RULES ON FRINGE BENEFITS

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.
General Rule on Valuation of Fringe Benefit
1. If the Fringe Benefit is given in cash, the value is the total amount of the cash
received by the employee, except if the cash would be used to pay rent. If cash is
given to be used for rental payment, only 50% of the cash received will be
recognized as the value of the fringe benefit.
2. If non-cash asset is given such as vehicle or house and lot, the value of the non
cash asset would be considered as the value of the fringe benefit.
3. If a managerial or supervisory employee is given free use of a non-cash asset,
such as use of a car, the fringe benefit would be 50% of the rental value or
depreciation value of the asset. Vehicles would be depreciated over five years
while real property would be depreciated over 20 years.

Computation of Updated Fringe Benefit Tax

There are 3 steps in computation of Fringe Benefit Tax

1. Determine the value of the fringe benefit.

2. Compute the grossed up monetary value.
3. Multiply the grossed up monetary value by the rates applicable for each
individual. The rate for all individuals excluding nonresident aliens not engaged
in trade or business and special aliens is 35%. The Fringe Benefit tax rate for
NRA-NETBs is 25% while the FBT rate for special aliens is 15%.