REVENUE REGULATIONS NO. 3-98

REVENUE REGULATIONS NO. 3-98
(May 21, 1998)
FRINGE BENEFITS TAX
These regulations govern the collection at source of the tax on fringe benefits which have been furnished, granted or paid by the employer beginning January 1, 1998.
A final withholding tax called the Fringe Benefits Tax (FBT) is imposed on the grossed-up monetary value of fringe benefit furnished, granted or paid by an employer to an employee who is holding a managerial or supervisory position. The FBT will be imposed regardless of whether such employer is an individual, professional partnership or a corporation, or that the corporation is taxable or not, or the employer is the Philippine government or one of its instrumentalities.
Only fringe benefits given or furnished to managerial or supervisory employees are subject to FBT. For this purpose, the term “managerial employees” refers to those who are 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 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. “Rank and file employees” means all employees who are holding neither managerial nor supervisory position.
Fringe benefits which have been paid prior to January 1, 1998 shall not be subject to FBT.
FBT rates
In general, the fringe benefit tax rate is 34% in 1998, 33% in 1999 and 32% in year 2000 and thereafter. The grossed-up monetary value of the fringe benefit is determined by dividing the monetary value of the fringe benefit by 66% in 1998; 67% in 1999 and 68% beginning January 1, 2000.
Fringe benefits given to certain managerial and supervisory employees are taxed at preferential rates, viz:

FBT Rate
Gross-up Factor
Alien individual who is not engaged in trade or
business in the Philippines ……………………………………

25%
75%
Alien employed by
* regional or area headquarters
* representative office
* regional operating headquarters
* foreign service contractor/subcontractor
* engaged in petroleum operations…………………………

15%
85%
Filipino individual employees who are employed
and occupying the same position as those
occupied or held by the alien employees in the
entities listed above……………………………………………

15%
85% Fringe benefits received by employees in special economic zones are also covered by these regulations. The FBT rate to be applied would be governed by the same rules discussed above. Thus, if the fringe benefit is given to employees of a representative office located in the zone, the FBT rate is 15%. On the other hand, if the company providing the benefits is a regular company, the normal rate of FBT will apply.
Fringe benefits refer to goods, services or other benefits furnished or granted by an employer in cash or in kind, in addition to basic salaries, to managerial or supervisory employees such as, but not limited to the following:
o Housing;
o Expense account;
o Vehicle of any kind;
o Household personnel, such as maid, driver and others;
o Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted;
o Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations;
o Expenses for foreign travel;
o Holiday and vacation expenses;
o Educational assistance to the employee or his dependents; and
o Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows.
However, the following benefits are not covered by the FBT.
1. Fringe benefits which are authorized and exempted from income tax under the Code or under special law. Separation benefits which are given to employees who are involuntarily separated from work are not subject to FBT.
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, whether granted under a collective bargaining agreement or not;
4. De minimis benefits
5. Benefits granted to employee as required by the nature of, or necessary to the trade, business or profession of the employer
6. Benefits granted for the convenience of the employer
Although the benefit may be exempt from FBT, it may, however, still form part of the employee’s gross compensation income which is subject to income tax, which is required to be covered by the withholding tax on wages.
“De minimis” benefits refer to facilities or privileges furnished or offered by an employer to his employees that are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment or efficiency of his employees, such as the following:
o Monetized unused vacation leave credits of employees not exceeding ten (10) days during the year;
o Medical allowance for employee’s dependents not exceeding P125 per month;
o Rice subsidy of P350
o Uniform allowance
o Medical benefits
o Laundry allowance of P150 per month
o Employee achievement awards in the form of a tangible property, with an annual monetary value not exceeding 1/2 of the basic salary of employee;
o Christmas and major anniversary celebration for employees and their guests;
o Company picnics and sports tournaments in the Philippines exclusively participated in by employees
o Flowers, fruits or similar items given under special circumstances, e.g. illness, marriage, etc.
In addition, the following fringe benefits are also not subject to FBT because they are necessary to the business of the employer, or granted for the convenience of the employer:
o Housing privilege of military officials of the AFP located inside or near the military camps.
o A housing unit which is situated inside or at most 50 meters from the perimeter of the business premises.
o Temporary housing for an employee for 3 months or less.
o Expenses of the employee which are reimbursed by the employer if they are supported by receipts in the name of the employer and do not partake the nature of a personal expense of the employee.
o Motor vehicles used for sales, freight, delivery service and other non-personal uses
o The use of aircraft (including helicopters) owned and maintained by the employer
o Business expenses which are paid for by the employer for the foreign travel of his employees in connection with business meetings or conventions. The expenses should be supported by documents proving the actual occurrences of the meetings/conventions, or official communications from business associates
Valuation of Benefits
The computation of the fringe benefits tax would entail valuation of the benefit granted and determination of the proportion or percentage of the benefit which is subject to the FBT. In cases where the fringe benefits entail joint benefits to the employer and employee, the portion which shall be subject to the FBT and the guidelines for the valuation of fringe benefits are defined below.
In general, the valuation of fringe benefits shall be as follows:
1. If benefit is granted in money or is paid directly paid for by employer, then the value is the amount granted or paid for.
2. If the employer gave the employee a property and the title to the property is placed under his name, the fair market value of the property will be considered as the monetary value of the fringe benefit.
3. However, if the employee is only allowed to use the property, and the title to the property remains with the employer, the monetary value of the benefit is equal to the depreciation value of the property.
Certain guidelines are set for the valuation and determination of the monetary value of specific types of benefits.
1. Housing
If employer leases a residential property for the use of his employee, the value of the benefit shall be the amount of rental paid by the employer, as evidenced by the lease contract. The monetary value shall be equal to fifty percent (50%) of the value of the benefit.
If the property provided for the use of the employee belongs to his employer, the annual value of the benefit shall be equal to 5% of the market value of the land and improvement as declared in the Real Property Tax Declaration Form or zonal value thereof as determined by the BIR, whichever is higher. The monetary value of the fringe benefit shall be fifty percent (50%) of the value of the benefit.
If the employer purchases property on installment basis and allows it to be used by its employee, the annual value of the benefit shall be five percent (5%) of the acquisition cost of the property, exclusive of interest. The monetary value of fringe benefit shall be fifty percent (50%) of the value of the benefit.
If the employer purchases a residential property and transfers ownership thereof in the name of the employee, its monetary value is equal to the full amount of the acquisition cost or zonal value as determined by the BIR, whichever is higher. In case the property is sold to the employee at a price less than the acquisition cost, the difference between the fair market value or zonal value, whichever is higher, and the cost of the property to the employee will be the basis for FBT.
2. Motor Vehicle
If the employer purchases the motor vehicle in the name of the employee, the acquisition price will be the value of the benefit. The monetary value of the fringe benefit shall be the entire value of the benefit, regardless of whether the motor vehicle is used by the employee partly for his personal purpose and partly for the benefit of the employer.
If the employer pays for the car on installment basis and ownership of the car is placed in the name of the employee, the value of the benefit shall be the acquisition cost exclusive of interest, divided by five (5) years. The monetary value shall be the entire value of the benefit.
If instead of buying the car directly, the employer gave the employee money to purchase the car, whether the full amount or just a portion of the price, the cash received by the employee will be used as basis for FBT. However, the subsidy given by the employer is not subject to FBT if it was declared as part of the employee’s taxable compensation income subject to withholding tax.
If the employer owns and maintains, or leases a fleet of motor vehicles for the use of the business and employees, the value of the benefit is equal to the acquisition cost of all motor vehicles not normally used for sales, freight, delivery service and other non-personal use divided by five (5) years. The monetary value shall be fifty percent (50%) of the value of the benefit.
The use by the employee of the yacht owned or being leased by his employer is subject to FBT and the value of the benefit is measures based on the depreciation of the yacht at an estimated useful life of 20 years.
3. Foreign business travel
If employee is given a first class airplane ticket, the monetary value of the benefit is equal to 30% of the cost of the first class airplane ticket.
The full amount of the travelling expenses of the family members of the employee which are paid for by the employer is subject to FBT.
4. Expense account
In general, expenses incurred by the employee which are paid by his employer, and expenses paid for by the employee but reimbursed by his employer shall be treated as taxable benefits. However, expenditures which are not in the nature of a personal expense of the employee are not subject to FBT provided that these are supported by receipts in the name of the employer.
Personal expenses of the employee paid for or reimbursed by the employer are subject to FBT, even if the same are duly receipted in the name of the employer.
Representations and transportation allowances which are fixed in amounts and regularly received by the employee as part of their monthly compensation income will be considered as taxable compensation income.
5. Loans Extended by Employers
If the employer lends money to his employee free of interest, the interest waived which will be computed at the rate of 12% is considered as a benefit to the employee.
If the loan was given with interest but at a rate lower than 12%, the difference of the interest assumed by the employee and the rate of 12% shall be treated as taxable fringe benefit.
This rule will apply to installment payments or loans with interest rate lower than 12% starting January 1, 1998.
6. Educational support
The cost of the educational assistance to the employee which are borne by the employer shall be treated as taxable fringe benefit.
However, if the employer granted a scholarship to the employee for an education or study which is directly connected with the employer’s business, it is not subject to FBT if there is a written contract between them that the employee is under obligation to remain in the employ of the employer for a period of time that they have mutually agreed upon.
The cost of educational assistance extended to the employee’s dependents is not taxable if such assistance was provided through a competitive scheme under the scholarship program of the company.
7. Insurance
The cost of life or health insurance and other non-life insurance premiums borne by the employer for his employee shall be treated as taxable fringe benefits.
However, the cost of life or health insurance borne by the employer if made under the SSS or GSIS or similar contributions arising from the provisions of any other existing law is not taxable. Likewise, the cost of premiums borne by the employer for the group insurance of his employees is not subject to FBT.
Payment of FBT
The FBT is treated as a final income tax on the employee which is required to be withheld and paid by the employer on a calendar quarterly basis. The FBT return is required to be filed and the FBT withheld paid within 25 days from the close of the quarter when withholding was made.
Effectivity
FBT must be paid on all benefits granted starting January 1, 1998. Since the rules were released only in April, no penalty will be imposed for late payment of the fringe benefit tax for the first quarter ending March 1998 for as long as the FBT for the first quarter is paid not later than July 25, 1998.