LEASE FINANCING IN POLANDBy Pankaj RathiRoll No. 869Semester V (U.G)

INTRODUCTION• A lease is a contract whereby the owner of an asset (the lessor) grants to another party (the lessee) the exclusive right to use the asset in return for the payment of rent. • Total worth of the Polish Leasing Market – CHF zł.22.2 billion (as of December 31, 2011)

THE LEASE MARKET IN POLAND– AN OVERVIEW

•WHO ARE THE ‘LESSORS’?

46%

48%

6%

Share of different lessors in the Polish Leas-ing Market

Polish Banks Finance Companies Other companies

55%36%

4%5%

Product wise division of Polish Leasing Market

Vehicle

Machinery and Equipment

Transport

others

•CAPITAL GOODS

•CUSTOMER SHARE

56%39%

2% 3%

Segment-wise Customer Share in the Polish Leasing Market

ServicesIndustryAgriculturePublic Sector

REGULATORY MEASURES FOR THE LEASE MARKET IN POLAND

•LEGAL BACKGROUND• Leasing agreement is an agreement which is regulated separately by the Polish Civil Code.• leasing is an agreement under which a lessor undertakes to purchase an asset from a given seller and release it to the lessee for use.• The lease contract is deemed invalid if it is not concluded in writing.

•TAX PROVISIONS• Corporate Profit Tax [CIT]• In line with the general definition envisaged in the CIT Act, lease agreement is an agreement referred to in the Civil Code, as well as any other agreement, under which a lessor gives to the lessee for use against a consideration or for deriving benefits depreciable fixed or intangible assets as well as land.• The above definition does not cover the perpetual usufruct rights, which gave rise to the standpoint expressed by the Ministry of Finance that such rights cannot be subject to the lease agreement.• The provisions of Polish tax law do not explicitly refer to such terms as operating and financial lease; however in practice these terms are commonly used.

Operating leasing• In order to treat the agreement as an operating lease, the following conditions have to be met:• a) the leasing agreement has been concluded for definitive period of time, constituting at least 40% of the normative depreciation period (the period in which tax depreciation write-offs become equal to the initial value of the fixed asset), if it concerns movables or intangible assets, or has been concluded for a period of at least 10 years, in the case of real property; and • b) the total of payments (less VAT), corresponds to at least the initial value of the assets

•Financial leasing• In order for an agreement to be qualified as financial leasing, the following conditions have to be met: • a) the lease agreement has been concluded for a definite period of time;

b) the total of payments (less VAT) corresponds to at least the initial value of the assets; c) the agreement provides that during the primary lease period, depreciation write-offs are to be made by the lessee

• Special rules for passenger cars• Leasing as supply of goodsThe Polish VAT provisions treat as a supply of goods the release of goods under the lease contract that satisfies the following conditions: is qualified as financial lease under the CIT provisions (i.e. depreciation write-offs are made by the lessee) and - provides that in the normal course of events envisaged in the contract or at the latest upon payment of the final installment, ownership shall pass to the lessee• Leasing as supply of servicesOther lease agreements that do not satisfy the conditions to be classified as supply of goods for VAT purposes, are treated as supply of services