax rate applicable for 35% for other cases.
the taxpayer.
Step 3: Determine the gross-up The gross up rate is computed by deducting the fringe benefit tax rate from 100%.
rate.
Step 4: Determine the grossed- The monetary value is computed by dividing the monetary value by the gross-up rate.
up monetary value.
Step 5: Determine the fringe This is done by multiplying the fringe benefit tax rate to the grossed-up monetary value.
benefit tax.

Problem 10.1 COMPUTATION OF THE TAX

A manager of IP Company received a fringe benefit with a value of P52,000.
The fringe benefit tax is computed as:
Step Particular Amount
1 Monetary Value 52,000
2-3 Grossed-up Rate (100%-35%) 65%
4 Grossed-up Monetary Value 80,000

Final Withholding Taxes Fringe Benefit Tax page 5

 2 Fringe Benefit Tax Rate 35%
5 Fringe Benefit Tax 28,000
Rules on Valuation
The following shall be considered in determining the monetary value of the fringe benefit.

When benefit is given in cash or paid for in cash, the monetary value is the amount paid for in cash.
Benefits paid in
Note that the only exception here is when the employer pays for the rent of the residence of the employee.
cash
Monetary value is 50% of the rental payment.
When benefit is given in kind, the monetary value is the fair value of the thing given unless its book value
is higher. Book value is the cost less any provision for depreciation for depreciable properties. Simply stated,
Benefits paid in
the monetary value is the fair value or the book value of the thing given, whichever is higher. When
kind
ownership over the property is transferred to the employee, the monetary value is the entire fair value of
the property even if the property is partially used in the business of the employer.
When the benefit is given in the form of free use of the employer's property, the monetary value is 50% of
Benefits that are the rental value of the property. If the property has no available rental value, the depreciation value is used.
furnished For purposes of the depreciation value, the presumptive useful lives of the property are:

Final Withholding Taxes Fringe Benefit Tax page 6

 Presumptive Useful Annual Depreciation Quarterly Depreciation
Property
Life Value Value
Real Property 20 years 1/20 or 5% 1/80 or 1.25%
Movable Property 5 years 1/5 or 20% 1/20 or 5%

Problem 10.2 VALUATION

A partnership transferred the use of a property with a fair value of P2,000,000 to its supervisor.
The monetary value would be:
Real Property Movable Property
Fair Value 2,000,000 2,000,000
Presumptive Useful Life 20 5
Annual Depreciation Value 100,000 400,000
Quarters 4 4
Quarterly Depreciation Value 50,000 100,000

Final Withholding Taxes Fringe Benefit Tax page 7

 HOUSING PRIVILEGES
The housing fringe benefits shall use the following formula for the monetary values.
Housing Privilege Monetary Value
Lease of residential property for residential use of employees 50% of rental payments
5% x 50% x higher between Assessed Value
Assignment of residential property for use of employees
and Zonal Value
Purchase of residential property on instalment basis for the use of employees 5% x 50% x Acquisition Cost
Purchase of residential property and ownership is transferred in the name of Higher between Acquisition Cost and Zonal
employee Value
Purchase of residential property and ownership is transferred in the name of Higher between Fair Value and Zonal Value
employee for less than adequate consideration less Consideration Paid

Problem 10.3 HOUSING PRIVILEGES

Vacation Company purchased a residential property for P5,500,000. The zonal and assessed value of the property are
P6,000,000 and P5,000,000, respectively. Compute for the fringe benefit tax under the following independent scenario.
1. Assigned for use of employees
2. Purchased on instalment for use of employees

Final Withholding Taxes Fringe Benefit Tax page 8

 3. Purchased for transfer of ownership to employees
4. Purchased for transfer of ownership to employees for a payment of P2,000,000
The fringe benefit tax for the year would be:
Scenario 1 Scenario 2 Scenario 3 Scenario 4
Monetary Value 150,000 137,500 6,000,000 4,000,000
Grossed-up Rate 65% 65% 65% 65%
Grossed-up Monetary Value 230,769 211,538 9,230,769 6,153,846
Fringe Benefit Tax Rate 35% 35% 35% 35%
Fringe Benefit Tax 80,769 74,038 3,230,769 2,153,846
Non-Taxable Housing Fringe Benefit
The following housing benefits are not subject to fringe benefit tax:

1. Housing privilege of the Armed Forces of the Philippines (AFP) officials - i.e., those of the Philippine Army (PA),
Philippine Navy (PN) or Philippine Air Force (PAF);
2. A housing unit, which is situated inside or adjacent to the premises of a business or factory. A housing unit is considered
adjacent to the premises of the business if it is located within the maximum of fifty (50) meters away from the perimeter of
the business premises; and
3. Temporary housing for an employee who stays in a housing unit for three (3) months or less.

Final Withholding Taxes Fringe Benefit Tax page 9

 EXPENSE ACCOUNT
The following are treated as taxable fringe benefits:

1. Expenses incurred by the employee but paid by his employer;

2. Expenses paid by the employee but reimbursed by his employer. However, if the above expenditures are duly receipted
for and in the name of the employer and these do not partake the nature of a personal expense attributable to the
employee, the same shall not be subject to fringe benefit tax; and
3. Personal expenses of the employee (like purchases of groceries for the personal consumption of the employee and his
family members) paid for or reimbursed by the employer to the employee whether or not the same are duly receipted for
in the name of the employer.

Representation and transportation allowances that are fixed in amounts and regularly received by the employees as part of their
monthly compensation income shall be considered as taxable compensation income subject to Withholding Tax on Wages.
Problem 10.4 EXPENSE ACCOUNT
Mushroom. Corporation allows its Chief Operation Officer, Mr. Candido Perez, to incur expenses subject to reimbursement.
Mr. Perez presents the following itemized receipts:
Light and Power (75% in the name of the company) 8,000
Grocery items 15,000

Final Withholding Taxes Fringe Benefit Tax page 10

 Clothing 5,000
Gasoline of company car 3,000
Transportation for business trip 12,000
The following are the items subject to FBT and the resulting amount of FBT.
Light and Power 2,000
Grocery items 15,000
Clothing 5,000
Total Fringe Benefits 22,000
Grossed-up rate 65%
Grossed-up Monetary Value 33,846
FBT Rate 35%
Fringe Benefit Tax 11,846

MOTOR VEHICLES
The housing fringe benefits shall use the following formula for the monetary values.
Motor Vehicle Privilege Monetary Value
Purchase of motor vehicle in the name of employee Acquisition Cost

Final Withholding Taxes Fringe Benefit Tax page 11

 Cash received by the
Cash is given to employee for the purchase of vehicle, ownership is placed in the name of the
employee
employee However, if the cash given is subjected to WTC, it shall not be
subject to FBT anymore.

Purchase of car on instalment basis the ownership of which is placed in the employee Acquisition Cost ÷ 5
Employer shoulders a portion of the purchase price, the ownership is placed in the name of Portion shouldered by the
employee employer
Employer owns and maintains a fleet of motor vehicles for the use of the business and the
Acquisition Cost x 20% x 50%
employees
Employer leases and maintains a fleet of motor vehicles for the use of the business and the
50% x Rental Payments
employees
Aircrafts Not applicable
Yachts Acquisition Cost x 5%

HOUSEHOLD EXPENSES
Expenses of the employee which are borne by the employer for household personnel, such as salaries of household help,
personal driver of the employee, or other similar personal expenses (like payment for homeowners association dues, garbage
dues, etc.) shall be treated as taxable fringe benefits.

Final Withholding Taxes Fringe Benefit Tax page 12

 INTEREST ON LOAN AT LESS THAN MARKET RATE
The interest forgone by the employer representing the difference between 12% and the actual interest charged is a taxable fringe
benefit.

MEMBERSHIP FEES, DUES AND OTHER EXPENSES

Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar
organizations.
The entire expenditures shall be treated as taxable fringe benefits of the employee.

EXPENSES FOR FOREIGN TRAVEL

Reasonable business expenses for foreign travel for attending business meetings and conventions are exempt, such as the
following:

1. Inland travel expenses such as food, beverage and local transportation costs
2. Lodging costs in hotel or similar establishment amounting to an average of $300/day or less.
3. Economy and business class airplane tickets
4. 70% of the cost of first-class ticket

Final Withholding Taxes Fringe Benefit Tax page 13

 Note that 30% of the cost of first-class ticket in foreign travels is considered de-minimis. Note also that the foregoing rules apply
only on foreign travels. The cost of domestic travel is generally considered as reasonable and hence deductible.

Expenses in excess of the aforementioned limits and for the family members of the employee shouldered by the employer are
taxable fringe benefits.
Problem 10.5 EXPENSE FOR FOREIGN TRAVEL
Payaman Company allowed its President, Mr. Cong, to attend a convention abroad for five days and nights with the
privilege to bring his wife, Viy. The company shouldered the following expenses for their foreign travel: P70,000 each for
their first class plane ticket, $350 each for their daily lodging cost and P50,000 each for their foods and inland transportation.
The exchange rate is $1:P50.
All expenses related to Viy are taxable.
Taxable Exempt
Plane Ticket 91,000 49,000
Lodging Costs 100,000 75,000
Foods and Local Transportation 50,000 50,000
Total 241,000 174,000

Final Withholding Taxes Fringe Benefit Tax page 14

 HOLIDAY AND VACATION EXPENSES
Holiday and vacation expenses are taxable fringe benefits if shouldered by the employer. The monetary value is the amount
paid or shouldered by the employer.

EDUCATIONAL ASSISTANCE
Educational assistance to the employee is generally taxable except when it is incurred for the convenience or furtherance of the
employer's business, such as:
1. the education or study is directly connected with the employer's business or profession: and

2. there is a written contract (i.e., employee bond) that the employee is under obligation to remain at the employ of the employer
fora period if time ther mutually agreed upon.

Educational assistance granted to dependents of the employee is generally taxable except when the assistance was provided
through a competitive scheme under a scholarship program of the company.

Problem 10.6 EDUCATIONAL ASSISTANCE

E-Low Cost is a travel and tours company which provides educational assistance to the following employees under an
employment bond:

Final Withholding Taxes Fringe Benefit Tax page 15

 Position Degree Program Monthly Stipend
VP for Management Doctor in Business Administration P 10,000
VP for Marketing Master in Marketing Management 8,000
Operations Manager BS in Tourism Management 5,000
Accounting Supervisor BS in Architecture 3,000
Accounting Staff BS in Accounting Information System 3,000
Only the tuition fee of the accounting supervisor is subject to fringe benefit tax and shall be reported in the quarters it is paid.
Even if covered by an employee bond, his field of study is neither related to the nature of his job nor to the employer's business.
The fringe benefit of all the other employees will neither be subject to the fringe benefit tax nor the regular income tax under
the "convenience of the employer" rule.

INSURANCE PREMIUMS
This includes life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows.
These are taxable fringe benefits except the following insurance or premium contributions allowed or required by law:

1. Contributions of the employer for the benefit of the employee pursuant to the provisions of existing law such as
contributions to SSS, GSIS, PhilHealth, and HDMF
2. Cost of premium for group insurance of employees

Final Withholding Taxes Fringe Benefit Tax page 16

 Problem 10.7 INSURANCE PREMIUM
Kingsdale Company made the following insurance premium payments during a calendar quarter:
• P30,000 premium for the life insurance of the Chief Executive Officer (CEO) with Kingsdale Company as the beneficiary
of the policy
• P20,000 premium for the life insurance of the Company Chief Operating Officer (COO) with his wife as the beneficiary
• P15,000 insurance premium of the personal car of the company manager
• P40,000 premium for group insurance of employees
• P80,000 premium share in SSS, PhilHealth, and Pag-Ibig dues of employees
• P10,000 fire insurance premium for the company building
The quarterly monetary value of fringe benefits shall be computed as follows:
Life insurance premium of COO where his wife is the beneficiary 20,000
Car insurance of company manager 15,000
Quarterly monetary value 35,000
The insurance premium on the life of the CEO where the company itself is the beneficiary is not a fringe benefit to the executive
employee but a business expense. Group insurance premiums and those required by special laws are not taxable. The premium
for fire insurance on company building is a business expense.

Final Withholding Taxes Fringe Benefit Tax page 17

 ACCOUNTING
The following are the pro-forma accounting entries in recording in the books of the employer. MV means that this is usually the
monetary value

Fringe Benefit Expense [mv]

Benefits paid for in cash or in Fringe Benefit Tax Expense xx
kind Cash/Property xx
Fringe Benefit Tax Payable xx
Benefits which do not involve Fringe Benefit Tax Expense [mv]
payment of cash or properties Fringe Benefit Tax Payable xx
Exempt benefits paid for in Fringe Benefit Expense [mv]
cash or in kind Cash/Property xx

Tax Treatment
The total fringe benefit expense including the fringe benefit tax expense is a deductible expense of the employer against his
gross income in the computation of his taxable income. It must be noted that a deductible fringe benefit expense exists only
when the benefit is paid in cash or in kind. The expense is measured at the actual cost or tax basis of consideration given as
fringe benefits.

Final Withholding Taxes Fringe Benefit Tax page 18

 FILING AND DEADLINE OF FORMS
There is only one form relevant to fringe benefit taxes. The quarterly withholding tax remittance return shall be filed in triplicate
by every Withholding Agent (WA / payor) required to deduct and withhold taxes on fringe benefits furnished or granted to
employees other than rank and file employees subject to Final Withholding Taxes.
Form Name Deadline
Quarterly Remittance Return of Final Income Taxes last day of the month following the close of the quarter
1603Q Withheld on Fringe Benefits Paid to Employees Other during which withholding was made
than Rank and File)

References:
Banggawan, R. (2019). Income Taxation. Pasay City: Real Excellence Publishing.
Valencia, G. & Roxas, E. (2016). Income Taxation. Baguio City: Valencia Educational Supply.
Reyes, V. (2019). Income Tax Law and Accounting under the TRAIN Law. Manila: GIC Enterprises & Co., Inc.
Ampongan O. (2018). Income Taxation. Mandaluyong City: Millennium Books, Inc.

Final Withholding Taxes Fringe Benefit Tax page 19

 Self-Check!
Basing on your readings, answer the following questions.
1. What is the difference between fringe benefit and de minimis benefit?
2. What are the characteristics of the fringe benefit tax?
3. What is the tax base of the tax? How is it computed?
4. What are the special considerations in the computation of the monetary value of different kinds of fringe benefit?
5. How are the fringe benefits and the related tax recorded in the books of the employer?

Exercise 10.1 TRUE OR FALSE

Determine whether the following statements are true or false.
1. The fringe benefit tax is a final tax.
2. The fringe benefit tax is a tax on the employer.
3. Only managerial and supervisory employees working in the private sector is subject to fringe benefit tax.
4. Lodging costs on foreign travel is a taxable fringe benefit regardless of amount.
5. 30% of first-class tickets in foreign travel is an exempt fringe benefit.
6. The annual depreciation value of a real property is 20% of the value of the property.
7. The monetary value of use of leased property is the full amount of rental payments.

Final Withholding Taxes Fringe Benefit Tax page 20

 8. When a residential property is purchased to be transferred in the name of employee for inadequate consideration, the
monetary value is the excess of the zonal value over the acquisition cost.
9. The grossed-up monetary value is the benefit expense of the employer.
10. The liability of the employer is to withhold the corresponding income tax from the fringe benefit earned by the
employee.
11. All scholarship grants to employees are nontaxable fringe benefits.
12. Fringe benefits granted for the convenience of the employer is nontaxable.
13. A fringe benefit not subject to FBT is also not subject to compensation income tax.
14. Fringe benefits are forms of incentives to managerial employees.
15. The fringe benefit tax rate shall be the same with the normal corporate tax rate for income taxes.

Exercise 10.2 MULTIPLE CHOICE

Choose the best answer from the choices provided.
1. Which value should be used as tax base to compute the fringe benefit on property assigned for the use of employees?
a. FMV of the property
b. Cost of the property
c. Equivalent rental value of the property

Final Withholding Taxes Fringe Benefit Tax page 21

 d. Fringe benefit value
2. The following are nontaxable housing fringe benefit, except
a. Housing for military officials of the AFP
b. Housing within 50 meters of business premises
c. Temporary housing within three months or more
d. Free housing privileges to a corporate officer
3. Interest on loans granted by the employer to employee are taxable fringe benefit when the interest rate is
a. More than 12%
b. At least 12%
c. At most 12%
d. Less than 12%
4. Which of the following business travel expenses is not subject to fringe benefit tax?
a. Hotel accommodation for $300 per day.
b. Cost of economy airplane ticket
c. Inland travel expense
d. All of the above
5. Education grant to the employee or his dependent by the employer is not subject to fringe benefit tax, except when

Final Withholding Taxes Fringe Benefit Tax page 22

 a. The study grant involved is connected with the trade
b. There is a written contract that the employee will remain to work for a period of time.
c. The assistance was through competitive scholarship program.
d. The study grant is not connected with the trade.

Problem 10.1 MONETARY VALUE

An employer remitted P196,700 pertaining to amount withheld from the cash benefit granted to its managerial employee.
1. How much is the monetary value of fringe benefit paid?
2. How much is the total deductible expense of the employer?

Problem 11.2 PERSONAL EXPENSES

Gecko Company paid the following fringe benefits during the calendar quarter of its managerial employee.
Salaries of household help 8,000/month
Salary of personal guard 18,000/month
Personal driver 9,000/month
Annual association dues 6,000
Garbage dues 100/week

Final Withholding Taxes Fringe Benefit Tax page 23

 Compute for the quarter’s fringe benefit tax assuming the employee is:
______________1. A resident alien
______________2. Non-resident alien not engaged in trade or business

Problem 10.3 MOTOR VEHICLES

Violette Company maintains a fleet of motor vehicles for business use and employee use. The following related to the calendar
quarter just ended.
Cost of three motor vehicles used exclusively for sales and delivery services 4,500,000
Cost of motor vehicles from employee’s business use and employee use 500,000
Rental payments for additional motor vehicle for employee’s personal use 30,000
Compute for the fringe benefit tax.

Problem 10.4 COMPREHENSIVE

Miss Mary Gatan, a supervisory employee, received the following benefits during the last calendar quarter of 2019.
Salaries 120,000 Excess de minimis 12,000
Performance Bonus 20,000 Cash price of car given to her 300,000
13th Month Pay 40,000

Final Withholding Taxes Fringe Benefit Tax page 24

 Compute for the fringe benefits tax.

Problem 10.5 HOUSING PRIVILEGES

On July 1, 2019, Crème Company designated the use of its residential unit for its managerial employee. The residential unit
was acquired for P4,500,000 and has a zonal value of P2,000,000. The land has assessed value of P1,000,000 while the
improvement has assessed value of P2,000,000.
1. How much is the fringe benefit tax for the third quarter of 2019?
2. How much is the total deductible expense for the year 2019?

Problem 10.6 INTEREST

On April 1, 2020, Divoc Company granted the following loans to its employees as help for the pandemic.
Employee Position Principal Interest Rate
A Factory Supervisor 100,000 8%
B Factory Assemblyman 20,000 0%
C Vice President for Operations 120,000 4%
D Head Accountant 80,000 5%
How much is the total fringe benefit tax expense?

Final Withholding Taxes Fringe Benefit Tax page 25

 Problem 10.7 ACCOUNTING
During the calendar quarter, Graham Company reimbursed its managerial employee relating to a internet service fees for
P80,000. Forty percent of said amount was incurred for the convenience of the operations of the offices of Graham Company
due to the community quarantines.

Determine the effects of the reimbursement on the Assets, Liabilities and Capital of the company.

Final Withholding Taxes Fringe Benefit Tax page 26