Fringe Benefits Tax on Housing Privilege in Philippines

Housing privilege is a common benefit that is being given by the employer to their managerial and supervisory employees, both to Filipino employees and expatriate employees in the Philippines. As a rule, this is subject to a fringe benefits tax in the Philippines at the following rates based on the grossed up monetary value of the fringe benefit:

• 32% in general;
• 25% if the employee is a non-resident alien not engaged in trade or business in the Philippines;
• 15% for special alien employees in the Philippines

Fringe benefits tax on housing privilege would depend on the extent of benefits being enjoyed by the employee, the corresponding business advantage or convenience of the employees, and the ownership or title under which the housing privilege is named. Below  are the basic rules:

Employer leased property as usual residence of employee

If the employer leases a residential property for the use of his employee and the said property is the usual place of residence of the employee, the value of the benefit shall be the amount of rental paid thereon by the employer, as evidenced by the lease contract. The monetary value of the fringe benefit shall be fifty per cent (50%) of the value of the benefit.

Employer owned property assigned to employee as usual residence

If the employer owns a residential property and the same is assigned for the use of his employee as his usual place of residence, the annual value of the benefit shall be five per cent (5%) of the market value of the land and improvement, as declared in the Real Property Tax Declaration Form, or zonal value as determined by the Commissioner pursuant to Section 6(E) of the Code (Authority of the Commissioner to Prescribe Real Property Values), whichever is higher. The monetary value of the fringe benefit shall be fifty per cent (50%) of the value of the benefit.

The monetary value of the housing fringe benefit is equivalent to the following:

MV = [5%(FMV or ZONAL VALUE] X 50%

WHERE: MV = MONETARY VALUE, and FMV = FAIR MARKET VALUE

Employer purchased property on installment as usual residence of employee

If the employer purchases a residential property on installment basis and allows his employee to use the same as his usual place of residence, the annual value of the benefit shall be five per cent (5%) of the acquisition cost, exclusive of interest. The monetary value of fringe benefit shall be fifty per cent (50%) of the value of the benefit.

Employer purchased property for employee residence

If the employer purchases a residential property and transfers ownership thereof in the name of the employee, the value of the benefit shall be the employer’s acquisition cost or zonal value as determined by the Commissioner pursuant to Section 6(E) of the Code (Authority of the Commissioner to Prescribe Real Property Values), whichever is higher. The monetary value of the fringe benefit shall be the entire value of the benefit.

Employer purchased property resold at lower value

If the employer purchases a residential property and transfers ownership thereof to his employee for the latter’s residential use, at a price less than the employer’s acquisition cost, the value of the benefit shall be the difference between the fair market value, as declared in the Real Property Tax Declaration Form, or zonal value as determined by the Commissioner pursuant to Sec. 6(E) of the Code (Authority of the Commissioner to Prescribe Real Property Values), whichever is higher, and the cost to the employee. The monetary value of the fringe benefit shall be the entire value of the benefit.

Housing privilege of military officers – AFP, Navy and PAF

Housing privilege of military officials of the Armed Forces of the Philippines (AFP) consisting of officials of the Philippine Army, Philippine Navy and Philippine Air Force shall not be treated as taxable fringe benefit in accordance with the existing doctrine that the State shall provide its soldiers with necessary quarters which are within or accessible from the military camp so that they can be readily on call to meet the exigencies of their military service.

Housing unit within 50 meter radius

A housing unit which is situated inside or adjacent to the premises of a business or factory shall not be considered as a taxable fringe benefit. A housing unit is considered adjacent to the premises of the business if it is located within the maximum of fifty (50) meters from the perimeter of the business premises.

Temporary housing unit for three months or less

Temporary housing for an employee who stays in a housing unit for three (3) months or less shall not be considered a taxable fringe benefit.

Based on the above rules laid down under Revenue Regulations No. 3-98, as amended, we suggest that you revisit and review your tax treatments of the fringe benefits on housing privilege to your employees – local and expatriate employees holding managerial and supervisory employees.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at in**@ta************.org.