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USEFUL INFORMATION ON FINANCIAL LEASING

The essence of leasing

Legislative leasing relations are governed by three documents:

  • Civil Code of Ukraine (hereinafter – the CC) (§ 6 ch. 58),
  • Economic Code of Ukraine (hereinafter referred to as the Civil Code) (Article 292),
  • Law of Ukraine “On Financial Leasing” as of December 11, 2003 № 1381-IV (hereinafter – the Law on Financial Leasing).

 According to Part 1 of Art. 1 of the Law on Financial Leasing “financial leasing is a type of civil legal relations arising from a financial leasing contract”. The provisions of the Law shall apply to the relations arising from a financial lease agreement under which the lessor undertakes to purchase the property from the seller (supplier) in accordance with the specifications and conditions set by the lessee and to transfer it to the lessee for a specified period of not less than one year. fixed fee (lease payments).

The subject of leasing

 The subject of leasing is a non-consumer item, which is characterized by individual characteristics and is classified as fixed assets in accordance with the legislation.

 According to Art. 14.1.138 of the Tax Code fixed assets (assets) are recognized as “tangible assets (including reserves of minerals provided for the use of subsoil), designated by the taxpayer for use in the business activities of the taxpayer, the value of which exceeds 2500 hryvnia and gradually decreases in th physical or moral wear and tear and the expected useful life (operation) of which is one year from the date of commissioning (or longer than one year). ” The fixed assets do not include: land value, unfinished capital investments, public highways, library and archival funds, tangible assets not exceeding UAH 2500, intangible assets.

Taxation of financial leasing operations

– Income tax

By the Tax Code, financial leasing transactions are classified as transactions of a special kind. The procedure for their taxation is governed by Art. 153.7 of the Tax Code.

– Accounting for the leased asset

Although the Law on Financial Leasing does not provide for the transfer of ownership of a financial leasing object at the time of transfer of the object from the lessor to the lessee, such transfer in accordance with the provisions of para. 3 tbsp. 153.7 of the Tax Code is equal to the transaction of sale of a financial leasing object at the time of such transfer.

 The lessee (lessee) includes the value of the financial leasing object (excluding interest accrued or to be accrued in accordance with the contract) in the fixed assets for the purpose of depreciation by the tax period in which such transfer takes place.

 Leasing payment

The lease payment under the lease agreement consists of two parts:
1. The part that reimburses the value of the leased item.
2. The lessor’s reward.

The tax expense of the lessee will increase not only the entire amount of the lease payment, but only part of it. Yes, para. 4 tbsp. 153.7 it is determined that, when calculating a lease payment, the lessee increases the cost of that part of the lease payment equal to the amount of interest or commissions accrued on the value of the financial leasing object (excluding part of the lease payment provided to offset part of the value of the financial object leasing) by the effects of the tax period in which such accrual is made. It should be noted that the amount of prepayment (advance) is not included in the expenses.

Amortization

According to paragraph 1 of Art. 18 of the Law on financial leasing depreciation for leasing is calculated in accordance with the law, ie in accordance with the provisions of Art. 144-146 of the Tax Code. As noted, in accordance with Art. 153.7 the lessee includes the value of the financial leasing object in the fixed assets and depreciates in the manner provided for the acquisition of the AF under the rules established by Art. 144-146 of the Tax Code.

Improvements and repairs

 Current and major repairs, reconstruction, modernization, technical re-equipment and other types of improvement of fixed assets received under financial leasing are carried out in a general manner in accordance with Art. 144.1 and Art. 146.12 of the Tax Code.

VAT

 According to Art. 14.1.191 of the Tax Code transactions on the transfer of property under a financial leasing contract are equivalent to operations on the supply of goods.

 The date of origin of the tax credit from the lessee is set by Art. 198.2 of the Tax Code. This rule establishes that the lessee’s right to a tax credit for the financial leasing object arises at the moment of actual receipt of such object from the lessor, and not at the date of payment of the advance payment.

 The part of the lease payment, which consists of interest and commissions within the limits of the financial leasing contract according to para. 3 tbsp. 196.1.2 is not subject to VAT. Transactions on the payment of the value of additional services provided for in the financial leasing contracts are subject to VAT taxation in accordance with Art. 198.2 of the Tax Code.

 Please note that part of the lease payment, which is a compensation for the value of the leased object, is subject to VAT during the period of its transfer to the lessee. Therefore, the tax liability will no longer arise in the period of accrual of the lease payment in this part, which offsets the value of the object.

 Return of financial leasing object by tenant

 In accordance with the provisions of the Law on Financial Leasing, the subject of financial leasing may be returned to the lessor in case of:
1) return of the leased asset to the lessee after the end of the financial leasing contract;
2) cancellation by the lessor of the contract in case of non-payment of lease payments or their delay.

 In tax accounting, such an operation is treated as a reverse sale (paragraph 5 of Article 153.7 of the Tax Code). The value of the object to be returned is determined at the price determined at the level of the amount of the lease payments in the part of compensation for the value of the financial leasing object that are unpaid for such object of the lease at the date of such return.

 The tax liability for the VAT on the return sale is calculated based on the price of the leased object, determined by the rules of para. 5 tbsp. 153.7 of the Tax Code at the rates stipulated by Art. 193.1 item a, taking into account the transitional provisions, namely: in 2011-2013 – the tax rate is 20%; since 2014, the tax rate is 17%.

 Fee for the first registration of the vehicle

 The tax payers according to the Tax Code are legal and natural persons who carry out the first registration of vehicles in Ukraine, which according to the Code are subject to taxation. Leasing items are the property of the lessor, which is why the leasing company performs the first registration and is the payer of the levy. Lessees do not pay the fee for the first registration of the vehicle, and therefore do not have to report to the tax authorities at the place of registration of the lessee and pay this fee to the budget.

 Unlike the tax legislation, which was in force until 01.01.2011, the fee for the first registration is paid once at the very first registration.

 FINANCIAL LEASING ACCOUNT

 Terms

 According to Part 1 of Art. 3 of the Law of Ukraine of December 16, 1997 No. 723/97-BP “On Financial Leasing” (hereinafter referred to as the Law on Financial Leasing) the subject of a leasing contract may be a non-consumer item, identified on an individual basis and attributed in accordance with the legislation to the fixed assets. It should be noted that in accounting for the term “financial leasing” is identical to the term “financial lease”.

 Pursuant to Clause 4 P (C) of BO 14 “Lease” a finance lease is a lease that involves the transfer to the lessee of all risks and benefits associated with the right to use and own the asset.

 The lease is considered to be financial in the presence of at least one of the following:

1) the tenant acquires ownership of the leased asset upon the expiration of the lease term;
2) the lessee has the opportunity and intention to purchase the leased object at a price below its fair value at the acquisition date;
3) the lease term is a large part of the useful life (operation) of the leased property;
4) the present value of the minimum lease payments from the beginning of the lease term equals or exceeds the fair value of the leased property;
5) the leased asset has a special character. This allows only the tenant to use it without the cost of its modernization, modification, refurbishment;
6) the tenant can extend the lease of the asset for a fee much lower than the market rent;
7) the lease may be terminated by the tenant, who compensates the landlord for his loss from the termination of the lease.

 Accounting for the object of financial leasing

 The lessee (lessee) reflects in the accounting the financial object leased at the same time as an asset and liability at the earliest beginning of the lease estimate:

  • the fair value of the asset;
  • the present value of the minimum lease payments.

 Payment of rental payments

 When concluding financial leases, the lease payment consists of two parts:
compensation for the cost of equipment;
– financial costs of the tenant.

 Since, under P (C) BO 14 “Lease”, the cost of the equipment is reflected by the lessee in the period of receipt of the object, so from the total amount of the lease payment should be allocated the part that is the lessee’s financial expenses and relates to the reporting period of expenses. Such costs are reflected in subaccount 952 Other financial expenses.

 Improvement and repair of property

 The accounting for repairs made by the tenant should be divided into two categories:
1. Repairs carried out to maintain the facility in working order and do not bring any additional economic benefits to the enterprise (current repairs and maintenance). In this case, it should be guided by item 15 P (C) of BO 7 “Fixed assets” and attribute such expenses to the expenses of the reporting period, reflecting them in the corresponding accounts of 8th or 9th class.
2. Repairs that will bring additional economic benefits to the further enterprise (major repairs, modernization, improvement of the facility). The accounting for such repairs on financial lease is governed by Clause 6 P (C) of BO 14 “Lease”. Based on this point, repair costs should first be capitalized on a subaccount 152 “Acquisition (production) of fixed assets”. In the future, such expenses will increase the carrying amount of the object and will be amortized as part of it (clause 6 P (C) of BO 14 “Lease”). It should be remembered that the depreciation charge in accounting is suspended for the period of reconstruction, modernization, refurbishment and conservation of the object according to item 23 of P (C) BU 7 “Fixed assets”.

 Depreciation of a financial leasing object

 Depreciation is charged to the lessee over the period of the expected use of the asset at the cost at which the item was recorded. The period of the expected use of the financial leasing object is the useful life (if the contract provides for the transfer of ownership of the asset to the lessee) or the shorter of the two periods – the lease term or the useful life of the financial leasing object (if the transfer of ownership of the asset after expiration). no lease term).

 Depreciation should be recorded on the subaccount 131 Depreciation of property, plant and equipment.

Author: Andrey Prikhodko

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