Special treatment of fringe benefits
Persons liable: The Employer (as a withholding
agent), whether individual, professional
partnership or a corporation, regardless of whether the corporation is taxable or not, or the government and its instrumentalities, is liable to
remit the fringe benefit tax to the BIR once fringe benefit is given to a managerial or supervisory employee.
The fringe benefit tax (FBT) is a final tax on the employee’s income to be withheld by the employer. The withholding and remittance of FBT shall be made on a calendar quarterly basis.
Managerial employee: one who is vested with the 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: those who, in the interest of the employer, 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.
All employees not falling within any of the above definitions are considered rank-and-file
employees.
Fringe benefit tax is imposed on fringe benefits received by supervisory and managerial employees. The fringe benefits of rank and file employees are treated as part of compensation income subject to income tax and withholding tax on compensation.
Definition
Fringe benefit means 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 (except rank and file employees) 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 and 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 on excess of what the law allows.[Sec. 33(B)]
Tax Rate and Tax Base
(1) Tax base is based on the grossed-up monetary value (GMV) of fringe benefits. (2) Rate is generally 32%
(3) GMV represents: (a) the whole amount of income realized by the employee which includes the net amount of money or net monetary value of property that has been received; and (b) the amount of fringe benefit tax due from the employee which has been withheld and paid by the employer for and in behalf of his employee.
How GMV is determined
GMV is determined by dividing the actual monetary value of the fringe benefit by 68% [100% - tax rate of 32%]. For example, the actual monetary value of the fringe benefit is P1,000. The GMV is equal to P1,470.59 [P1,000 / 0.68]. The fringe benefit tax, therefore, is P470.59 [P1470.59 x 32%].
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Special Cases:
(1) For fringe benefits received by non-resident alien not engaged in trade of business in the Philippines (NRANETB), the tax rate is 25% of the GMV. The GMV is determined by dividing the actual monetary value of the fringe benefit by 75% [100% - 25%].
(2) For fringe benefits received by alien individuals and Filipino citizens employed by regional or area headquarters, regional operating headquarters, offshore banking units (OBUs), or foreign service contractor or by a foreign subcontractor engaged in petroleum operations in the Philippines, or by any of their Filipino individual employees who are employed and occupying the same positions as those occupied by the alien employees, the tax rate is 15% of the GMV. The GMV is determined by dividing the actual monetary value of the fringe benefit by 85% [100% - 15%].
(3) What is the tax implication if the employer gives ‘fringe benefits’ to rank-and-file employees? Fringe benefits given to a rank- and-file employee are treated as part of his
compensation income subject to normal tax rate and withholding tax on compensation income, except de minimis benefits and benefits provided for the convenience of the employer.
Payor of Fringe Benefit Tax (FBT): The employer
withholds and pays the FBT but the law
allows him to deduct such tax from his gross income.
Taxable and non-taxable fringe benefits
Fringe Benefits NOT subject to Tax
(1) Fringe benefits not considered as gross
income –
(a) if it is required or necessary to the business of employer
(b) if it is for the convenience or advantage of employer
(2) Fringe Benefit that is not taxable under Sec.
32 (B) – Exclusions from Gross Income
(3) Fringe benefits not subject to Fringe Benefit Tax:
(a) Fringe Benefits which are authorized and exempted from income tax under the Code or under special laws;
(b) Contributions of the employer for the benefit of the employee for retirement, insurance and hospitalization benefit plans;
(c) Benefits given to the rank-and-file employees, whether granted under a collective bargaining agreement or not; and
(d) Fringe benefits granted for the convenience of the employer;
(e) De minimis benefits
The exemption of any FB from the FBT shall not be interpreted to mean exemption from any other income tax imposed under the Tax Code except if the same is likewise expressly exempt from any other income tax imposed under the Tax Code or under any other existing law. Thus, if the FB is exempted from the FBT, the same may, however, still form of the employee’s gross compensation income which is subject to income tax; hence, likewise subject to withholding tax on compensation income payment.
De minimis benefits (exempt from income tax as well as withholding tax on compensation income of both managerial and rank and file EEs) (a) Monetized unused vacation leave credits of
private employees not exceeding ten (10) days during the year;
(b) Monetized value of vacation and sick leave credits paid to government officials and employees;
(c) Medical cash allowance to dependents of employees, not exceeding P750 per employee per semester or P125 per month; (d) Rice subsidy of P1,500 or one (1) sack of 50
kg. rice per month amounting to not more than P1,500;
(e) Uniform and Clothing allowance not exceeding P5,000 per annum (RR 8-2012) (f) Actual medical assistance, e.g. medical
allowance to cover medical and healthcare needs, annual medical/executive check-up,
maternity assistance, and routine
consultations, not exceeding P10,000.00 per annum;
(g) Laundry allowance not exceeding P300 per month;
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(h) Employees achievement awards, e.g., for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees;
(i) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum; and (j) Daily meal allowance for overtime work and
night/graveyard shift not exceeding twenty- five percent (25%) of the basic minimum wage on a per region basis; [Revenue
Regulation No. 5-2011]
All other benefits given by employers which are not included in the above enumeration shall NOT be considered as "de minimis" benefits and
hence, shall be subject to withholding tax on compensation (rank and file employees) and FBT (managerial/supervisory employees). Housing
Housing Privilege Fringe Benefit Tax Base (Monetary Value)
(1) LEASE of residential property for the residential use of employees MV= 50% of lease payments where MV = monetary value of the FB (2) Assignment of residential property owned by employer for use of employees
MV= [5% (FMV or ZV, whichever is higher) x 50%] (3) Purchase of residential property in installment basis for the use of the employee MV= 5% x acquisition cost exclusive of interest x 50% (4) Purchase of residential property and ownership is transferred in the name of the employee MV= FMV or ZV, whichever is higher
ZV = Zonal Value = value of the land or improvement, as declared in the Real Property Declaration Form
FMV = Fair Market Value = FMV as determined by the Commissioner of Internal Revenue
Non-taxable housing fringe benefit:
(1) Housing privilege of the Armed Forces of the Philippines (AFP) officials – i.e, those of the Philippine Army, Philippine Navy, or Philippine Air Force
(2) A housing unit, which is situated inside of adjacent to the premises of a business or factory maximum of 50 meters from perimeter of the business premises
(3) Temporary housing for an employee who stays in housing unit for three months or less
Motor Vehicle
Motor Vehicle Fringe Benefit Tax Base
(1) Purchased in the name
of the employee MV= acquisition cost
(2) Cash given to
employee to purchase in his own name
MV= cash received by employee (3) Purchase on installment, in the name of employee MV= acquisition cost exclusive of interest (4) Employee shoulders
part of the purchase price, ownership in the name of employee
MV= amount shouldered by employer (5) Employer owns and
maintains a fleet of motor vehicles for use of the business and of employees
MV= (AC/5) x 50%
(6) Employer leases and maintains a fleet for the use of the business and of employees
MV= 50% of rental payment
Professional Income
Refers to fees received by a professional from the practice of his profession, provided that there is NO employer-employee relationship between him and his clients.
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Income from Business
(a) Any income derived from doing business (b) Doing business: The term implies a continuity
of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization. Income from Dealings in Property
Dealings in property such as sales or exchanges may result in gain or loss. The kind of property
involved (i.e., whether the property is a capital
asset or an ordinary asset) determines the tax
implication and income tax treatment, as follows:
Taxable Net Income = Ordinary Net Income + Net Capital Gains (other than those subject to final CGT)
Ordinary Asset Capital Asset
Gain from sale, exchange or other disposition
Ordinary Gain (part of
Gross Income) Capital Gain
Loss from sale, exchange, or other disposition
Ordinary Loss (part of Allowable Deductions
from Gross Income) Capital Loss
Excess of Gains over Losses
Part of Gross Income Net Capital Gain
Excess of Losses over Gains
Part of Allowable Deductions from
Gross Income Net Capital Loss
Types of Properties
Capital v. Ordinary Asset
Ordinary Assets Capital Assets
(1)Stock in trade of the taxpayer or other