The recently adopted Law on Financial Leasing and changes to the Sales Tax Law have significant implications for lessors and lessees.

I. PURCHASE OF ASSET BY THE LESSOR

An amendment to the Sales Tax Law (the Law) provides a sales tax exemption for the purchase of assets (including equipment, cars and watercraft) by the lessor for the purpose of financial leasing (articles 3 and 4 of the Law). This places the lessor in a

position similar to other purchasers of assets for business purposes.

II. CONCLUSION OF A CONTRACT FOR FINANCIAL LEASING

a) Sales tax on goods

Delivery of leased assets by a lessor to a lessee is considered a taxable supply under the Sales Tax Law.

If the leased asset constitutes equipment for the purpose of the lessee’s registered business activity, sales tax on goods is not due provided that ‘written statement PI-3’ (exemption for ‘equipment for registered business activities’) is supplied by the

lessee (sales tax law, article 11, paragraph 1, point 15 and paragraph 5 of the same article).

However, when the leased asset is a new motor vehicle (or watercraft) subject to annual registration, the lessee pays sales tax on goods. The taxable base is the purchase value (excluding interest).

b) Sales tax on services

Leasing services are sales tax exempt (article 17 of the Law).

III. TRANSFER OF OWNERSHIP TO THE LESSEE

Strictly according to current legislation, 5% tax on transfer of absolute rights is (article 23 of the Property Tax Law) is due when ownership of motor vehicles is transferred from the lessor to the lessee. The tax base is the market value. Tax on transfer of absolute

rights should be declared within 10 days of the transfer.

It is expected that application of this tax in this situation will be abolished shortly

Source: Ministry of International Economic Relations