Financial leasing: concept, conditions, legal regulation

Economic and property relations that arise with the acquisition of an item in the property and then handing it over for a fee for temporary use is a process called leasing. If the payment is full, and the term of use is approximately equal to the periods of depreciation and operation of most or all of the property, then this is financial leasing. To the lessor, due to payments, not only the entire cost, but also the profit from the transaction is returned. Financial leasing most often obliges the recipient to take out insurance and maintenance of property. This species is the most popular and widespread everywhere, as it has many different forms to choose from. All of them have independent names.

Classic

Typically, financial leasing is a tripartite relationship between the parties to the transaction: property supplier, lessee and lessor. The most common operation scheme is as follows. The lessor needs some property for which he does not have enough money. He turns to a financial company with a business proposal. The lessee (lessee) selects the item or equipment and the seller, the lessor makes a purchase and transfers for temporary use for an agreed fee. Further, under the terms of the contract, the property either becomes the property of the tenant or is returned to the lessor.

If an expensive project is implemented, the number of participants increases, financial leasing attracts other sources of funds to the transaction - banks, insurance companies, investment funds and so on. There are two interconnected components in the transaction - relations on sale and temporary use of property. This is in terms of property law. And on the part of the obligation there are two types of contract: the sale of property and the actual leasing financial, that is, its transfer to temporary use. Operational leasing is an ordinary lease under the laws of the Russian Federation. Financial leasing and the concept of financial leasing leasing are one and the same in relation to Russia, when we mean English financial leasing.

First stage of the process

All stages of the leasing process are very closely related. If the contract provides for the sale of property at the end of the contract, the temporary use relationship becomes a sale, only between the user of the property and the lessor. Temporary use can begin only after the sales contract has been implemented. The lease agreement is concluded following the chain. The interaction of process participants occurs at all stages. For example, consider the financial leasing of equipment.

The first stage is the conclusion of an agreement between the lessor and the manufacturer of the equipment, which are the buyer and seller, but the future user of this property is actively involved in the transaction, although it is not involved in the sale. He chooses the equipment, specifies the supplier, delves into all issues of the implementation of the contract - delivery time, place, warranty, acceptance procedure. In principle, almost all conditions of the transaction are established by the equipment manufacturer and the future recipient. The lessor provides only the financial side of it.

Second phase

Now, the buyer becomes the lessor, leasing the property, but again the relationship between him and the user does not become closed, since the seller, who has concluded an agreement with the lessor, will be responsible for the quality of the equipment to the lessee. In any case, the main role in these difficult relations is assigned to the second treaty, and not to the first. The transfer of equipment for temporary use is the determining part of the contract, and the first transaction has a secondary role.

Therefore, the features inherent in the leasing process are as follows:

1. The user has the preemptive right to choose the property and manufacturer, that is, the seller.
2. The seller of the property knows that the equipment is specifically designed for leasing.
3. The property is immediately supplied to the user, not the owner, and the user takes it into operation.
4. Upon detection of defects, the user sends claims directly to the seller who did not sign joint documents with him, and not to the owner with whom the leasing agreement is drawn up.
5. The lessor acquires the property not for himself, but for transfer for temporary use.
6. The entire term of the contract the property belongs to the lessor as the owner.
7. The owner, on the other hand, receives remuneration for transferring equipment for temporary use.
8. The leasing user at the end of the contract or ahead of schedule has the right to acquire the equipment in the property.

Objects and Subjects

Any movable and immovable property, except prohibited in free circulation in the market, property may be subject to leasing. It can be financial leasing of an enterprise, equipment or leasing of real estate. The latter has a high cost, is difficult to implement, has a long preparation time for the entire process, and therefore it is unlikely to ever be widely used in our country. However, even in foreign practice, it is the first type of equipment that collects the main lease payments.

The subjects in the leasing transaction are, as already mentioned above, only three instances: the owner (lessor), user (lessee) and seller of equipment (property). What is a lessor? Most often, this is a legal entity that carries out leasing activities, that is, it transfers on a contractual basis specially acquired property for this purpose. Also, a lessor can be an individual citizen, a registered individual entrepreneur without a legal entity.

Legal entities

A legal entity can be both banks and other institutions involved in loans, if their charter stipulates leasing activity, which is provided for by the Law on Financial Leasing of the Russian Federation. Legal entities are also leasing companies that either specialize solely in financing transactions (that is, paying for property) or universal.

The latter are not only funders, but also capable of providing all kinds of additional services to support the leasing operation - training, consultations, maintenance and so on. Any company whose constituent documents provide for leasing activities, if it has sufficient finances, can also act as a legal entity.

Licensing

In December 1994, a decree of the Government of the Russian Federation on licensing leasing activities at the Ministry of Economy appeared, which clearly established the conditions and procedure for issuing licenses, their validity period, which is usually five years. Only forms of financial leasing require licensing. This activity should be the main thing for the company and bring at least forty percent of the total income. Banks are not subject to licensing, since there is a separate law for them, by which leasing activities are initially provided for. The Law on Financial Leasing specifically sets out the obligations of each entity in a transaction.

The lessee becomes any legal entity engaged in entrepreneurial activity in any legal or organizational form, as well as any citizen-entrepreneur who has not formed a legal entity, but is registered as an individual entrepreneur. Leasing conditions are prescribed in each case of the transaction, based on the Law on Leasing Activities.The seller of property or equipment can be any enterprise: both the manufacturer and the trading company that are the subject of leasing. The subjects may be recognized foreign investor enterprises that act in accordance with the law on foreign investment. For this, there is international financial leasing. Our country begins to enter this area since 1988. The Financial Leasing Convention was adopted in Ottawa at a diplomatic conference. Among the fifty-five participants was the Soviet Union.

Types of leasing

All over the world, two main types of leasing are recognized - financial and operational. They differ only in terms of the scope of the lessor’s responsibilities and the terms of use of the equipment. Operational leasing according to the name has a shorter duration than the life of the property or equipment according to the norms, and leasing payments do not fully cover the cost of equipment or other property. Therefore, the lessor leases it more than once for temporary use, so that the risk of reimbursing the value of the property in balance does not increase. Therefore, leasing payments, under equal conditions, become higher than with financial leasing.

The second type of leasing - financial - involves the full payment of the value of the property, and the period of temporary use is close in duration to the period of depreciation and operation of the facility as a whole or most of it. At the end of the contract, the lease payments fully return to the lessor the value of the property plus profit from the leasing transaction itself. In terms of servicing the property involved in leasing, the process can be divided into the following types of leasing.

• If the tenant takes over all maintenance of the property, such a relationship is called net leasing. Costs related to equipment maintenance are not included in lease payments. This type is more characteristic of financial leasing.
• “Wet” leasing - if the lessor is required to carry out maintenance, equipment repair, insurance, and many other operations. Also, financial rent implies marketing, training of qualified specialists, other personnel, supply of raw materials, advertising of finished products and much more. The lessor, if specified in the terms of the transaction, may assume such obligations. “Wet” leasing is characteristic for its operational appearance.

Subspecies of Leasing

In Russia, leasing services are not as popular as they are abroad, this market has yet to develop in order for leasing companies to appear with high-quality technical maintenance of all objects. So far, the most common type is clean, which can also be divided into many forms of financial leasing.

1. Direct leasing - when the manufacturer himself is the lessor, that is, the supplier and lessee enter into a bilateral transaction. This species was not widely used in our country, since with an increase in the number of operations the manufacturer usually creates his own leasing company.
2. Returnable leasing is a type of two-way transaction when an enterprise, and in the future, a lessee, does not have enough funds to conduct production activities on the equipment it already has. The company sells its equipment through a leasing company, which also rents this equipment to it. Such a plan, a financial lease gives the company money, for example, for working capital. The contract is drawn up in such a way that the company can redeem its equipment back at the end. If the manufacturer is experiencing financial difficulties, this type of leasing can be an effective help.
3. Separate leasing is an additional attraction of finance. It is quite difficult to execute a subspecies of leasing because of the multi-channel financing, therefore it is used most often for expensive projects.This subtype is distinguished by the fact that upon purchase, the lessor does not pay the entire amount, but some part of it, the rest is financed by the lenders from whom it takes a loan. Nevertheless, tax benefits calculated for the leasing company from the full value of the property are retained. The lessor is not a responsible person to its creditors. Debt is repaid from lease payments. Therefore, most often a pledge on property is issued in favor of creditors. It turns out that the main risk regarding the transaction is borne by creditors - insurance companies, banks, investment funds, and so on, and only lease payments and leased property can serve as security.
4. Revolving leasing (with replacement of property) - if the lessee needs a wide variety of equipment, then under the terms of the agreement he can exchange one leased property for another in a certain period of time. It happens that the leasing is carried out through an intermediary, then the contract provides for the receipt of payments by the main lessor in case of bankruptcy of the intermediary. Such transactions are also called subleasing.
5. Sub-leasing is beneficial for the technical re-equipment of enterprises consisting of a concern or holding. If the parent company does not want to lend to subsidiaries, it creates a leasing company and buys the necessary equipment for its subsidiaries to be sure of the correct spending of funds. Then it can track lease payments and oversee the use of equipment.

Example

Sub-leasing transactions are very characteristic of the international sphere. There they are called "double dip." A combination of tax benefits is used in several countries at the same time. In the early 90s, this scheme worked for the acquisition of aircraft by the United States through the UK. The transaction was effective because in the UK tax credits are greater if the lessor is a property owner, and in the United States tax credits are wider if the lessor is the owner.

The British company bought the aircraft and leased them to the American company, which, in turn, arranged for a long-term lease to its local airlines. For such a plan of transactions, there are offshore zones - places where taxation is most preferential, and various leasing companies like to open there.

Benefits

1. The invested property reduces the risk, unlike a financial loan, non-repayment of funds is compensated by the ownership rights to this property.
2. One hundred percent lending without immediate start of payments will allow updating production and acquiring property without financial stress. A regular loan involves paying part of the cost from own funds.
3. Making a lease for an enterprise is easier than taking a loan to acquire property, since leasing involves a pledge.
4. A leasing agreement is more flexible than a loan, and you can draw up a convenient payment scheme for the subject of financial leasing, the rates are both floating and fixed.
5. Leasing payments begin after the equipment is installed, and after achieving productivity, part of the profit can be used for settlements with the lessor.
6. Leasing terms can significantly exceed the loan term.
7. You can buy equipment at residual or nominal value after the expiration of the contract.
8. Lessee is less at risk relative to physical and obsolescence obsolescence of property.
9. The property is not listed on the balance sheet of the lessee, which means that assets are increasing and there is no property tax.
10. Leasing payments are production costs, and therefore taxable income lessee is reduced.
11. The lessor has tax and depreciation benefits.
12. A manufacturer can sell products more widely.

Only flaw

There is a risk of obsolescence of equipment for the lessor, and the lessee pays more than this equipment costs, and even more than a bank loan. The remaining points are only positive. The tax benefits provided for in the decree of the government of the Russian Federation have made this type of business very attractive. The lessor is exempt from income tax and value added when implementing the contract and performing leasing services.

If all tax benefits are used, the total amount of leasing payments is reduced, more lessees are involved in the matter. Value added tax alone can reduce payments by twenty percent. The main thing is to provide reliable legal support for this entrepreneurial activity, this is a guarantee of success. And legal uncertainty in the relationship of partners is the main reason for restraining entrepreneurial initiative.

Type of property and payback ratio

Leasing can have such objects as mobility - cars, machinery, all kinds of equipment and so on, and new and used ones, as well as real estate - buildings. buildings, planes, ships. The leasing process can be carried out with full or almost full payback (depreciation of property full or close to it), as well as with incomplete payback when only partial depreciation pays off.

The separation of leasing types is also carried out by the nature of payments and the form of settlements between the lessee and the lessor. They are cash, compensation, mixed and depend on the composition of the elements of payment. A variety of methods of calculating payments are used: a fixed amount, an advance, accounting for the repurchase of property at its residual value, accounting for the frequency of payments - annually, for half a year, quarterly or monthly, taking into account the urgency of making, as well as the payment method - even shares, increasing or decreasing size . The degree of risk also plays a role in determining the type of leasing that may be unsecured (without guarantees for the lessor), partially secured when there is an insurance deposit, and also guaranteed leasing (secured by the return of the leased property).