Basic concepts within the leasing contract

Service-Tax

Leasing as a form of business financing

Leasing is one of the most popular forms of financing business activities. Thanks to it, it is easier to purchase and use equipment and accessories, without the need for long-term savings. However, before the entrepreneur decides to choose this form of obtaining support, it is worth knowing the basic concepts that define the aspects of leasing.

The concept of leasing describes a contract in which one of the parties acquires the right to use a given thing, transferring in return the benefits to the other party, who gives it for use. It is a commercial agreement because at least one of the parties has the status of an entrepreneur in it.

Lease contract parties

The parties in the leasing contract also have their names. The lessee is the party that uses the subject of the contract - therefore the term 'user' is also used here. On the other hand, the lessor is the party that makes the subject of the contract available and transfers it to the lessee for use. In practice, it is most often a company that specializes in leasing activities.

Leasing classifications

Two classifications can be distinguished in leasing. The first one concerns the division of contracts into direct and indirect. In the case of direct leasing, the agreement is concluded directly between the producer of a given item and its user. Indirect leasing, on the other hand, takes into account more than two parties when concluding a contract. Between the entrepreneur acquiring the rights and the manufacturer there is a leasing company that deals with all the necessary formalities.

The second classification concerns the division into financial and operating leases. The former is characterized by the possibility of including only the interest part of the installment as the lessee's tax deductible costs. The subject of the lease itself is classified in this case as company fixed assets, and the user is obliged to make depreciation charges. Operating lease, on the other hand, states that the equipment handed over for use is still the property of the leasing company (or the manufacturer), therefore it is the lessor's responsibility to make depreciation write-offs.

Additionally, it is worth mentioning the leaseback. It is a type of contract in which the lessee sells the lessor's own fixed assets. However, despite the sale, the equipment is not physically transferred to the buyer but is still used in the lessee's business.