Financial lease most often involves a real property including land. Instalments under financial lease contract are divided into principal part and financial part (interest). The latter represents, from the tax perspective, a tax deductible expense for the User or lessee.
Main features of the financial lease contract:
- a contract concluded for a definite period of time, no minimum leasing term set out in the provisions,
- the object of lease is classed as the User’s assets and is depreciated by the same,
- the tax deductible expense includes: interest part of leasing instalments, depreciation of improvements (buildings, structures, facilities), operating costs,
- input VAT (23%) – payable in advance, upon signing the contract of lease, charged on the total of all payment instalments. VAT is settled by the User in line with the general rules of taxation.
Operating lease applies to buildings (improvements). In operating lease, payment instalments are the User’s (lessee) deductible expense from the tax perspective, which lowers the tax base. Land is not depreciated, it is not the object of operating lease and that’s why the parties conclude a financial lease contract for land, aside from the operating lease for buildings and facilities.
Main features of the operating lease contract:
- a contract concluded for a definite period of time, with a minimum leasing term of 5 years,
- the object of lease is classed as the Financing Party’s assets,
- the deductible expense includes: initial fee, commissions, monthly instalments, operating costs,
- input VAT (23%) – payable with payment instalments.