Leasing of premises - tax settlement

Leasing is one of the forms of financing the conducted activity. It is also used to obtain premises where the activity is or is to be conducted. The leasing of premises is often treated as an alternative to a loan - commercial real estate, independent buildings or commercial premises may be leased.

What are the benefits of leasing premises?

Leasing a property can have many benefits. Here are some examples of the profits from leasing the premises:

• purchase of premises with a minimum own contribution;
• financing up to 100% of the investment;
• additional financial benefits that result from the increase in the value of the premises during the lease agreement;
• lease term from 1 year in the case of finance leases, and from 10 to 15 years in operating leases;
• refinancing existing financial liabilities;
• the possibility of paying off flexible leasing installments that are adjusted to the expected profitability of the company in given periods;
• optimization of tax benefits through the possibility of including the leasing installment in tax deductible costs - in the case of operating leasing;
• in the case of financial leasing, a shorter depreciation period for used buildings;
• the possibility of repurchasing the leased premises at a price lower than the market price;
• possibility to choose the leasing currency;
• low cost of obtaining a source of financing.

Operating lease of the premises

In operational leasing, all fees related to the lease of the commercial premises, i.e. the first installment, commissions, monthly fees, operating and insurance costs are tax-deductible for the user. During the operating lease, the leased premises are included in the records of the financing party's fixed assets and it is he who makes depreciation write-offs for a given premises.

The fees incurred due to the operating lease related to the use of the premises constitute both the income of the financing party (lessor) and the cost of the user (lessee), provided that:

• the lease of the premises was concluded for a minimum period of 5 years;

• the sum of the fees stipulated in the lease agreement for the premises, less VAT, is at least equal to the initial value of the leased premises.

Important! If the operating lease agreement is concluded for at least 5 years, and the value of the lease payments is equal to the initial value of the premises, the value of the lease payments can be fully recognized as costs.

Leasing the premises - termination of the lease agreement

If the termination of the lease agreement involves the purchase of the premises by the lessee, then the premises becomes a fixed asset recorded by the lessee.

In a situation where the premises purchased from the lease will be used for private purposes, and not for business purposes, the premises will not be subject to depreciation.

Financial leasing of the premises

Finance leases usually apply to the entire property, including the land. In this form of leasing, the lessee makes depreciation write-offs on the leased premises, and it is with him that the premises are shown in the records. Beneficiaries may include: the interest part of the lease payment for the premises, depreciation, operating costs and other expenses related to the use of the premises. In financial leasing, the duration of the contract and the purchase value of the premises after the end of the leasing are freely determined by the parties.

Leasing the premises is a beneficial solution for entrepreneurs who cannot afford to buy the premises and those who do not want to rent it from other entities.