Only for listed companies, not (yet?) for SMEs. For companies such as KLM (leasing of aircraft) and Ahold (leasing of retail premises), for example, the new accounting rule has significant consequences.
In SMEs, lease obligations do appear in the notes to the balance sheet under the heading “off-balance sheet obligations”.
Lease
Lease refers to agreements that have as their feature:
- that the lessee does not immediately acquire full ownership of the leased property,
- but does have the enjoyment of the asset,
- without having to pay the full cost when the good is issued.
Leases are divided into the following two main forms:
- financial lease;
- operational lease.
Neither form is regulated as such in our Civil Code. Operational lease is legally referred to as a (rental) lease. Financial lease as a financing agreement.
Private lease is a term you come across a lot lately. It can refer to both financial and operational leasing. An essential feature of private leasing is that a private person leases, not a company. Passenger cars are regularly an object of private lease.
Another popular term is shortlease. This too can be either financial or operational leasing. Since short lease is all about the contract being of short duration, it is often operational lease.
Balance sheet
How should an SME entrepreneur, who leases assets, account for the lease on his balance sheet? For this, the distinction mentioned above is important.
If there is a financial lease, the asset is recognised on the asset side of the balance sheet (the asset is capitalised). In contrast, the lease liability is recognised on the liability side of the balance sheet: as a liability.
Operational leasing, as mentioned above, is seen as rental. The leased asset and the lease liability are not shown on the balance sheet. The monthly lease instalment is charged to profit.
Operational lease is also referred to as off-balance sheet financing: financing that does not end up on the balance sheet. For listed companies, this will no longer apply from 2019. They are also required by the IASB to report their operating lease obligations as debt on their balance sheet.
Which form of lease (or other form of financing) suits your company? VWGNijhof accountants and their colleagues in the Corporate Finance department will be happy to advise you.
Tax
For income and corporate tax purposes, the form determines how the lease is handled. If, as an entrepreneur, you acquire a business asset on the basis of financial lease, depreciation and investment deduction may be claimed on the investment. With operational leasing, the lessor depreciates and investment deduction is often not possible.
The VAT implications of the two forms of lease also differ. With financial leasing, the asset is delivered at the start of the lease and VAT is due on the full lease instalments at that time. VAT must be calculated monthly on the operational lease instalments.
In the context of VAT, the ECJ recently issued a judgment in the case of Mercedes Benz Financial Services UK. This case is also relevant for Dutch practice. It seems that the rules in the Dutch leasing decree are a bit too broad. As long as that decree has not been repealed or amended, Dutch entrepreneurs can of course continue to rely on those wider rules.
Want to know more about the tax rules around leasing? Then take contact with the tax specialists at VWGNijhof.