Taxation of the parties to the leasing agreement, part AND

The lack of sufficient capital for the equipment needed by the company makes it necessary to look for alternative sources of financing the business. One of such external sources of obtaining capital is leasing. The nature of the lease, like most commercial contracts, is intended to bring mutual benefits - both for the user and the lessor himself.

Definition of a leasing contract in the Income Tax Act

The Personal Income Tax Act itself does not directly define individual types of leasing, but specifies in detail what should be understood by a leasing contract. Pursuant to Art. 23a point 1 updof and art. 17a point 1 updop:

"Whenever the chapter mentions a leasing contract - it is understood as a contract referred to in the Civil Code, as well as any other contract under which one of the parties, hereinafter referred to as the 'financing party', gives away for paid use or use and collection of benefits on the terms specified in the Act, the other party, hereinafter referred to as "the user", depreciable fixed assets or intangible assets, as well as land and the right of perpetual usufruct of land ".

 

Types of leasing

Although the Income Tax Act itself, be it from natural or legal persons, or the Civil Code, do not distinguish types of leasing, in practice, due to the method of accounting for the lease, and more precisely the depreciation of the leased object, there are two types of leasing contracts, commonly known as operating leasing and financial leasing.

Operating lease

It is an agreement under which the lessee receives the leased object for use, for which the lessor makes depreciation charges. This means that the thing that is the subject of the contract remains the property of the leasing company for the duration of the contract. The company that uses the item has no right to depreciate it.

Financial leasing

In practice, it is also called capital leasing. The subject of the lease is the property of the lessee from the commencement of the lease contract. The company that uses a given thing can therefore immediately classify it as a fixed asset, entering it into the records and on this basis make depreciation write-offs, which will be the tax cost of the activity conducted.

Operating and financial leasing - differences and similarities

It is a tax cost	Operating lease	Financial leasing
part of the principal installment	Yes	Nope
interest part of the installment	Yes	Yes
depreciation on the part of the lessee	Nope	Yes
depreciation on the part of the lessor	Yes	Nope
expenses for day-to-day operation	Yes	Yes
limit - mileage	Nope	Nope
insurance	Yes	Yes

Income and costs of lessees and lessors

Pursuant to Art. 23b paragraph. 1 updof (Article 17b.1 updop) fees set in the leasing contract, incurred by the user in the basic period of the contract for the use of fixed assets and intangible assets, constitute the financing's income and, accordingly, the cost of obtaining income for the user, if certain conditions are met :

1. The leasing contract, if the user is a company (company or sole proprietorship), was concluded for:

• a definite period of time, constituting at least 40% of the normative depreciation period - if the subject of the lease agreement are movables or intangible assets subject to depreciation,
• a period of at least 5 years, if its subject matter are property depreciation write-offs.

"Art. 23a point 4 updof (art.17a point 4 updop) Whenever the chapter mentions the normative depreciation period - it is understood in relation to: a) fixed assets - the period in which depreciation write-offs resulting from the application of depreciation rates specified in the List of depreciation rates are equal to the initial value of fixed assets, b) intangible assets - the period specified in art. 22m. "

2. The leasing contract, if the user is a natural person who does not conduct business activity, was concluded for a specified period of time.

3. The sum of the agreed fees in the leasing contract referred to in point 1 or 2, reduced by the due tax on goods and services, corresponds at least to the initial value of fixed assets or intangible assets, and in the event of the conclusion by the financing party of the next fixed asset lease agreement or intangible assets, which were previously the subject of such a contract, corresponds at least to its market value on the date of conclusion of the next lease contract.

An exception to the above-mentioned rules is the case where the financing party (lessor), on the date of concluding the leasing contract, benefits from income tax exemptions granted on the basis of:

• art. 6 of the Act of February 15, 1992 on corporate income tax (Journal of Laws of 2011, No. 74, item 397, as amended),
• regulations on special economic zones.

With respect to such contracts, the taxation rules set out in Art. 23f-23h updof (art.17f-17h updop).