Understanding Fringe Benefit Tax: What You Need to Know

Are you subject to fringe benefit tax in the Philippines? If so, then you’ll need to know how to compute it. This blog post will provide all the information you need on who and what is subject to FBT in the Philippines. Stay tuned for everything you need to know about this vital tax!

What are Fringe Benefits?

Fringe benefits are non-monetary forms of compensation an employer provides to employees in addition to their regular salaries. These may include bonuses, housing allowances, meal subsidies, stock options, and other perks.

The fringe benefit tax (FBT) in the Philippines is an indirect tax imposed on employers who provide employee benefits. It is a tax obligation that must be met annually and requires the employer to file their returns with the Bureau of Internal Revenue. The FBT rate is currently at 35% for residents and citizens or 25% for non-residents (RR 11-2018)

Benefits subject to FBT range from cash allowances, housing benefits, rental reimbursements, entertainment expenses, and transportation costs, among many others. Employers must pay FBT before giving out any of these benefits to employees to ensure compliance with Philippine laws on taxation.

Who is Subject to Fringe Benefit Tax (FBT)?

Employers who provide fringe benefits to their employees in the Philippines are subject to FBT. This includes corporate employers and individual taxpayers with business income who give fringe benefits to their staff or top management. However, self-employed individuals and professionals such as lawyers and doctors are not required to pay FBT.

What Benefits Are Subject To Fringe Benefit Tax?

The most common types of fringe benefits which are subject to FBT are cash allowances, housing benefits, travel reimbursements, entertainment expenses, and other fringe benefits such as automobile usage allowance or stock options. It includes the following but is not limited to:

Housing;
Expense account;
Vehicle of any kind;
Household personnel, such as maids, drivers and others;
Interest on loan at less than market rate to the extent of the difference between the market rate and 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;
Expenses for foreign travel;
Holiday and vacation expenses;
Educational assistance to the employee or his dependents; and
Life or health insurance and other non-life insurance premiums or similar amounts above what the law allows.

Here are the fringe benefits that are not taxable to fringe benefits tax.

Fringe benefits are required by the nature of or necessary to the trade, business, or profession or for the convenience or advantage of the employer.
Benefits authorized by and exempted from tax under special laws.
Employer contributions for the employee’s benefit to retirement, insurance, and hospitalization benefit plans.
Benefits are given to rank-and-file employees, whether or not granted under a collective bargaining agreement. However, these are subject to WHT on compensation unless otherwise tax-exempt.
De minimis (small value) benefits as defined and enumerated in the rules and regulations.

How Do You Calculate Fringe Benefit Tax?

Here are the steps on how to calculate the fringe benefits tax:

Compute the Gross Monetary Value

To determine the grossed-up value/tax base of the fringe benefits, the actual monetary value or the actual amount of benefit furnished, granted, or paid shall be divided by sixty-five percent (65%) subject to 35% FBT or the divisor shall be seventy-five percent (75%) subject to 25% FBT.

For example:

If fringe benefit is P200,000 with an FBT rate of 35%, the grossed-up value/tax base is equal to:

Grossed-up Value/Tax Base = P200,000 / 65% = P307,692.31

Compute for the Fringe Benefit Tax

It shall be computed based on the fringe benefit by multiplying the FBTR and the grossed-up value/tax base.

In this example, FBT payable shall be determined as follows:

Fringe Benefit Tax Payable = FBT Rate x Grossed-up Value/Tax Base = 35% x P307,692.31 = P107,202.32

To record the FBT payable in the books.

Fringe Benefit Expense	200,000
Fringe Benefit Tax Expense	107,202.32
Fringe Benefit Tax Payable		107,202.32
Cash		200,000

Fringe Benefit Tax Remittance and Deadline

It must be remitted on or before the 10th day of the month following the calendar quarter when the fringe benefit was granted, furnished or paid. For example, fringe benefits given in January must be remitted by April 10th. Non-compliance with this deadline will subject employers to penalties and interest fees.

To file the FBT, use the BIR Form 1603 Quarterly Remittance of Final Income Tax Withheld.

Conclusion

Fringe benefit tax is an indirect tax imposed on employers who provide fringe benefits to their employees. Employers must understand the FBT obligations and compute and remit fringe benefit taxes on time.

Disclaimer: This article is meant to provide general information only and should not be taken as legal advice. We always recommend consulting a professional for any specific tax-related matters.