The fringe benefit tax (FBT) is a final tax imposed on the grossed-up monetary value of fringe benefits furnished, granted, or paid by an employer to a managerial or supervisory employee. Two features distinguish it. First, who is covered: FBT applies to benefits given to managerial and supervisory employees only; benefits given to rank-and-file employees are NOT subject to FBT but are instead treated as part of their compensation income, subject to the ordinary withholding tax on compensation. Second, who pays: unlike ordinary income tax on compensation which is borne by the employee, the FBT is payable by the employer, and it is a final tax, so the benefit is no longer included in the employee's taxable income. A fringe benefit is any good, service, or other benefit furnished or granted in cash or in kind by an employer to an individual employee, and the law enumerates examples: housing; expense account; vehicles of any kind; household personnel such as maids and drivers; interest on loans at less than the market rate, to the extent of the difference; membership fees and dues in social and athletic clubs; expenses for foreign travel; holiday and vacation expenses; educational assistance to the employee or their dependents; and life or health insurance and other non-life insurance premiums in excess of what the law allows. The tax is computed on the grossed-up monetary value, that is, the monetary value of the benefit divided by the grossed-up divisor, then multiplied by the FBT rate; the TRAIN law set the FBT rate at thirty-five percent (35%) with the corresponding divisor. Important exemptions from FBT include: benefits authorized and exempted under special laws; contributions of the employer for the retirement, insurance, and hospitalization benefit plans of employees; benefits given to rank-and-file employees; de minimis benefits; and benefits required by the nature of, or necessary to, the trade or business of the employer, or granted for the convenience or advantage of the employer. So FBT is a final tax paid by the employer on benefits given to managerial and supervisory staff, computed on the grossed-up value, with rank-and-file benefits and de minimis benefits excluded.
A Final Tax on the Employer
Fringe benefit tax (FBT) is a final tax on the grossed-up monetary value of benefits given to managerial and supervisory employees — and it is paid by the EMPLOYER, not the employee.
Who Is Covered
Only managerial and supervisory employees. Benefits to rank-and-file are NOT subject to FBT — they are treated as compensation income subject to ordinary withholding tax.
What Counts as a Fringe Benefit
- Housing, expense accounts, and vehicles;
- Household personnel (maids, drivers);
- Below-market interest on loans (the difference);
- Club dues, foreign travel, holiday expenses; and
- Educational assistance and excess insurance premiums.
Rate and Exemptions
Computed on the grossed-up monetary value at the 35% rate under TRAIN. Exempt: benefits under special laws, employer contributions to retirement/insurance/hospitalization plans, rank-and-file benefits, de minimis benefits, and benefits necessary to the business or for the employer's convenience.
Practical Takeaways
- FBT hits managerial/supervisory benefits and is paid by the employer;
- Rank-and-file benefits are compensation, not FBT;
- De minimis and employer-convenience benefits are exempt.
Frequently Asked Questions
Who pays the fringe benefit tax? The employer. FBT is a final tax on the grossed-up monetary value of fringe benefits given to managerial and supervisory employees, and it is borne by the employer, not deducted from the employee.
Does FBT apply to rank-and-file employees? No. Benefits given to rank-and-file employees are not subject to FBT. They are treated as part of the employee's compensation income, subject to the ordinary withholding tax on compensation.
What are examples of fringe benefits? Housing, expense accounts, vehicles, household personnel such as maids and drivers, below-market interest on loans, club membership dues, foreign travel, holiday expenses, educational assistance, and excess insurance premiums.
What fringe benefits are exempt? Benefits exempted under special laws, employer contributions to retirement, insurance, and hospitalization plans, benefits to rank-and-file employees, de minimis benefits, and benefits necessary to the business or granted for the employer's convenience.
This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.
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