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Income Taxation TAX 72

TAXATION for FRINGE BENEFITS


Fringe benefit tax is subject to a final withholding tax.
Fringe benefits received by employees, except rank-and-file
employees, are subject to the normal tax rate (32%) or at special
rates (25% or 15%), as the case may be. The grossed-up monetary
value of fringe benefit on which final withholding tax is paid is now
deductible on the part of the employer falling under the expense category.
Definition Of Terms
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 employee).
Rank-and-File Employees. Means all employees who are holding neither
managerial nor supervisory position.
Managerial Employee. Is one who is vested with powers or prerogatives to
lay down and execute management policies an/or to hire, transfer, suspend,
lay-off, recall, discharge, assign or discipline employees.
Supervisory Employees. Are 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.
Grossed-up Monetary Value. The whole amount of income realized by the
employee which includes the net amount of money or net monetary value of
property which has been received plus the amount of fringe benefit tax due
thereon.
De Minimis Benefits. 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.
Fringe Benefits Not Subject to Fringe Benefits Tax
1. Fringe benefits which are authorized and exempted from income tax.
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 employees.
4. De minimis benefits.

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Income Taxation TAX 72


TAXATION for FRINGE BENEFITS
a. Monetized unused vacation leave credits of employees not
exceeding ten (10) days during the year;
b. Medical cash allowance to dependents of employees not exceeding
P750.00 per employee per semester or P125 per month;
c. Rice subsidy of P1,500.00 or one (1) sack of 50 kg rice per month
amounting to not more than P1,500.00;
d. Uniforms and clothing allowance not exceeding P4,000.00 per
annum;
e. Actual yearly medical benefits not exceeding P10,000.00 per
annum;
f. Laundry allowance not exceeding P300 per month;
g. 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;
h. Gifts given during Christmas and major anniversary celebrations not
exceeding P5,000 per employee per annum;
i. Flowers, fruits, books or similar items given to employees under
special circumstances, e.g., on account of illness, marriage, birth of
a baby, etc.; and
j. Daily meal allowance for overtime work not exceeding twenty-five
(25%) of the basic minimum wage.
5. If the grant of fringe benefits to the employee is required by the nature
of, or necessary to the trade, business or profession of the employer.
6. If the grant of the fringe benefit is for the convenience of the employer.
Tax Base
Fringe benefit tax is imposed on the grossed-up monetary value of the fringe
benefit furnished, granted or paid by the employer to managerial and
supervisory employees (meaning rank-and-file employees are not covered).
1. Generally, the fringe benefit tax which shall be withheld by the
employer is imposed at the rate of: 32%
The grossed-up monetary value of the fringe benefit shall be
determined by dividing the monetary value of the fringe benefit by the
following percentage: 68%
Illustration: Jarjar Binks is a manager of Heroes Ground. In 2014, his
employer rewarded him with a pre-owned Toyota Vios purchased for
P408,000 cash registered under Mr. Binks name. The fringe benefit tax
the employer is liable to pay is computed as follows:
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Income Taxation TAX 72


TAXATION for FRINGE BENEFITS

Acquisition cost
Divide by
Grossed-up monetary value
Multiply by
Fringe benefit tax

P408,000
68%
P600,000
32%
P192,000

2. Fringe benefit received by a non-resident alien individual not engaged


in trade or business in the Philippines (NRA-NETB) is subject to a fringe
benefit tax of 25% based on the grossed-up monetary value of the
fringe benefit. The grossed-up monetary value is computed by dividing
the monetary value of the fringe benefit by 75%.
Illustration: In 2014, Sasha Fierce, a non-resident alien not engaged in
trade in the Philippines and employed as an external consultant of a
domestic corporation, was provided by her employer with a maid and
personal driver who stay in her house. Annual salaries of the maid and
driver were P48,000 and P87,000, respectively. A fringe benefit tax to be
paid by the employer is:
Salaries
Divide by
Grossed-up monetary value
Multiply by
Fringe benefit tax

P135,000
75%
P180,000
25%
P45,000

3. A fringe benefit tax of 15% is imposed on the grossed-up monetary


value of the fringe benefit of the following individuals:
a. An alien individual employed by regional or area headquarters of
multinational company or by regional operating headquarters of a
multinational company.
b. An alien individual by an offshore banking unit of a foreign bank
established in the Philippines;
c. An alien individual employed by a foreign service contractor or by a
foreign service subcontractor engaged in petroleum operations in
the Philippines;
d. Any of their Filipino individual employees who are employed and
occupying the same position as those occupied or held by the alien
employees.
The grossed-up monetary value is computed by dividing the monetary
value of the fringe benefit by 85%.

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Income Taxation TAX 72


TAXATION for FRINGE BENEFITS
Illustration: Ms. Minchin is an alien employed as finance manager of a
foreign service contractor engaged in pertroleum operations in the
Philippines. Her daughters educational expenses is being shouldered
by her employer. For the year 2010, expenses related thereto
amounted to P170,000. The fringe benefit tax due from the employer is
Education expenses
Divide by
Grossed-up monetary value
Multiply by
Fringe benefit tax

P170,000
85%
P200,000
15%
P30,000

MONETARY VALUE
The monetary value of the fringe benefit is not always equal to the
actual amount received by the employee. Generally, these are the
guidelines:
1. If the fringe benefit is granted in money, or is directly paid for by
the employer, then the value is the amount granted or paid for.
2. If the fringe benefit is granted or furnished by the employer in
property other than money and ownership is transferred to the
employee, then the value of the fringe benefit shall be equal to the
fair market value of the property.
3. If the fringe benefit is granted or furnished by the employer in
property other than money but ownership is not transferred to the
employee, the value of the fringe benefit is equal to the
depreciation value (book value) of the property.

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