Fringe Benefits Tax Explained

If you run a business in the Philippines and provide perks to your managers and supervisors—from company cars to housing allowances—you need to understand fringe benefits tax (FBT). This tax affects how much you'll ultimately pay for employee compensation packages, and getting it wrong can lead to audit issues with the Bureau of Internal Revenue (BIR).

In this guide, we'll explore how fringe benefits tax in the Philippines works. We'll walk you through practical examples of how to compute fringe benefits tax and why it matters for your business. You’ll also find information about the current FTB rate, and how business tools from Intuit QuickBooks can help you manage tax in the Philippines.

Key takeaways

• The fringe benefits tax applies only to managerial and supervisory employees.
• Employers (not employees) are responsible for paying FBT.
• The current fringe benefits tax rate is generally 35%, depending on the benefit and BIR rules.
• You can compute FBT using a standard formula of FBT = (Actual monetary value × gross-up rate) × FBT rate
• Tools like Intuit QuickBooks help businesses stay compliant by tracking financial data and fringe benefits.

What is the fringe benefits tax in the Philippines?

The fringe benefits tax (FBT) is a final tax that employers must pay when they provide non-salary perks to their managerial and supervisory employees. Known as “fringe benefits”, these perks can include:

• Company vehicles
• Housing or housing allowances
• Expense allowances
• Low-interest or interest-free loans
• Membership fees or similar non-cash employee perks

Under BIR rules, the employer pays the FBT, not the employee. This means that when a company provides a taxable benefit, the employer must compute, withhold, and remit the tax directly to the government.

How does the fringe benefits tax work?

The fringe benefits tax applies when a managerial or supervisory employee receives a benefit that is not part of their regular salary. Generally, fringe benefits are taxable when:

• They provide personal advantage or economic gain to the employee
• They are not expressly exempt under BIR regulations
• They are given in addition to the employee’s basic compensation

After determining whether a benefit is taxable, employers must compute the taxable monetary value, apply the gross-up rate, and use the applicable tax rate to determine the final FBT amount.

Fringe benefits tax rate in the Philippines

The current FBT rate in the Philippines is straightforward, but it's important to know when different rates apply:

• Standard rate: 35% on the grossed-up monetary value of benefits that were given to managerial and supervisory employees.
• Alternative rate: 25% applies only to non-resident aliens who are not engaged in trade or business in the Philippines.

The 35% rate is what most Philippine businesses will use. Understanding this rate is essential for budgeting. For instance, when you offer a benefit worth ₱100,000 to a manager, the total cost to your company will be higher once you factor in the FBT obligation.

How to calculate the fringe benefits tax​ 

The FBT is calculated using the standard fringe benefits tax formula:

FBT = (Actual monetary value × gross-up rate) × FBT rate

Here, we’ll break down the formula into easy steps:

1. Identify the actual monetary value of the benefit: This is the fair market value or cost of the benefit—such as a monthly car value, housing allowance, or employer-covered expenses.
2. Determine the applicable gross-up rate: The gross-up rate adjusts the benefit to reflect its value before tax. For a 35% FBT rate, the gross-up factor is: 1 ÷ (1 – 35%) = 1.5385
3. Multiply the benefit’s monetary value by the gross-up rate: This gives you the grossed-up monetary value (GMV), which is the amount used as the tax base.
4. Apply the FBT rate: Multiply the GMV by the FBT rate (commonly 35%) to get the final tax amount.
5. Remit the computed FBT: The employer pays the tax directly to the BIR as part of their withholding tax obligations.

Fringe benefits tax example

Here, we’ll go through a fringe benefits tax sample problem to show how the formula applies to real employee perks:

Example: Company car use

An employer provides a company car that an executive may use for personal trips. The car’s monthly rental value (as determined by the company or BIR schedule) is ₱20,000.

Step 1: Determine the monetary value of the benefit

Monetary value = ₱20,000

Step 2: Apply the gross-up formula

Gross-up factor = 1 ÷ (1 – 35%) = 1 ÷ 0.65 ≈ 1.5385

Grossed-up value = ₱20,000 × 1.5385 ≈ ₱30,770

Step 3: Compute FBT

FBT = (Monetary value × gross-up rate) × FBT rate

FBT = ₱30,770 × 35% = ₱10,770

Result:

The employer must pay ₱10,770 in fringe benefits tax for the company car.

Why the fringe benefits tax matters for your business

Understanding the FBT helps you to manage compensation packages while keeping your business tax-compliant.

• Avoid penalties and audit risks from incorrect reporting.
• Budget effectively for the total cost of compensation, including perks.
• Structure benefits wisely so they remain cost-efficient for the business.
• Maintain accurate financial statements by recording fringe benefits correctly.
• Stay aligned with BIR rules.

How Intuit QuickBooks helps you track and manage fringe benefits

Intuit QuickBooks makes record-keeping and timely tax reporting much easier for business owners in the Philippines. By keeping your financial data organized and up to date, you can confidently stay on top of tax obligations, including FBT.

Intuit QuickBooks offers helpful features such as accounting reports for clear financial insights and an expense tracker to monitor spending on employee perks. Our invoicing software can streamline billing, and VAT tracking makes it easier to stay compliant with tax obligations. Along with useful cash flow templates, our business tools can help you manage employee benefits, maintain accurate records, and support tax compliance.