CHAPTER 3: FRINGE BENEFIT & DE MINIMIS BENEFITS

Fringe benefit is a special form of benefits you provide your employees on in addition to their salaries and
wages. It means any good, service or other benefit furnished or granted in cash or in kind by an employer
– corporate or sole proprietor, to an individual employees. Providing the employees with such fringe
benefits may be based on your company policy, or based on the contract with your employees. It could be
a business related expense tending to personally benefit the employee like a vehicle to be used for
business meetings and for personal travels, or a purely personal expense intended to benefit the
employee like housing personnel – house maid or family drivers. In either case, they are treated as
business expenses because they represents your expense payments relative to their employment.
However, you have to pay fringe benefits tax in order for you to be allowed to claim the amount of fringe
benefit and the amount of tax paid.

Fringe benefits that may be provided to employees but is not exclusive and you may still provide other
benefits not enumerated herein:

 Housing
 Expense account
 Vehicle of any kind Housing personnel, such as maid, driver and others
 Interest on loan at less than the market rate to the extent of the difference between the market
and actual rate granted
 Membership fees, dues and other expenses borne by the employer for the employees in social
athletic clubs or other similar organizations
 Expenses for foreign travel
 Holiday and vacation expenses
 Educational assistance to the employee or his dependents
 Life or health insurance and other non-life insurance premiums or similar amounts in excess of
what the law allows

Taxability of Fringe Benefits Fringe benefits provided to managerial and supervisory employees are
subject to 32% fringe benefit tax and you will withhold and pay the same as an employer. This means that
the employee is no longer liable for the fringe benefit tax (FBT) and in case of non-payment, the Bureau
of Internal Revenue (BIR) will run after you and not your managerial or supervisory employees. You base
the 32% FBT on the grossed-up monetary value of fringe benefit in accordance with the valuation
guidelines provided by the Bureau of Internal Revenue (BIR) in Revenue Regulations No. 13-1998.
Please go through the regulations for more details on the valuation and computations. As employer , you
will file FBT on a quarterly basis using BIR Form No. 1603

For special managerial or supervisory employees not covered by the 5-32% income tax rules, the FBT
rates would vary depending on house they are taxes. The reason is that the FBT tends to recover the
income tax of the employee so the rate follows the income taxation of such employees as follows:

 Non-resident alien employees not engaged in trade or business – 25% FBT

 Special alien employees of ROHQ, RHQ, etc. – 15% FBT

The fringe benefit is exempt from final withholding tax if it’s required by the nature of or necessary to the
trade, business or profession of the employer; or when the fringe benefit is for the convenience or
advantage of the employer.
The following benefits are also not subject to final withholding tax as per amended NIRC Sec. 33 (C):

1. Fringe benefits which are authorized and exempted from tax under special laws;
2. Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefit plans;
3. Benefits given to rank and file employees which is subject to the rule under amended NIRC Sec.
32 and;
4. De minimis benefits as defined and enumerated in amended RR 3-1998.

Revenue Regulation (RR) 11-2018 imposed new tax rates for the taxable fringe benefits. Below is as
follow:

 Employee is a citizen/resident alien/non-resident alien engaged in trade or business within the

Phil (35%)
 Employee is a non-resident alien not engaged in trade or business within the Phil (25%)

To determine the grossed-up value/tax base of the fringe benefit, 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%
Fringe Benefit Tax (FBT) or the divisor shall be seventy-five percent (75%) subject to 25% FBT.

To illustrate, supposed that Company A granted Employee B, resident citizen, a total fringe benefit of
Php325,000 in cash and Employee C, non-resident alien not engage in business in the Philippines, a total
fringe benefit of Php 600,000 in cash. In this case, the grossed-up value/tax base and FBT is computed
as follow:

Employee A (35%) Employee B (25%)

Grossed-up value/Tax base:
Employee A (325,000/65%) Php 500,000
Employee B (600,000/75%) Php 800,000
Fringe Benefit Tax:
Employee A (500,000 * 35%) Php 175,000
Employee B (800,000 * 25%) Php 200,000

To record the fringe benefit transactions in the book by using the same illustration provided above, below
is as follow:

Fringe Benefit Expense P925,000.00

Fringe Benefit Expense P375,000.00
Cash P925,000.00
Fringe Benefit tax payable P375,000.00

Employee on top of the basic compensation intended for the general welfare of the employees. Being of
relatively small values, the same is not being considered as a taxable compensation and as such, not
subject to income tax and withholding tax on compensation. The amount of de minimis provided is a
deductible salaries expense, while for the employee, it would constitute as an additional salary that is not
deducted withholding tax on compensation.

below is the updated list of de minimis benefits in the Philippines both to managerial and rand-and-file
employees with some items updated in amounts by Revenue Regulations No. 11 – 2018 (RR 11-2018),
the implementing rule of Tax Reform for Acceleration and Inclusion (TRAIN) or Republic Act No. 10963
effective January 1, 2018 for guidance and easy reference.

Tax Exempt De Minimis Benefits under TRAIN RA 10963 Philippines

De minimis benefits are benefits of relatively small values provided by the employers to the employee on
top of the basic compensation intended for the general welfare of the employees. Being of relatively small
values, the same is not being considered as a taxable compensation and as such, not subject to income
tax and withholding tax on compensation. The amount of de minimis provided is a deductible salaries
expense, while for the employee, it would constitute as an additional salary that is not deducted
withholding tax on compensation.

Below is the updated list of de minimis benefits in the Philippines both to managerial and rand-and-file
employees with some items updated in amounts by Revenue Regulations No. 11 – 2018 (RR 11-2018),
the implementing rule of Tax Reform for Acceleration and Inclusion (TRAIN) or Republic Act No. 10963
effective January 1, 2018 for guidance and easy reference.

1. Monetized unused vacation leave credits of private employees not exceeding ten (10) days
during the year.
2. Monetized value of vacation and sick leave credits paid to government official and employees .
3. Medical cash allowance to dependents of employees, not exceeding P1,500 per employee per
semester or P250 per month (as amended by RR 11-2018).
4. Rice subsidy of P2,000 or one (1) sack of rice 50 kilogram rice per month amounting to not more
than P2,000 (as amended by RR 11-2018).
5. Uniform and clothing allowance not exceeding P6,000 per annum (as amended by RR 11- 2018).
6. 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 annun.
7. Laundry allowance not exceeding P300 per month.
8. Employees achievement awards, e.g. for length of service or safety achievement, which must be
in the form of 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;
9. Gifts made during Christmas and major anniversary celebrations not exceeding P5,000 per
employee per annum,
10. Daily meal allowance for overtime work and night/graveyard shift not exceeding twentyfive
percent (25%) of the basic minimum wage on a per region basis.
11. Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and
productivity incentive schemes provided that the total monetary value received from both CBA
and productivity incentive schemes combined do not exceed P10,000.00 per employee per
taxable year.
All other benefits given by employers which are not included in the above enumeration shall not be
considered “de minimis benefits, and hence, shall be subject to income tax as well as withholding tax on
compensation income. Please note also of the limitations as to amount because it is material to qualify for
exemptions. If you provide more than the limitations, the amount in excess of the limit would be taxable
and subject to withholding tax on compensation, if the recipient employee is a rank-and-file, or fringe
benefits tax (FBT) of 32% if a supervisory or managerial employee. This is however subject to the rule on
the P90,000 amount for 13th month pay and other benefits where excess de minimis benefits may not be
taxable if the total of such excess plus the 13th month pay and other benefits is within the P90,000
limitation.

These are benefits given by the employer to the employees that are relatively small value in addition to
their regular compensation but are not considered as taxable compensation for income tax purposes nor
subject to the fringe benefit tax. These benefits are intended for the employees to recognize their efforts
and improve worker retention across the organization.

BIR Form No. 1603 - Quarterly Remittance Return of Final Income Taxes Withheld
( On Fringe Benefits Paid to Employees Other than Rank and File)

         This return shall be filed in triplicate by every withholding agent (WA)/payor who is either an individual or non-
individual, required to deduct and withhold taxes on fringe benefits furnished or granted to employees other than
rank and file employees subject to Final Withholding Taxes
          If the Government of the Philippines, its political subdivisions or any Agency or Instrumentality, as well as
government-owned or controlled corporation is withholding agent/payor, the return may be made by the officer or
employee having control of disbursement of income payment or other officer or employee appropriately designated
for the purpose.
         With respect to a fiduciary, the returns shall be made in the name of the individual, estate or trust for which
such fiduciary acts and shall be signed and verified by such fiduciary. In case of two or more joint fiduciaries, the
return shall be signed and verified by one of such fiduciaries.

When and Where to Remit

The return shall be filed and the tax paid on or before the twenty-fifth(25th) day of the month
following the quarter in which the fringe benefits were granted to the recipients.
         The return shall be filed and the tax paid with the Authorized Agent Bank (AAB) of the Revenue
District Office having jurisdiction over the withholding agent's place of business/office. In places
where there are no Authorized Agent Banks, the return shall be filed and the tax paid with the
Revenue Collection Officer or the duly Authorized City or Municipal Treasurer of the Revenue District
Office having jurisdiction over the withholding agent's place of business/office, who will issue a
Revenue Official Receipt (BIR Form No. 2524) therefor.
         Where the return is filed with an AAB, the lower portion of the return must be properly machine-
validated and duly stamped by the Authorized Agent Bank to serve as the receipt of payment. The
machine validation shall reflect the date of payment, amount paid and transaction code, and the
stamped mark shall show the name of the bank, branch code, teller's code and teller's initial. The
AAB shall also issue an official receipt or bank debit advice or credit document, whichever is
applicable, as additional proof of payment.
         A taxpayer may file a separate return for the head office and for each branch or place of
business/office or a consolidated return for the head office and all the branches/offices except in the
case of large taxpayers where only one consolidated return is required.
  
ATC TAX RATE      
WI
In general
360
                    Effective January 1, 1999 33%
                    Effective January 1, 2000 32%
WI
For non-resident alien individual who is not engaged in trade or business in the Philippines 25%
330
WI For Alien and Filipino employed and occupying the same position as those of aliens employed by
320 the following
multinational companies:
1.) regional or area headquarters of a multinational company or regional operating headquarters
15%
of a multinational company
2.) an offshore banking unit of a foreign bank established in the Philippines 15%

3.) a foreign service contractor or a foreign service subcontractor engaged in petroleum

15%
operations in the Philippines

Computation of 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.
*   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 by the percentage divisor in
accordance with the following schedule:

For citizen, resident alien, and non-resident alien engaged in trade or business in the Philippines:
                    Effective January 1, 1999 67%
                    Effective January 1, 2000 68%
For non-resident alien individual who is not engaged in trade or business in the
75%
Philippines
For Alien and Filipino employed and occupying the same position as those of
aliens employed by the following
multinational companies:
1.) regional or area headquarters of a multinational company or regional operating
85%
headquarters of a multinational company
2.) an offshore banking unit of a foreign bank established in the Philippines 85%
3.) a foreign service contractor or a foreign service subcontractor engaged in
petroleum operations in the Philippines
85%

Penalties

There shall be imposed and collected as part of the tax:

1. A surcharge of twenty five percent (25%) for each of the following violations:
Failure to file any return and pay the amount of tax or installment due on or
a.
before the due date;
Unless otherwise authorized by the Commissioner, filing a return with a
b.
person or office other than those with whom it is
required to be filed;
 Failure to pay the full or part of the amount of tax shown on the return, or
c.
the full amount of tax due for which no return is
required to be filed on or before the due date;
Failure to pay the deficiency tax within the time prescribed for its payment
d.
in the notice of assessment.
A surcharge of fifty percent (50%) of the tax or of the deficiency tax, in case any
2.
payment has been made on the basis of such return before the
discovery of the falsity or fraud, for each of the following violations:
Willful neglect to file the return within the period prescribed by the Code or
a.
by rules and regulations; or
b. In case a false or fraudulent return is willfully made.
Interest at the rate of twenty percent (20%) per annum, or such higher rate as may
3.
be prescribed by rules and regulations, on any unpaid amount of
tax, from the date prescribed for the payment until the amount is fully paid.

4. Compromise penalty.