Types of Leasing
The legal determination of leasing, the determination of leasing for purposes of taxation and for accountant purposes differ depending on the legislation of different countries.
The general determination of leasing:
Leasing – is a relation, where lessor transfers the property to the lessee in a temporary use with the established payment.
A lease is the right to use or occupy property given by a lessor to the lessee for a fixed or indefinite period of time, whereby the lessee obtains exclusive possession of the property in return for paying the lessor a fixed or determinable payment
Classification differs depending on the criteria or indexes that are used:
•the form of the transaction organization (straight, recurrent, indirect, leverage-leasing (separate, group));
•
•the terms of transaction (operational, financial);
•
•the volume of maintenance (clean (net), complete (wet));
•
•the object of leasing (leasing of real estate, car leasing etc.);
•
•the section of market (internal, external or international);
•
•the condition for amortization (with the total or partial amortization);
•
•the size of transaction (small, average, large);
•
•the form of leasing payment (money, compensating, mixed) etc.
World practice indicates minimum 3 basic criteria for the classification of leasing forms:
• Presence of 3 sides in the leasing operation: Supplier (1), from which the Lessor (2) buys the object of leasing specially for the transfer to the Lessee(3). This is the so-called "trilateral leasing" (appeared in the USA, and now found its approach in Hungary, France, Italy, Latvia, Albania, Serbia, Russia, Belorussia, Uzbekistan, Japan, Panama and Nigeria);
• Presence of one or several criteria determined at FAS 17:
ownership of the property is transferred to the lessee at the end of the lease term
the lease contains an option to purchase the property for less than fair market value
the lease term is greater than 75% of the property's estimated economic life
Leasing assets have particular properties that allow only to specific lessee to use it without significant material changes
• Minimal terms of leasing are fixed in such countries: 1 year - Ukraine, Uzbekistan, Albania (for the movables), 2 years - in Serbia, Brazil, 3 years - in Kazakhstan, Panama, Albania (for the real estate))
LEASING FORMS RECOGNIZED ALL OVER THE WORLD
• An operating lease is a lease for which the lessee acquires the property for only a small portion of its useful life. An operating lease is commonly used to acquire equipment on a short-term basis.
• A finance lease or capital lease is a lease that meets one or more of the following criteria, meaning it is classified as a purchase by the lessee: the lease term is greater than 75% of the property's estimated economic life; the lease contains an option to purchase the property for less than fair market value; ownership of the property is transferred to the lessee at the end of the lease term; or the present value of the lease payments exceeds 90% of the fair market value of the property
• The basic criteria of finance lease:
•the lease term is greater than 75% of the property's estimated economic life;
• the lease contains an option to purchase the property for less than fair market value;
•ownership of the property is transferred to the lessee at the end of the lease term;
•or the present value of the lease payments exceeds 90% of the fair market value of the property
• The basic criteria of operating lease:
•the lease term is much shorter than the property's estimated economic life;
•the property may be leased repeatedly
•leasing operation is two-sided
•all responsibilities for maintenance services and insurance are on a leasing company
•the amounts of operating leasing payments are higher than payments of finance leasing, since the lessor has additional risks;
•at the end of the term the property is usually returned to a lessor
LEASING FORMS ACCORDING TO THE LAW OF UKRAINE
• Forms:
Operating lease
Finance lease
Leaseback
cross boarder lease
+38 (044) 492 3269
+38 (044) 499 0761