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MSJG TAX 1 Chap 6

Mar Sean Jan Gabiosa

Chapter Notes
Income Taxation 7th edition Valencia and Roxas
Chapter 6 Fringe Benefits Tax
Fringe Benefits - any good, service, or other benefit furnished or granted by an
employer in cash or kind in addition to basic salaries, to an individual employee
such as:
a) Housing;
b) Vehicle;
c) Personnel;
d) Membership fees;
e) Expenses for foreign travel;
f) Holiday and Vacation expenses;
g) Educational Assistance;
h) Life and health insurance;
Employer may decrease or discontinue fringe benefits.
FBT (Fringe benefit Tax) is a final tax on the employees income to be withheld by
the employer.
Remittance of FBT is quarterly basis.
Tax base of fringe benefit is its Grossed-up monetary value (GMV)
GMV = divide the value of fringe benefit by 68%.
Fringe benefit tax rate is 32% effective January 1, 2000
Rank and File employees are not subject to fringe benefit tax but to normal tax
rate.
Managerial employees are subject to final benefit tax of 32%.
Fringe Benefit Expense 100%
Cash/Other
68%
Withholding tax payable 32%
Housing fringe benefits
Lease
MV= 50% Rental Payment
Assignment
MV= 5% FMV/ZV 50%
Purchase and installment MV= 5% Cost 50%
Purchase and Transfer
MV= FMV/ZV, whichever is higher
Fringe Benefit Expense
XX
Residential Property
MV
Cash/Payable
XX
Temporary housing for employee for 3 months or less is considered non fringe
benefit.
Housing unit situated inside or adjacent (50 meters scope) to the premise of a
business or factory is non fringe benefit.

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MSJG TAX 1 Chap 6

Motor Vehicles
Purchase
MV= AC
Cash to Purchase
MV= Cash received
Purchase on installment
MV= AC/5 (AC excluding interest)
Portion to purchase
MV= Amount shouldered
Maintain Vehicles
MV= (AC/5) 50%
Lease
MV= 50% of rental payments
Aircraft, helicopters, and airplanes are non-fringe benefit tax.
Yacht is measured based on depreciation of 20 years useful life. MV=Cost/20 years
Expense account fringe benefits:
a) Expenses incurred but paid by the employer.
b) Expenses reimbursed by the employer provided that it is personal
expenses.
c) Personal Expenses
Business trips, Company car gas expenses, Personal secretary are not considered
personal expenses.
Interest on Loan at less than market rate is considered fringe benefit. 12% interest
benchmark regulation by the law effective Jan. 1 1998.
Example;
100,000 12%
12,000
100,000 6%
6,000
MV
6,000
Where, MV/68% 32% = Fringe benefit tax due
Membership fees and other expenses for social and athletic clubs are all fringe
benefits.
Reasonable business trips paid for by the employer are not fringe benefits. But in
some cases:
a) Lodging cost in excess of US300 per day is treated FBT.
b) 30% cost of first class plane ticket is subject to FBT.
In absence of documentary evidence showing it was for business purpose, all
cost above is treated as FBT.
Educational assistance
Nontaxable:
a) The grant is directly connected to employers trade and business
b) There is written contract for the employee to remain in the
employee.
c) The assistance was provided under competitive scheme.
Insurance Benefits
Nontaxable:
a) Contributions pursuant to the law such as SSS, GSIS and others.
b) Cost of premiums borne by the employer for the group insurance of
his employees.

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MSJG TAX 1 Chap 6

Special taxpayers in the Philippines

Nonresident alien not engage in trade in the Philippines;
Tax base GMV= 75% of MV
So, tax rate is 25%
Alien individual of a multinational company; or
Offshore banking unit of a foreign bank; or
Alien individual of a service (sub)contractor engaged in petroleum; or
Tax base GMV= 85% of MV
So, tax rate is 15%
Employees in special economic zones (Clark special economic zone, Subic
S.E.Z., Free Trade Zone)
Tax base is GMV= 75% or 85% of MV
So, tax rate is either 15% or 25%
The exemption of any fringe benefit does not mean exemption to income tax.