Chapter 3 (Handouts): Fringe Benefit Tax PDF

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Summary

Fringe Benefit TaxFringe Benefits as defined under Section 2(f) of RR 8-2018 as any goods, services or other benefits furnished or granted by an employer in cash or in kind to an individual employee.It is a form of remuneration that may be a property, service, cash, or its equivalent in additional t...

Description

Fringe Benefit Tax

Fringe Benefits as defined under Section 2(f) of RR 8-2018 as any goods, services or other benefits furnished or granted by an employer in cash or in kind to an individual employee. It is a form of remuneration that may be a property, service, cash, or its equivalent in additional to basic compensation received by the employee. Fringe benefits tax covers only fringe benefits provided by the employer to supervisory and managerial level employees. Fringe benefits given to rank-and-file employees form part of total compensation which are subject to withholding taxes on compensation, and consequently, may be subject to income tax. FBT is a final tax collected or withheld at source by the employer and equals the actual amount of the tax due. The employer is liable to file FBT return (1603Q) and remit the same to the BIR on or before the last day of the month following the quarter it was incurred. FBT is computed as follows: Fringe Benefits Grossed-Up Monetary Value (GUMV) Multiply by Fringe Benefits Tax (FBT) rate FBT due and payable

Php xx.xx 35% Php xx.xx

Where the GUMV is computed as Monetary Value

Php xx.xx

Divide by gross monetary value factor (GMVF) Fringe Benefits Grossed-Up Monetary Value (GUMV)

65% Php xx.xx

In general, FBT rate is 35% (GMVF of 65%) except for NRAne. Fringe benefits received by NRAne is subject 25% (GMVF of 75%). Fringe Benefits Valuation In determining the monetary value of fringe benefits, the following are considered: 1. If granted in money or cash, the monetary value is the cash granted 2. If granted in property or ownership transfer, the monetary value is the FMV of the property 3. If granted in property but no transfer of ownership, the monetary value is equal to the depreciation of the property Fringe Benefits subject to FBT The following fringe benefits granted by employers to managerial or supervisory employees are subject to FBT: 1. Housing Special Rules in computing monetary value of housing benefits Employer leases a residential property for use by Monetary Value = Rental x 50% employee Employer owns a residential property for use by MV= higher of FMV or ZV x 5% employee x50% Employer purchases residential installment for use by employee

property

in MV = Acquisition cost excluding interest x 50%

Employer purchases residential property and MV= higher of AC or ZV transfers ownership to employee Employer purchases residential property and MV = higher of FMV or ZV transfers ownership to employee on a lesser amount

Non-taxable housing benefits: 1. Housing unit inside or adjacent (within 50 meters) from the perimeter of the business premises. 2. Temporary housing or a stay in the housing unit for three months or less 3. Housing privilege of military officials of AFP.

2. Expense account Depending on the nature of the account, expenses paid for by the employer on behalf of the employee may form part as fringe benefits subject to FBT or as part of total compensation subject to CWT and consequently, income tax. Classified as fringe benefits are personal expenses on the name of the employee paid for or reimbursed by the employer. If the allowance for expense is regularly given and on a pre-computed amount, such is included as part of total compensation.

3. Vehicle of any kind Rules in computing the monetary value of motor vehicles: Employer owns and maintains a fleet of motor vehicles for the use of business and MV= AC/5 years * 50% employees Employer leases a fleet of motor vehicles for MV= Rent Payments x 50% the use of business and employees Employer purchase vehicle in the name of MV = AC employee Employer provides employee cash for the purchase of vehicle and ownership MV = Cash transferred to employee Employer purchases on installment and MV = AC exclusive of interest /5 ownership transferred to employee Employer shoulders a portion of the amount of the purchase price and MV = Amount shouldered by employer ownership is in name of employee

4. Household personnel, such as maid, driver, and others 5. Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted 6. Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations 7. Expenses for foreign travel This account includes expenses in connection with attending business meetings or convention more than the recognized reasonable amounts

Expenses less than $300/ day on average Reasonable, not subject to FBT Cost of economy and business class plane Reasonable, not subject to FBT ticket Cost of First-class plane ticket 30% of MV is subject to FBT

However, failure to substantiate that the travel is in relation to attending business meetings or convention, the entire amount shouldered by the employer -ticket, accommodation, daily allowances, and others will be subject to FBT.

8. Holiday and vacation expenses 9. Educational assistance to the employee or his dependents; and In general, cost of education assistance is subject to FBT except: 1. It is for the benefit of the employer 2. Given to dependents through a competitive scheme under a scholarship program

10. Life or health insurance and other non-life insurance premiums or similar amounts more than what the law allows.

Non – Taxable Fringe Benefits The following fringe benefits are not subject to FBT: •

Fringe benefits which are authorized and exempted from tax under special laws: 1. Contributions required under SSS/ GSIS laws 2. Premiums for group insurance of employees 3. Other similar contributions required under the law

•

Benefits necessary to the trade, business and profession of the employer or required by the nature of the employee’s duties If the grant of benefits is for the convenience or advantage of employer Benefits given to the rank and file employees, whether granted under a collective bargaining agreement or not; and

• • •

De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. De minimis benefits are discussed in Module 2 Income Taxation of Individuals. These form part of non – taxable compensation....