To obtain fixed assets (property, plant, equipment, etc.), businesses have the choice of purchasing or leasing said assets. These two situations have very different tax consequences.
Purchase
If the asset purchased is an existing property, a registration fee shall be payable.
The purchase of other fixed assets (car, equipment, etc.) shall be subject to VAT at a rate of 15 %; however, such VAT shall generally be immediately and fully refundable.
The fixed asset will appear in the commercial and tax balance sheet of the business, which allows third parties to be informed of the composition of the 'working capital' that the business has at its disposal. The business will thereby also be able to account for depreciation expenses which will be deducted from its taxable result. Maintenance expenses are also deductible, as is the financial interest on loans taken out to finance these fixed assets.
Leasing
Another solution is to take out a lease contract whereby the company uses the fixed asset for a certain period, with the possibility of purchasing it at the end of the contract at a price set at the beginning. The lease contract is subject to VAT (15 %) and can relate to property ('property leasing') as well as movable assets ('movable asset leasing').
Lease arrangements can be in the form of either a capital lease or an operating lease.
Capital leasing is where the business pays the full purchase price of the asset, including interest, during the basic lease term, so that exercising the purchase option at the end of the contract is probable. In this case, the business is deemed, as far as income tax is concerned, to be the economic owner of the leased asset. It therefore depreciates the asset as if it were the legal owner thereof.
Operating leasing groups together all other leasing contracts; the business is only the lessee of the asset, including in terms of economic ownership.
Leasing has the advantage of flexibility and frees the business from having to raise large sums at the start of its activity, at a time when income is not yet significant. It is, however, more expensive than purchasing the property.
Property leasing also allows the payment of registration fees to be deferred to the day on which the purchase option is exercised.
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Purchase |
Leasing |
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Need for financing |
No initial contribution |
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Immediate registration fee (property) or VAT on the purchase cost (car, equipment, etc.) |
Registration fee deferred over time (property) or VAT on rental payments (car, equipment, etc.) |
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Depreciation and financial interest are tax deductible |
Depreciation and financial interest are tax deductible in the case of capital leasing, otherwise rental payments are tax deductible |
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Entitlement to tax relief for investment |
Entitlement to tax relief for investment only in the case of capital leasing |
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The fixed asset will appear in the commercial balance sheet of the business |
The fixed asset will not appear in the commercial balance sheet of the business; only the rental payments shall be entered in the income statement |