Low payment, low risk, off-balance sheet finance
An operating lease is a contract wherein the owner (lessor), permits the customer (lessee), the use of equipment for a particular period that is shorter than the economic life of the asset without any transfer of ownership rights.
Operating leases can be an attractive option due to their lower-monthly costs and operational advantages.
Mid-to-large enterprises periodically request operating leases to assist off-balance sheet financing. Conversely, an operating lease is the only type of lease agreement that public-sector bodies can enter into without prior approval.
Writing down allowances are not available. Lease rentals are treated as an expense on a straight-line basis over the life of the contract*.
There is no requirement for you to depreciate.
Finally, you pay VAT on the rental payments, not the purchase price.
The benefits of leasing are not restricted to lessees either. The advantage for the lessor in relation to long-funding operating leases is tax relief by way of depreciation. If the lessor is in a high tax bracket, it can lease out assets with high depreciation rates and, therefore, as it will pay tax on the lease rentals received minus depreciation, it can substantially reduce its tax liability. Agreements can be suitably structured so as to pass on some of this tax benefit to customers.
*Special rules apply to company cars
• Low payment
• Low risk
• Off-balance sheet financing
• Lessee has use of equipment with no ownership obligations
• Lease rentals are treated as an expense
• VAT is paid only on the rental payments and not the purchase price of the asset
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