Imposition of Fringe Benefit Tax on Non-Rank-and-File Employees in Special Economic Zones

January 5, 2000 BIR RULING NO. 004-00 33; 34 000-00 004-2000 United Coconut Chemical, Inc . (Cocochem) 17th Floor, UCPB Building Makati Avenue 1226 Makati City, Metro Manila Attention: Ms . Ingrid S . Dungca Manager, Corporate Services Department Gentlemen : This refers to your letter dated August 7, 1998, stating that Cocochem Agro-Industrial Park (CAIP) was declared as a special economic zone on November 11, 1997 under Presidential Proclamation No. 1129; that on December 4, 1997, Cocochem was registered with the Philippine Economic Zone Authority (PEZA) under Certificate of Registration No. EZ97-15 pursuant to the provision of Republic Act No. 7916 as the Ecozone Developer-Operator of CAIP; that under the registration, Cocochem opted to pay five percent (5%) of its gross income earnings in lieu of paying national and local taxes as provided for under Section 24 of Republic Act No. 7916. Based on the foregoing, you are requesting for a ruling on the following: 1. Whether or not Cocochem is exempt from the fringe benefit tax imposed under Section 33 of the Tax Code of 1997; and 2. Whether or not the fringe benefit tax if paid as a final tax, is an allowable deduction on the part of the employer. In reply, please be informed that fringe benefits received by employees, except rank and file employees, in special economic zones, including Clark Special Economic Zone and Subic Special Economic and Free Trade Zone, are subject to the normal rate of fringe benefit tax, i.e. , 34% effective January 1, 1998, 33% effective January 1, 1999 and 32% effective January 1, 2000 or the special rates of 25% imposed on the fringe benefit received by non-resident alien not engaged in trade or business in the Philippines or 15% imposed on the fringe benefit received by (1) an alien individual employed by regional or area headquarters of a multinational company or by regional operating headquarters of a multinational company; (2) an alien individual employed by an offshore banking unit of a foreign bank established in the Philippines; (3) an alien individual employed by a foreign service contractor or by a foreign service subcontractor engaged in petroleum operations in the Philippines; and (4) any of their Filipino individual employees who are employed and occupying the same position as those occupied or held by the alien employees, pursuant to SEC. 2.33(A) of Revenue Regulations No. 3-98. llcd With regard to question No. 2, you are informed that the grossed-up monetary value of fringe benefit on which the final withholding tax is paid is now deductible on the part of the employer falling under the expense category, pursuant to Section 34(A)(1)(a)(i), also of the Tax Code of 1997. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue