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Tax Treatment of Fringe Benefits in the Philippines

A company might give special benefits to its employees in addition to their

basic salaries and wages. It may formulate new policies for the provision of
such benefits to its employees, or the benefits may have been provided in the
contract of employment. These additional benefits are called fringe benefits.
Fringe benefits are special form of benefits given to the employees apart
from their basic compensation. These benefits may be in the form of goods,
services or any other benefits in cash or in kind granted by the employer –
whether corporation, partnership or sole proprietorship – to its employees.
However, the law has its own specific requirements and procedures as to
which fringe benefits are taxable with the normal income tax rate or which
are subject to the fringe benefit tax. In this article, we are going to discuss the
statutory requirements covering specifically to fringe benefits.


In the Philippines, fringe benefits are defined and regulated in Section 33 of

the National Internal Revenue Code (NIRC), as amended, and the Revenue
Regulations 3-1998 re: “Implementing Section 33 of the National Internal
Revenue Code, as Amended by Republic Act No. 8424 Relative to the Special
Treatment of Fringe Benefits”.

Section 33(B) of the NIRC defines Fringe Benefits as “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 such as, but are not
limited to the following:

1. Housing;
2. Expense account;
3. Vehicle of any kind;
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;
8. Holiday and vacation expenses;
9. Educational assistance to the employee or his dependents; and
10.Life or health insurance and other non-life insurance premiums or similar
amounts in excess of what the law allows.”

Revenue Regulations No. 3-1998(B) further explains the composition of each

on the list above, the rules, and the valuation of the fringe benefits.


One reason why fringe benefits are granted by the employer to the employee
is to provide incentive to encourage employee’s productivity and loyalty to
the employer. It could be in form of vehicle to be used for business meetings
and personal travels, or personal benefits like providing for house maids and
family drivers. During financial difficulties, the employer may decrease or
discontinue previously given fringe benefits. The employer may increase the
fringe benefits in times of economic boom.


Under the Tax Code, fringe benefits are taxable. As an employer, you have
to withhold tax for the fringe benefits in order for it to become deductible
from business income in computing income tax. The following rules apply
to fringe benefits:

1.) Fringe benefits to rank-and-file employees are not taxable with fringe
benefit tax, but instead are taxable as compensation income subject
to normal income tax rate in Section 24(A) of the NIRC, except for “de
minimis benefits” and benefits provided for the convenience of the
employer. A rank-and-file employee is an employee not holding a
managerial or a supervisory position.

2.) Fringe benefits to managerial and supervisory employees are taxable

with the 32% fringe benefit tax, which is a final tax and is the subject of this
article, except for “de minimis benefits” and benefits provided for the
convenience of the employer. A managerial employee is one who is vested
with powers or prerogatives to lay down and execute management policies
and/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.

The fringe benefit tax is computed only to those granted with managerial
and supervisory positions. Other than that, the income is subject to normal
income tax rate.

Those allowances that are received by an employee in fixed amounts and

regularly received by the employee as part of his salaries shall not form part
of the taxable fringe benefit but shall be treated as compensation income.

There are fringe benefits under Section 33(C), however, that are not taxable
as the following:

1. Fringe benefits which are authorized and exempted from tax under special
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, whether granted under a
collective bargaining agreement or not; and
4. De minimis benefits as defined in the rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the
5. If the grant of fringe benefits to the employee is required in 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.


Fringe benefits provided to managerial and supervisory employees are

subject to the 32% fringe benefit tax. According to Section 33(A) of the NIRC,
fringe benefit is a final tax on employee’s income to be withheld by the
employer. It is the company that is liable for the fringe benefit tax and not
the employee. As an employer, you are required to file fringe benefit tax
remittances using BIR Form 1603 on a quarterly basis.

The tax base of fringe benefits is based on the grossed-up monetary value
(GMV) of the fringe benefits granted by the employer to the employees
(except those rank-and-file employees). The GMV of the fringe benefit is
determined by dividing the monetary value of the fringe benefits by 68%
effective January 1, 2000 (RR 3-1998). The rates of the fringe benefit tax that
shall be applied is 32% effective January 1, 2000 and thereafter (RR 3-1998).
The grossed-up monetary value of the fringe benefit represents 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 thereon otherwise due from the employee
but paid by the employer for and in behalf of his employee.

For a non-resident individual who is not engaged in trade or business in the

Philippines, the fringe benefit tax is 25% imposed on the grossed-up
monetary value of the fringe benefit. The tax base shall be computed by
dividing the monetary value of the fringe benefits by 75%.

The fringe benefit tax of 15% shall be imposed on the grossed-up monetary
value of the fringe benefit and a tax base of 85% for the following
1. An alien individual employed by regional or area headquarters of a
multinational company or by regional operating headquarters of a
multinational company.

2. An alien individual employed by an offshore banking unit of a foreign bank
established in the Philippines.
3. An alien individual employed by a Foreign Service contractor or by a
Foreign Service subcontractor engaged in petroleum operations in the
4. Any of their Filipino individual employees who are employed and
occupying the same position as those occupied or held by the alien
employees. The employer granted P85,000 cash benefit representing
reimbursement of the personal expenses of his employee that is the manager
of the subsidiary. How much is the taxable amount of fringe benefit, the
fringe benefit tax, and the allowed deductible fringe benefit expense of the

The taxable amount of the fringe benefit is computed as follows. This

amount will be used as our tax base when computing the fringe benefit tax.

Monetary value of the fringe

benefit (cash payment)

Divided by the Grossed-Up

Monetary Value

Taxable Amount of the Fringe


The taxable amount of the fringe benefit tax multiplied by the applicable tax
rate will be our fringe benefit tax.

Taxable Amount of the Fringe Benefit 125,000

Multiplied by the Fringe Benefit Tax


Fringe Benefit Tax 40,000

The deductible fringe benefit expense for income tax purposes is the sum of
the cash payment and the fringe benefit tax. For income tax purposes, the
total amount of the deductible fringe benefit expense is a deductible expense
from business income.

Cash Payment of the Personal


Plus The Fringe Benefit Tax 40,000

Deductible Fringe Benefit Expense 125,000

In the books of the company upon payment of the fringe benefit to the
employee, the total deductible fringe benefit is debited to fringe benefit
expense and cash is credited to the amount of payment to the employee and
the withholding tax payable for the fringe benefit tax computed.

Definition of De minimis Benefits

The term de minimis are benefits or privileges of relatively small value given
by the employer to his employees either mandated by law or additional
compensation according to the performance. The total amount of payroll
includes the withholding tax and de minimis benefits. Some employees may
receive fringe benefits as part of the compensation.

As of January 1, 2018, under the train tax law, the following are:

1. Monetized unused vacation leave credits of private employees not

exceeding 10 days during a year.
2. Monetized value of vacation and sick leave credits paid to government
officials and employees
3. Medical cash allowance to dependents of employees not exceeding 1,500
per semester (before was 750.00) or 250.00 per month (before 125.00)
4. Rice subsidy of 2, 000.00 (replaced the amount of 1, 500.00) or one sack
of 50 kg. rice per month amount to not more than 2, 000.00
5. Uniform and clothing allowance not exceeding 6, 000 per year (replaced
the amount of 5, 000)
6. Actual medical assistance e.g. medical allowance to cover medical and
healthcare needs, annual medial/executive check-up, maternity
assistance, and routine consultations, not exceeding 10, 000 per year.
7. Laundry allowance not exceeding 300 per month
8. Employees achievement awards, e.g. for a 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 10,000 received by the employee under an established written
plan which does not discriminate in favor of highly paid employees
9. Gifts are given during Christmas and major anniversary celebrations not
exceeding 5, 000 per employee per year
10.Daily meal allowance for overtime work and nigh/graveyard shift not
exceeding 25% of the basic minimum wage on per region basis
11.Benefits received by an employee by a collective bargaining annual
monetary value received from both CBA and productivity incentive
schemes combined do not exceed 10, 000 per employee per taxable year.

Therefore, all other benefits given by the employer which are not part of the
enumerated above will be included as other benefits which are subject to 90,
000 ceiling amounts. If there are other benefits not listed above, it doesn’t
mean they are already exempted from taxes under this new regulations.

De minimis Benefits subject to New Income Tax Rate

Any benefits given to the employees not listed above are subject to income
tax rate. Likewise, any benefits given beyond the de minimis amount is part
of “Other Benefits” which will be subject to a ceiling amount of 90, 000.

Know How to Compute

If you’re employed in a government or private in the Philippines you must

be interested in this simple computation. Here are some of the steps to
identify taxable income:

1. Identify if the benefits are part of the list of De minimis Benefits. Some
benefits may vary depending on what sector you’re employed.
2. In each benefit, compute the excess beyond the de minimis amount and
include as other benefits
3. Compute the total amount of “Other Benefits” and deduct from the 90,
000 thresholds.
4. Any excess beyond 90, 000 will be added as taxable compensation
income which is subject to Income tax Rate Table.
5. If the total taxable income is below 250, 000 it is non-taxable, otherwise
be subject to income tax rate under TRAIN Law.

Mr. B received rice allowance of 2, 500 and clothing allowance of 10, 000 from
his employer. Other benefits are 13th-month pay of 20, 000 and other benefits
of 80, 000. Mr. B receives a regular compensation income of 240, 000 per
annum. Is Mr. B subject to income tax?


1. Rice allowance and clothing are part of the de minimis benefits.

2. There is an excess of 500 and 4,000 in rice allowance and clothing.
3. (500 + 4, 000 + 100, 000) 104,500 total other benefits which is subject to
the threshold of 90, 000
4. 14, 500 is the excess beyond the ceiling amount.
5. So, therefore, Mr. B is taxable using the income tax table.