Intro to Leasing
“Profit” cannot be acquired via ownership, but rather by the right of use. If the aim of having vehicles and equipment can be fully applied, having “ownership” is just a process; however, “funds” can be replaced by “underwriting” so that equipment and vehicles can be easily obtained. Cooperating with a professional leasing company helps enterprises to obtain vehicles and equipment through financing leasing or operating leasing.
In general, there are two kinds of lease operation:
Finance lease (or capital lease)
According to Article 36-2 of audit criteria in the business income tax regulations, if one of the following conditions is achieved, a capital lease can be applied:
(1) The lease transfers ownership of the leased property to the lessee by the end of the lease term;
(2) The lease contains a bargain purchase option;
(3) The lease term is equal to 75% or more of the total estimated economic life of the leased property. This criterion should not be applied to leases in which the leased property has been used for more than 75% of its estimated economic life before the lease begins.
(4) The present value of the leasing payments plus the bargain purchase price or the guaranteed residual value is at least 90% of the market value (less than any investment credits) of the leased property at the inception date of the lease. This criterion should not be applied to leases in which the leased property has been used for more than 75% of its estimated economic life before the lease begins.
Conditions not mentioned in the above description belong to the operating lease.
Based on IFRS of business income tax, the recognition of the above mentioned capital lease is carried out according to No. 17 of IAS.