Legislation

Financial leasing is a type of legal relationship in which the lessor undertakes, under a financial leasing agreement, for a term and for a fee determined by that agreement, to transfer to the lessee for possession and use, as the object of financial leasing, property owned by the lessor and acquired by the lessor without prior agreement with the lessee, or property specially purchased by the lessor from the seller (supplier) according to specifications and terms set by the lessee, which provides for at least one of the features of financial leasing established by the Law of Ukraine “On Financial Leasing”.

The term for which the object of financial leasing is transferred to the lessee for possession and use may not be less than one year.

The object of financial leasing may be property identified by individual characteristics that meets the criteria for fixed assets under the law, is not prohibited by law from free circulation on the market, and for which the law does not restrict transfer into leasing.

The object of financial leasing may not be confiscated, and no third party may impose a seizure on it in connection with any acts or omissions of the lessee, except in cases established by law.

The object of financial leasing may not be included in the liquidation estate if the lessee is declared bankrupt, in the cases and in the manner established by the Code of Ukraine on Bankruptcy Procedures.

Relations between the lessor and the lessee arising from a financial leasing agreement are governed by the Civil Code of Ukraine and the Commercial Code of Ukraine, taking into account the specifics established by the laws of Ukraine on regulation of financial services, this Law and other laws of Ukraine, as well as regulatory acts adopted to implement them.

Relations between the lessor and the seller (supplier) arising from the lessor’s acquisition of ownership of the object of financial leasing for subsequent transfer of that object to the lessee under a financial leasing agreement are governed by the provisions of the Civil Code of Ukraine on sale and supply, taking into account the specifics established by this Law.

Article 292. Leasing in economic activity

The term for which the object of financial leasing is transferred to the lessee for possession and use may not be less than one year.

1. Leasing is economic activity aimed at investing own or borrowed funds, consisting in one party (the lessor) granting the other party (the lessee) exclusive use under a leasing agreement for a defined term of property owned by the lessor or acquired by the lessor into ownership (economic management) on the instruction or with the consent of the lessee from the relevant supplier (seller) of the property, provided the lessee pays periodic lease payments.

2. Depending on the specifics of leasing operations, leasing may be of two types — financial and operating. By form, leasing may be sale-and-leaseback, equity, international, etc.

3. The object of leasing may be immovable and movable property intended for use as fixed assets, not prohibited by law from free circulation on the market and not subject to restrictions on transfer into leasing.

4. Property that is state (municipal) property may be the object of leasing only with the consent of the body that manages that property, in accordance with the law.

5. Land plots, other natural objects, as well as integrated property complexes of state (municipal) enterprises and their structural units may not be objects of leasing.

6. Transfer of ownership of the leasing object to another person is not grounds for termination of the leasing agreement.

7. Leasing is regulated under this Code and other laws.

Article 806. Leasing agreement.
‍
Under a leasing agreement, one party (the lessor) transfers or undertakes to transfer to the other party (the lessee) for use property owned by the lessor and acquired by the lessor without prior agreement with the lessee (direct leasing), or property specially purchased by the lessor from the seller (supplier) according to specifications and terms set by the lessee (indirect leasing), for a certain term and for an agreed fee (lease payments).

General provisions on hire (lease) apply to the leasing agreement, taking into account the specifics established by this paragraph and the law.

General provisions on sale and provisions on the supply agreement apply to leasing-related relations unless otherwise provided by law.

Specifics of individual types and forms of leasing are established by law.

Article 807.

Subject of the leasing agreement. The subject of a leasing agreement may be a non-consumable thing identified by individual characteristics and classified as fixed assets under the law.

Land plots and other natural objects, as well as other things established by law, may not be the subject of a leasing agreement.

Taxation of leasing operations
‍
For the purposes of the Tax Code, the concept of interest includes the lease payment for the use of property under a financial leasing agreement.

The Tax Code introduced separate types and forms of activity such as financial leasing of housing, residential lease, and residential lease with purchase option.

Corporate income tax

Objects of financial and operating leasing are included in the list of objects whose insurance is treated as an expense when determining the tax base. The 5% cap limiting insurance expenses has also been removed.

A new procedure applies for determining the value of a financial leasing object when it is returned without acquisition by the lessee: it equals the principal debt of the lessee for the financial leasing object.

Expenses related to leasing passenger cars are included in expenses in full.

When goods (fixed assets) are supplied into financial leasing, the tax base may not be lower than the acquisition price.

VAT

Interest and fees within the lease payment under a financial leasing agreement are fully exempt from VAT.

The VAT tax base on supply of goods under financial leasing agreements where goods were previously returned by a non-registered lessee is reduced: the base is the positive difference between the sale price and the price of the goods previously returned.

On 25 November 1998 in Moscow, within the CIS framework, the Convention on Interstate Leasing was concluded. The Convention provides that when necessary the term “interstate” will be renamed “international”. On 28 April 1999 Ukraine signed the Convention. However, because only five CIS states signed and Russia refused to sign, the Convention did not enter into force. Under Article 13 of the Convention, leasing objects may not be nationalised or subject to requisition.

STATES — PARTIES TO THIS CONVENTION,

RECOGNISING the importance of removing certain legal impediments to international financial leasing of equipment while maintaining a fair balance of interests among the different parties to the transaction,

AWARE of the need to make international financial leasing more available,

AWARE that the legal rules governing traditional hire contracts need to be adapted to the distinctive three-party relationship created by the operation of financial leasing,

RECOGNISING therefore the desirability of formulating certain uniform rules relating primarily to the civil and commercial law aspects of international financial leasing,

HAVE AGREED AS FOLLOWS:

This Convention governs a financial leasing transaction in which one party (the lessor), on the terms of the other party (the lessee), concludes a supply agreement with a third party (the supplier) under which the lessor acquires plant or equipment on terms approved by the lessee so far as they concern its interests.

This Convention applies whether the lessee subsequently acquires the equipment or continues to lease it, and whether the lessee acquires the equipment at nominal price or leases it for lease payments.

This Convention applies to financial leasing transactions concerning all equipment except that which is to be used primarily for personal, family or household purposes of the lessee.