How to Compute Fringe Benefit Tax (FBT) in the Philippines

Employees are considered by many as the best assets in business organizations. They are the labor force that contributes to the productivity, as well as profitability and stability of any enterprise. Thus, making employees and workers motivated and happy is a necessity for every employer. Employers, whether individuals or corporations, give their employees benefits in the forms of basic salaries, bonuses and fringe benefits to compensate them for their hard work, promote their health and well-beings, maintain goodwill and or preserve their work efficiency. However, these benefits received by employees become their income, and when there is income, there may also be income tax to be remitted to the government. Generally, compensation income is subject to regular income tax or withholding tax on compensation. On the other hand, fringe benefits granted to employees (except rank and file employees), may be subjected to a final tax we called Fringe Benefit Tax. The following are guidelines, definitions, computation and other important information you need to know about Fringe Benefit Tax in the Philippines.

 

What is a fringe benefit tax?

Fringe benefit tax (FBT) is a final withholding tax on the grossed-up monetary value of the fringe benefit granted by the employer to an employee who holds a managerial or supervisory position (i.e., except rank and file employees). FBT is treated as a final income tax on the employee which shall be withheld and paid by the employer on a calendar quarterly basis.

 

What is a fringe benefit?

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 employees (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 or other similar organizations;
7. Expenses for foreign travel;
8. Holiday and vacation expenses;
9. Educational assistance to the employee or his dependents
10.  Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows.

 

What are the benefits not covered by Fringe Benefit Tax?

The following employee benefits are not covered by Fringe Benefit Tax:

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.

 

What are De Minimis benefits?

The term “De Minimis” benefits which are exempt from the fringe benefit tax shall, in general, be limited 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. The following are considered as “de minimis” benefits granted to each employee as updated by Revenue Regulation (RR) 5-2011:

(a)    Monetized unused vacation leave credits of private employees not exceeding 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 P750.00 per employee per semester or P125 per month;
(d)    Rice subsidy of P1,500.00 or one (1) sack of 50-kg rice per month amounting to not more than P1,500.00;
(e)    Uniforms and clothing allowance not exceeding P4,000 per annum;
(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 per annum;
(g)    Laundry allowance not exceeding P300 per month;
(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 P10,000.00 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 25% of the basic minimum wage on a per region basis.

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 fringe benefit tax.

 

How to compute the Fringe Benefit tax?

The final withholding tax on fringe benefit shall be computed based on the taxable grossed-up monetary value multiplied by the applicable tax rate.

a. The grossed-up monetary value
The grossed-up monetary value of the fringe benefit shall be determined by dividing the monetary value of the fringe benefit as provided for in Revenue Regulations No 3-98 (as amended by RR 5-2011) by the percentage divisor in accordance with the following schedule:

• In general, for citizen, resident alien, and non-resident alien engaged in trade or business in the Philippines – 68%
• For non-resident alien not engaged in trade or business in the Philippines – 75%
• For alien or Filipino individuals employed by Foreign Petroleum Service Contractors/ Subcontractors, Offshore Banking Units and Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies occupying executive/managerial and technical positions – 85%

Note: Employees in special economic zones, including Clark Special Economic Zone and Subic Economic and Free Trade Zone, subject to the applicable divisor as herein provided.

b. Applicable tax rates

The fringe benefit tax shall be imposed at the following rates:

• In general – 32%
• For non-resident alien individual who is not engaged in trade or business in the Philippines – 25%
• For alien or Filipino individuals employed by Foreign Petroleum Service Contractors/Subcontractors, Offshore Banking Units and Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies occupying executive/managerial and technical positions – 15%

Note: Employees in special economic zones, including Clark Special Economic Zone and Subic Special Economic and Free Trade Zone, subject to the normal rate of fringe benefit tax or the special rates of 25% or 15% as herein provided.

Sample computation of Fringe Benefit Tax
Example/Question: VQA Company (a domestic employer/company) granted Mr. Santos (a Filipino branch manager employee), in addition to his basic salaries, Php 4,000 cash per quarter for his personal membership fees at Astro Gym (a fitness and athletic club). How much is the FBT that VQA Company should withhold and remit to BIR per quarter?

Computation/Answer:
Monetary value of fringe benefit: Php 4,000
Percentage divisor applicable: 68%
Fringe benefit tax rate:  32%

FBT= (Monetary value of fringe benefit/68%) x 32%
FBT= (Php 4,000/68%) x 32%
FBT= Php 5,882.35 x 32%
FBT= Php 1,882.35

 

How to File Fringe Benefit Tax Return?

The following are information and guidelines you need to know in filing fringe benefit tax return with the Bureau of Internal Revenue (BIR).

What is the BIR Form used to file Fringe Benefit Tax?
BIR Form No. 1603 – Quarterly Remittance Return of Final Income Taxes Withheld on Fringe Benefits Paid to Employees Other than Rank and File. Please download BIR form 1603 here.

Who Are Required To File?
Every withholding agent/payor who is either an individual or non-individual required to deduct and withhold taxes on fringe benefits furnished to employees other than rank and file employees subject to Final Withholding Tax

What are the procedures in filing BIR Form 1603?

1. Read instructions indicated in the tax return.
2. Accomplish BIR Form 1603 in triplicate copies.
3. If there is tax required to be remitted:

• Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered or taxpayer concerned is registered and present the duly accomplished BIR Form No. 1603, together with the required attachments and your payment.
• In places where there are no AAB, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are registered or taxpayer concerned is registered and present the duly accomplished BIR Form No. 1603, together with the required attachments and your payment.
• Receive your copy of the duly stamped and validated form from the teller of the AAB’s/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.

4. If there is no tax required to be remitted:

• Proceed to the Revenue District Office where you are registered or taxpayer concerned is registered and present the duly accomplished BIR Form No. 1603, together with the required attachments.
• Receive your copy of the duly stamped and validated form from the RDO representative

Deadline

Filing and Payment Via EFPS
On or before the fifteenth (15th) day of the month following the end of the calendar quarter in which the fringe benefits were granted to the recipient.

Manual Filing and Payment
On or before the tenth (10th) day of the month following the end of the calendar quarter in which the fringe benefits were granted to the recipient.

Reference and further codal readings: R.A. 8424 (as amended), BIR RR 2 and 3-98 (as amended), BIR RR 5-2011 (as amended), RMC 20-2011, BIR Form 1603 guidelines and tax rates, Bureau of Internal Revenue Philippines (www.bir.gov.ph)

Disclaimer:
This article is published for informational and educational use only and doesn’t warrant professional advice. New and subsequent BIR rulings, issuances and or laws may render the whole or part of the article obsolete or inaccurate. Furthermore, there may also be other relevant information that have been missed to include in this article. For more information, please visit and inquire the Bureau of Internal Revenue (BIR) RDO in your jurisdiction.