The approach to finance leasing from a VAT perspective has changed significantly in recent years.
As of 1 January 2021, the popular operating lease contracts, especially for cars, which allowed the purchase of the vehicle at the end of the contract for a symbolic price of CZK 1,000, will almost cease to appear. The CJEU, which interprets and unifies VAT concepts, has concluded that if the use of this option is the only economically reasonable option, it is a finance lease. Who wouldn't buy a car for a thousand after five years, right?
The consequence of this case law is that in the case of financial leasing, VAT is already charged on the full value of the asset when it is transferred to the user. Subsequent instalments are no longer subject to VAT.
In the case of a rent-to-own delivery, it is important to pay attention to this fact. Moving the time of delivery of the property to the beginning may, for example, cause the loss of the exemption for new builds. Although the risk of reclassification of the option for real estate is significantly lower, it is essential to carefully consider this specific area when drafting contractual documentation.
We will stay with case law. The CJEU has also dealt with financial leaseback. In simple terms, this is a situation where a user buys an item and then sells it to a (leasing) company. This company will allow the user to use the item, of course against monthly payments. At the end of the contract period, the item is sold back to the user.
From a VAT point of view, the (leasing) company does not deal with purchase, lease and resale. It is financing. The purchase and resale of a building is not taxable for the company. If the user had applied VAT on the supply of the item to the company, the financing company would not be entitled to deduct VAT. The same would be true for the user in the case of a VAT-paid buy-back.
It should be noted that the financing company is not entitled to deduct VAT on supplies received that are directly related to the transaction (e.g. legal services). It has to take into account a reduced coefficient in relation to the overhead inputs.
The above applies to leaseback agreements concluded from 1 April 2022, as confirmed by the General Tax Directorate.
Autor: Petr Linx
As of 1 January 2021, the popular operating lease contracts, especially for cars, which allowed the purchase of the vehicle at the end of the contract for a symbolic price of CZK 1,000, will almost cease to appear. The CJEU, which interprets and unifies VAT concepts, has concluded that if the use of this option is the only economically reasonable option, it is a finance lease. Who wouldn't buy a car for a thousand after five years, right?
The consequence of this case law is that in the case of financial leasing, VAT is already charged on the full value of the asset when it is transferred to the user. Subsequent instalments are no longer subject to VAT.
In the case of a rent-to-own delivery, it is important to pay attention to this fact. Moving the time of delivery of the property to the beginning may, for example, cause the loss of the exemption for new builds. Although the risk of reclassification of the option for real estate is significantly lower, it is essential to carefully consider this specific area when drafting contractual documentation.
We will stay with case law. The CJEU has also dealt with financial leaseback. In simple terms, this is a situation where a user buys an item and then sells it to a (leasing) company. This company will allow the user to use the item, of course against monthly payments. At the end of the contract period, the item is sold back to the user.
From a VAT point of view, the (leasing) company does not deal with purchase, lease and resale. It is financing. The purchase and resale of a building is not taxable for the company. If the user had applied VAT on the supply of the item to the company, the financing company would not be entitled to deduct VAT. The same would be true for the user in the case of a VAT-paid buy-back.
It should be noted that the financing company is not entitled to deduct VAT on supplies received that are directly related to the transaction (e.g. legal services). It has to take into account a reduced coefficient in relation to the overhead inputs.
The above applies to leaseback agreements concluded from 1 April 2022, as confirmed by the General Tax Directorate.
Autor: Petr Linx