Leasing as an alternative to credit and cash purchase
Leasing is a way of acquiring fixed assets that allows you to avoid a high one-time cost of buying a specific item. It is a convenient alternative for entrepreneurs who do not decide on a bank loan or cash purchase. Today, more and more companies, both newly established and those with an established position on the market, decide to lease.
Leasing – definition and terms of the contract
The information contained in the Civil Code clearly indicates that under the lease agreement the financing party undertakes to purchase the agreed item from the selected seller under the conditions specified in the said agreement and return the item to the user for using or using and collecting benefits for a specified period. The user is, however, obliged to pay the monetary remuneration to the lessor in installments agreed in the contract. Finally, the payment amount of all liabilities should not be lower than the value at which the item was originally purchased by the financing party.
Objectively, the repayment amount is always higher than the price we would pay in the case of a one-off cash purchase. Despite this, when deciding to lease, it is definitely more convenient for us to spread the load over time, the possibility of including it in the tax deductible costs and keeping equity for unforeseen expenses.
Financial or operational?
In the financial variant, the lessee’s tax-deductible costs constitute the interest part of the installment, in addition, we have the option of making depreciation charges which, in combination with the installment, is included in the tax-deductible costs. This possibility arises because the object is included in the lessee’s assets. In this option, VAT is paid in full with the first installment, and with the last item I become the property of the lessee.
The situation is different when we are talking about the operational variant. Here, the subject of the contract is included in the lessor’s assets, which is why he has the option of making depreciation charges. The other party, on the other hand, has the option of writing down the installment and the initial payment as a tax deductible cost. We add VAT to each installment. After repayment of the entire liability, the contract ends and you can buy the leased item.