05 March 2015

Mr Raul Villanueva
Vice President for Operations
Philippine Global Systems, Inc.
PO Box 25
Cebu City 6000

Dear Mr Villanueva,
Application of Income tax on de minimis benefits and
fringe benefits
Thank you for your letter on 25 February 2015, addressed to
Atty. Nereus Jr S. Caeda, in which you requested advice on
the application of income tax on de minimis benefits and
fringe benefits.
Your questions, our answers to those questions, and the
reasons for our answers are set out bellow.
QUESTIONS AND ANSWERS
Q1
Q2
Q3
Q4
Q6

Rice allowance of Php1, 300 per month

Uniform allowance of Php6, 000 per month
Laundry allowance of Php300 per month
Meal allowance of Php100 per day (non-overtime work)
Service award ( A regular employee who has rendered
5, 10, 15, 20 and 25 years of continuous service with
the company receives a plaque of recognition denoting
the years of service, with a value of not exceeding
Php1, 500)

Revenue Regulations No. 8-2012 (as amended) provides

that the following de minimis benefits not subject to
income tax as well as withholding tax on compensation
income of both managerial and rank-and-file employee:
1. Rice subsidy of P1, 500 or one (1) sack of 50-kg. rice
per month amounting to not more than P1, 500;
2. Uniform and clothing allowance not exceeding P5,
000 per annum;
3. Laundry allowance not exceeding P300 per month;
4. Employees achievement awards, e. for length of
service or safety achievement. There must be in the

form of a tangible personal property other than cash

of gift certificate, with an annual monetary value of
not exceeding P10, 000 received by the employee
under an established written plan which does not
discriminate in favour of highly paid employees.
5. Daily meal allowance for overtime work not
exceeding twenty five percent (25%) of the basic
minimum wage per region
The following rule shall be observed in determining the
taxability of the de minimis and the P82, 000 other
benefits ceiling under Section 32(b)(7)(e) of the Tax
Code:
The excess of the de minimis benefits over their
respective ceilings prescribes by these regulations shall
be considered as part of the other benefits and the
employee receiving it shall be subjected to tax only on
the excess over the P82, 000 ceiling.

Illustration
De Minimis
Rice allowance
(P1,300 x 12)
Uniform allowance
(P6,000 x 12)
Laundry Allowance
(P300 x 12)
Service Award
TOTALS

Taxable

Nontaxable
P15600

P67, 000

5,000
3,600

1,500
P68,500

P24, 200

It is notable that the uniform allowance and the service

award are taxable in the illustration above. It would be highly
recommended if the uniform allowance would not exceed P5,
000 per annum, and also such service award should be
tangible to be exempt from tax. Also, the meal allowance of
P100 per day for non-overtime work should take part of the
compensation income of the employee, it should not be
considered part of the de minimis benefits for such
allowance is not for overtime work.

Q5

Transportation allowance of Php1,000 per month

Q7

Q8

Q9

Medical Benefits (The employees are entitled to

reimburse an annual medicine allowance of Php2, 000
to cover their medical needs. The employees are
required to submit official receipts covering the
purchase of prescribed medicines to support their claim
for reimbursement. In addition, the employees are also
entitled to free medical check-up and hospitalization
benefits [i.e., X-ray, ECG, blood tests, etc. which should
not exceed Php 10,000 per year);
Company outing (To foster goodwill and camaraderie,
the company sponsors an annual company outing to be
attended by all its employees. The total amount spent
on the company outing varies annually);
Christmas party (To celebrate the Christmas season and
to foster goodwill among all employees, the company
usually sponsors an annual Cristmas party where the
expenses vary from year to year)
For taxation purposes, fringe benefits may be classified
as follows:
1. Fringe benefit to rank and file employees are taxable
as compensation income subject to normal tax rate
2. Fringe benefit to managerial employees are taxable
with final fringe benefit tax of 32%
3. Allowances which are fixed in amounts and are
regularly received by the employee as part of his
monthly compensation income shall not be treated
as taxable fringe benefit but as compensation
income.

The transportation allowance of P1, 000 per month shall not

be treated as taxable fringe benefit but as compensation
income for such allowance is fixed in amount and is regularly
received by the employee.
Section 33 (B) of the NIRC defines Finge Benefits and
provided a list of benefits that are considered fringe benefits,
but not limited to the following:
1. Holliday and vacation expenses
2. Expense account
Under expense account the following are treated as taxable
fringe benefits:
1. Expensed incurred by the employee but paid by his
employer

2. Expenses paid by the employee but reimbursed by

his employer.
3.
In Q7 the medical benefits of the employees other than a
rank and file employee are subject to fringe benefit tax,
since such expenses of the employee are reimbursed by his
employer evidenced by valid receipts. Also the free medical
check-up and hospitalizations are incurred by the employee
but paid by his employer.

Illustration
Reimbursable expenses:
Medicine 2,000
Expenses paid by the employer
Hospitalization 10,000
Total Fringe Benefits
12,000
Divide by Grossed-up monetary value factor
68%
Grossed-up Monetary value
17,647
Multiply by tax rate
32%
Fringe Benefit tax due
P5, 647

In Q8 and Q9 this can be considered as vacation and holiday

expenses respectively, such expenses of the employee borne
by his employer shall be treated as taxable fringe benefits.
Illustration
Total Expenses incurred:
Christmas Party
P2, 000,000
Outing
P1, 000,000
Assuming that 80% are rank-and-file
Christmas Party
Fringe benefit of supervisory/ managerial employee (P2, 000,000 x 20%)
P400, 000
Divide by grossed-up monetary value factor
68%

Grossed-up monetary value

235
Multiply by tax rate
Fringe Benefit tax due
235

P588,
32%
P188,

Outing
Fringe benefit of supervisory/ managerial employee (P1, 000,000 x 20%)
P200, 000
Divide by grossed-up monetary value factor
68%
Grossed-up monetary value
P294,
117
Multiply by tax rate
32%
Fringe Benefit tax due
P94,117

In our view, therefore, such rates are applicable to de

minimis benefits and fringe benefits and some
recommendation are provided with respect to such.
This advice was read by Atty. Stephen L. Yu, Senior
Associate, and he agrees with its contents. Please contact
me if you have any questions in relation to this advice.

Yours sincerely

Atty. Nereus Jr S. Caeda

Junior Associate
M5 Law Firm
UC Banilad- College of Law
+63-9164717789
jhuncanz@gmail.com