Fringe benefit: Taxing employee benefits
Under our tax laws, a fringe benefit refers to goods, services or other benefits furnished or granted by an employer, in cash or in kind, over and above the basic salaries granted to its managerial or supervisory employees as described above
Published in Daily Tribune on May 5, 2022
by: Vanessa Arrha A De Leon
One of the taxes levied on businesses is the so-called fringe benefit tax (FBT). This is a final tax imposed on a fringe benefit that is furnished, granted or paid by the employer to his managerial or supervisory employees, regardless of whether such employer is an individual, professional, partnership or corporation.
What is a fringe benefit? Under our tax laws, a fringe benefit refers to goods, services or other benefits furnished or granted by an employer, in cash or in kind, over and above the basic salaries granted to its managerial or supervisory employees as described above.
Such benefit can be in the form of a housing, expense account, vehicle of any kind, household personnel such as maid, driver and others, interest on loan at less than market rate to the extent of the difference between the market rate and the actual rate granted, membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations, holiday and vacation expenses, educational assistance given to the employee, life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows, as well as expenses for foreign travel.
Not all benefits granted to a supervising or managerial employee, however, are subject to fringe benefit taxes. Fringe benefits that are not subject to the said tax are: 1.) Those required, necessary, convenient, advantageous to the business of the employer; 2.) Those that are granted to rank and file employees; 3.) Housing benefits/privileges granted to military officials of the Armed Forces of the Philippines or situated inside or within 50 meters from the premises of the employer’s business or those which are temporarily granted to an employee for a period of three months or less; 4.) Expenses incurred by an employee which are paid by the employer or those which are paid by the employee but reimbursed by his employer; 5.) Allowances subject to liquidation; 6.) Reasonable business travel expenses the specifics of which are provided by law; 7.) Educational assistance given to the employee provided that the education or study is directly connected with the employer’s trade, business or profession and there is a written contract between the employer and employee for a period of time of which they have mutually agreed upon; 8.) Educational assistance to the dependents of an employee provided that the assistance was provided through a competitive scheme under scholarship program of the company; 9.) Contributions of the employer for the benefit of the employee pursuant to SSS laws, similar contributions arising from any provisions, or retirement, insurance and hospitalization benefit plans; and 10.) De minimis benefits which are those relatively small in value offered by the employer as a means of promoting goodwill, contentment and efficiency of employees.
Under our current laws, the current FBT rate is 35 percent as of 1 January 2018 and such rate is levied on the grossed-up monetary value of the fringe benefit furnished. There are however, special tax rates such as 25 percent or 15 percent depending on the type of taxpayer as provided by law such as when the employer is a non-resident alien not engaged in business or trade or those aliens employed by petroleum service contractors and subcontractors registered with the Security and Exchange Commission prior to 1 January 2018. Grossed-up monetary value is computed by dividing the monetary value of the fringe benefit by the grossed-up divisor, which is the difference between 100 percent and the applicable FBT rates.
Fringe benefit tax is withheld and paid by the employer on a quarterly basis and is due on or before the 10th day of the month following the calendar quarter in which the fringe benefits were granted. It is important for the employer to identify benefits subject to FBT to avoid deficiency FBT assessments.
