Lease Agreement Vat

In its judgment of 4.10.2017 (C-164/16, Mercedes Benz Financial Services), the ECJ considered that a clear decision should be taken on this matter as soon as the contract was concluded. As a result, a delivery can be considered to have been made if the rental agreement provides for a transfer of ownership of the rented thing to the tenant. Please note that this could be the case, for example, if, after the contract, if the possibility of exercising the option arises, the sum of the contractual payments corresponds to the market value of the goods, including financing costs, and the exercise of the option does not require the tenant to pay a significant amount. The concept of “substantial sum” can still be clarified. The Court of Justice considers that where a contract is a lease which provides that in normal times the property goes through a purchase option at the latest at the time of payment of the last instalment, it is a supply of goods (and not a service). This is the case where it can be inferred from the financial terms of the contract that the exercise of the option appears to be the only economically reasonable choice that the lessee can make in good time if the contract is performed for its entire duration. In its above-mentioned draft circular, the BMF revealed that the ECJ judgment was partly in conflict with the ongoing valuation of leases for VAT purposes under Article 3(5), (5) and (6) of the UStAE. This is why Article 3(5) of the EUStAE is revised in accordance with the version of the ECJ judgment. In addition, it is planned to extend the scope to leases. In the case of cross-border making available, it would be necessary, in case of doubt, to allocate the object of the rent under the legislation of the other Member State. In the case of a lease agreement, 60% of the amount of tax levied on the rental rate and other payments of the concluded contract are subject to the settlement. The sum of the deductions on a car cannot exceed the amount of PLN 6,000.

This may be the case, in particular, where the sum of the sum corresponds to the market value of the leased object, including financing costs, and the lessee is not obliged to pay a substantial additional amount for the exercise of the call option. When signing a rental agreement, it is also necessary to review the discount/interruption clauses to ensure that no excessive VAT obligation is imposed on the tenant. According to the Goods and Services Tax Act, operating leasing is considered to be a supply of services. Therefore, for income tax purposes, the contract remains a rental agreement and the tenant can claim the rents as a tax deduction within the meaning of Article 11 (a). The monthly rent must be reduced by the VAT related to this payment in order to calculate the rent deduction in accordance with Section 11(a) of the Income Tax Act. The deduction provided for in Article 11 bis for the tenant in the first year therefore amounts to R50,000 x 12 x 100/114 = R526,316. Rentals are exempt from VAT. The lessor may, however, choose to tax the rents to be paid under the lease. This possibility must be made in writing, either by the inclusion of a provision in the rental contract, or by the issue to the tenant of a document confirming that VAT is levied on the rents. Accounting practitioners need to do their job in managing leasing transactions, as the concepts, guidelines and legislation relating to the classification of a rental agreement as leasing under IFRS for SMEs and the VAT Act are not the same as those discussed in this series of five articles on rental contracts.

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