Leasing and Its Advantages

The nature of leasing gives it a number of advantages compared to other methods of financing:

1. Long-term financing – up to 7 or even 10 years; financing available in Russian rubles, US dollars or euro.

2. Opportunity to acquire (at minimum initial expenditure) modern equipment or real estate properties. This allows the lessee company to obtain required assets without the need to accumulate the total amount of the purchase price from internally generated funds.

3. Lessee receives economic benefit arising from:

• inclusion of periodic payments under a leasing transaction into the company’s cost of production – and therefore decrease of resulting corporate income tax (leasing payments are fully tax-deductible);
• an opportunity to apply accelerated depreciation of the leased asset (using regular depreciation rates multiplied by a special “leasing” factor of up to 3.0x). This allows the lessee, on the one hand, to recoup the original investment faster (depreciation expense is also included in cost of production – i.e. is fully tax-deductible) – and on the other hand faster depreciation decreases the company’s property tax amount. Depreciation period (that is shortened by the accelerated depreciation rate under a leasing arrangement) is often very close to duration of the leasing contract. This allows the lessee (at the expiration of the leasing contract) to receive the assets at their book value – which at that time is close to zero. This allows the former lessee to avoid the need to calculate and pay property tax on that asset.

4. A flexible schedule of leasing payments can be designed taking into account seasonal fluctuations in product sales or other specific aspects of lessee’s operations.