Leasing from the lessee: accounting and tax accounting

How is VAT taken into account when leasing?

VAT on a leasing agreement in 2021 has rates: 0% (zero) and 20%.
They depend on the type of property that is leased. Article navigation

• VAT on leasing under the simplified tax system
• VAT on leasing from individual entrepreneurs
• VAT from the lessee
• Tax deduction for leasing
• VAT on assignment
• VAT on early repayment of leasing
• VAT from the lessor
• Postings for VAT under a leasing agreement
• VAT postings from the lessee
• VAT postings to the lessor

The lessee makes leasing payments for the possession and use of the entrusted fixed asset (FPE). They include the lessor's expenses for the acquisition of the necessary property, his commission, and other costs associated with the fulfillment of obligations. These amounts, by their characteristics, are subject to VAT, therefore the contractual value must be increased by the amount of VAT.

VAT on a leasing agreement in 2021 has rates: 0% (zero) and 20%. They depend on the type of property that is leased.

If the leasing company is on a simplified taxation system, then leasing payments are not subject to VAT. In all other cases, the corresponding VAT rate is applied.

Below we will talk about how to determine whether leasing is subject to VAT, in what order this is carried out and about other features of accounting for financial leases.

VAT on leasing under the simplified tax system

The simplified tax system is a special regime, exempt from VAT (Chapter 26 of the Tax Code of the Russian Federation). There are significantly more simplified lessees than lessor companies that are on the simplified tax system. This is due to the fact that there are restrictions in the application of this taxation system and they depend on the company’s income and the share of legal entities in the authorized capital.

The lessor can issue VAT invoices using the simplified tax system - in this case, he is obliged to pay the entire amount to the budget. He cannot offset VAT on the acquired property. The legislation does not provide him with such a right. A lessee who has chosen the simplified tax system “income minus expenses” takes into account the VAT received upon transfer of a fixed asset as part of its cost. The same condition applies when accounting for rental services under a leasing agreement.

Is it possible to recover VAT on an advance payment?

Taxpayers pay or reimburse VAT on all payments under a leasing agreement, including the advance payment. Thus, according to Articles 171, 172 of the Tax Code, the lessee has the right to offset the tax from the budget. If the contract is drawn up correctly and all supporting documents are available, VAT is refunded in full.

Documentary basis for VAT refund:

• invoice drawn up within 5 days from the date of advance payment;
• the agreement reflects the lessee's obligation to transfer the advance (if there is no such condition, the Federal Tax Service will refuse compensation).

An important condition for compensation is the receipt of inventory items on the balance sheet of the lessee. Then, during the term of the leasing agreement, he will be able to submit VAT amounts for reimbursement from the budget until the debt is fully repaid.

The agreement may provide for the transfer of an advance without specifying a specific figure. In this situation, VAT refundable is reflected based on the amount actually transferred.

VAT on leasing from individual entrepreneurs

If an individual entrepreneur is under the general taxation regime, then he is a VAT payer. The accounting rules for leasing transactions are the same as for the lessee in the LLC form.

An individual entrepreneur cannot be a lessor, since leasing companies are defined by law as commercial organizations with several founders.

If an individual entrepreneur is on special regimes (UTII, simplified tax system, patent) - he is a VAT non-payer. They do not pay VAT on the sale of goods and services, therefore, there is no reason to reimburse it from the budget.

VAT from the lessee

Leasing payments include VAT, which, based on Art. Art. 171, 172 of the Tax Code of the Russian Federation, the enterprise can offset it from the budget. The monthly payment under the contract includes not only the redemption amount of the equipment, but also the services of the lessor. In this case, the amount of VAT to be offset will be higher than when applying for a loan from a bank. If supporting documents are correctly prepared, VAT on leasing is refundable in full.

However, in practice there are cases when the tax office tries to separate the VAT from the lease payment in the context of rent and payment of fixed assets. But the Ministry of Finance, in letters dated November 15, 2004 No. 03 - 04 - 11/ 203, dated November 23, 2004 No. 03 - 03 - 01 - 04/ 1/ 128, clarified the impossibility of such a division and confirmed the organization’s right to use the deduction in full . Since 2004, Russian arbitration courts have adhered to the same conclusion.

When the property under a leasing agreement is on the balance sheet of the lessee, VAT is deducted monthly. Based on the invoice, the deduction amount is entered into the purchase ledger.

Tax deduction for leasing

A tax deduction is an amount by which payments to the budget can be reduced. The deduction is mainly applied in relation to VAT. The amount of payment of value added tax is reduced by the amount of goods and materials received or services provided.

The leasing system is structured in such a way that the budget must always return VAT to the leasing companies. When paying suppliers for expensive property, they repay VAT on its full cost. After leasing the equipment, the company receives payments significantly less than its value. Thus, the VAT deduction on leasing from the lessor is always greater than the payment.

Reimbursement of VAT when leasing from a lessee in the case where the property is transferred to the recipient’s balance sheet is also fraught with problems. The condition for VAT reimbursement is the fact that inventory items are credited to the organization’s balance sheet or services are provided to it. In this case, companies constantly have VAT to reimburse under the leasing agreement until its expiration.

Problems of VAT refund from the budget arise in cases where the taxpayer cannot provide a complete package of documents or some of them do not comply with the requirements of the Tax Code of the Russian Federation.

Leased property must be fully involved in activities subject to VAT. Then the tax on rental payments is refunded in full. Sometimes an organization conducts its activities in several directions, including those that are not subject to VAT. In this case, the tax on leasing payments is subject to proportional distribution to all types of production. VAT on preferential activities is not deductible.

How to return VAT on leasing

When filling out a VAT return, VAT on leasing payments is subtracted from the amount of tax accrued on sales and advances. In the case when the amount of VAT deduction exceeds its amount payable, according to Art. 21 of the Tax Code of the Russian Federation, this amount can be submitted for reimbursement, that is, returned from the budget.

VAT refund on leasing is possible only if the following conditions are met:

• the invoice issued by the lessor complies with the requirements of Art. 169 Tax Code of the Russian Federation;
• there is confirmation of payment;
• the property is accounted for by the lessee;
• the fixed asset is used by the organization in activities subject to VAT.

To return the amount from the budget you must:

• Write an application to the Federal Tax Service for a refund in any form indicating the amount.
• Provide a leasing agreement, a certificate of acceptance and transfer of fixed assets, documents confirming payment of monthly payments.
• Record the refund amounts in the purchase ledger.
• Submit invoices, work completion certificates, completed in accordance with the law.

An enterprise may be denied a VAT refund if it is in the process of bankruptcy, if the payment under the agreement was made with bills of exchange, assignment agreements or with loans.

VAT on assignment

The assignment of a lease is an assignment. The need for this action arises in most cases due to the insolvency of the lessee. According to paragraph 1 of Art. 146 of the Tax Code of the Russian Federation, the transfer of rights to property is subject to VAT.

In case of an assignment agreement, the tax base is established on the basis of Art. 154 Tax Code of the Russian Federation. The value is defined as the difference between the amount of the original contract and all payments under it, including advance payments.

According to Art. 174 of the Tax Code of the Russian Federation, a new party to the agreement can claim VAT for deduction on the amount of remaining payments under the leasing agreement if there is an invoice.

VAT on early repayment of leasing

When purchasing leased property early, accounting features arise for both the lessee and the lessor and they depend on whose balance sheet the object was recorded on.

If the parties have agreed that the lessor accounts for fixed assets on its balance sheet, then early repayment requires postings in the following sequence:

• The lessor writes off the initial cost of the asset, depreciation charges, and residual value; carries out other sales for the amount of early repayment; allocates VAT for payment to the budget.
• The lessee reflects the transfer of ownership; calculates the amount of early payments based on the invoice, indicating the FPR (deferred expenses) on the account, and allocates VAT from it. In this case, the VAT amount is set for reimbursement, and the amounts according to the terms of the contract are debited from the RBP account to the cost accounts.

If the parties have agreed that the lessee takes fixed assets into account on its balance sheet, then early repayment is recorded as follows:

• The lessor transfers the asset to the lessee, charges early payments, issues an invoice, and charges VAT to the budget.
• The lessee performs the actions described in two paragraphs above.

In both described cases, the transaction is not an advance payment and VAT is offset from the budget or paid on the basis of an invoice.

General Audit Department on the procedure for VAT recovery in case of early termination of a leasing agreement

Answer Relations under a financial lease (leasing) agreement are regulated by paragraph 6 of Chapter 34 of the Civil Code of the Russian Federation and the Federal Law “On Financial Lease (Leasing)” dated October 29, 1998 No. 164-FZ (hereinafter referred to as Law No. 164-FZ).

According to Article 665 of the Civil Code of the Russian Federation, under a financial lease agreement (leasing agreement), the lessor undertakes to acquire ownership of the property specified by the lessee from a seller specified by him and to provide the lessee with this property for a fee for temporary possession and use. In this case, the lessor is not responsible for the choice of the rental item and the seller.

Article 2 of Law No. 164-FZ establishes that a leasing agreement is an agreement under which the lessor (hereinafter referred to as the lessor) undertakes to acquire ownership of the property specified by the lessee (hereinafter referred to as the lessee) from the seller specified by him and to provide this property to the lessee for a fee in temporary possession and use. The leasing agreement may provide that the choice of the seller and the purchased property is made by the lessor.

By virtue of paragraphs 1 and 2 of Article 11 of Law No. 164-FZ, the leased asset transferred for temporary possession and use to the lessee is the property of the lessor.

The right to own and use the leased asset passes to the lessee in full, unless otherwise provided by the leasing agreement.

The leasing agreement may provide that the leased asset becomes the property of the lessee upon expiration of the lease agreement or before its expiration on the terms provided for by agreement of the parties (clause 1 of Article 19

Law No. 164-FZ).

Thus, under a leasing agreement, the parties to the agreement have the right to provide for the condition that upon expiration of the leasing agreement, ownership of the leased asset passes to the lessee

.

According to paragraph 1 of Article 28 of Law No. 164-FZ, leasing payments are understood as the total amount of payments under the leasing agreement for the entire term of the leasing agreement, which includes reimbursement of the lessor’s costs associated with the acquisition and transfer of the leased asset to the lessee, reimbursement of costs associated with the provision of other services provided for in the leasing agreement, as well as the income of the lessor. The total amount of the leasing agreement may include the redemption price of the leased asset if the leasing agreement provides for the transfer of ownership of the leased asset to the lessee.

Accordingly, under a leasing agreement, the redemption value of the leased asset may be included in the lease payment

.
In this case, when the lease payment is paid by the lessee, the redemption value of the leased property is partially repaid
.

In accordance with paragraph 3 of Article 11

Law No. 164-FZ, the lessor’s right to dispose of the leased asset includes
the right to remove the leased asset from the possession and use of the lessee in cases and in the manner provided for by the legislation
of the Russian Federation
and the leasing agreement
.

Based on paragraph 2 of Article 13 of Law No. 164-FZ, the lessor has the right to demand early termination of the leasing agreement and the return of the property by the lessee within a reasonable time in cases provided for by the legislation of the Russian Federation, this Federal Law and the leasing agreement.

In this case, all costs associated with the return of the property, including the costs of its dismantling, insurance and transportation, are borne by the lessee

.

So, in practice, under the terms of the leasing agreement, the lessor has the right to demand early termination of the leasing agreement in the event of
failure by the lessee to pay lease payments within the terms established by the leasing agreement
.

Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation “On certain issues related to the buyout leasing agreement” dated March 14, 2014 No. 17

(hereinafter referred to as Resolution No. 17) the following explanations were given:

When resolving disputes arising between the parties to a buyout lease agreement regarding the property consequences of termination of this agreement, the courts should proceed from the following ( paragraph 3 of Resolution No. 17

).

Termination of a buyout lease agreement, including due to a delay in payment of lease payments by the lessee, should not entail the receipt by the lessor of such benefits that would put him in a better financial position than the one in which he would have been if the lessee had fulfilled the agreement in accordance with with its terms (clauses 3 and 4 of Article 1 of the Civil Code of the Russian Federation).

At the same time, termination of a buyout lease agreement due to late payment by the lessee should not lead to the release of the lessee from the obligation to return financing received from the lessor, pay financing fees and compensate for losses caused to the lessor (Article 15 of the Civil Code of the Russian Federation), as well as other sanctions provided by law or contract.

In this regard, the termination of a buyout lease agreement creates the need to correlate the mutual provision of the parties under the agreement made before its termination (balance of counter obligations), and to determine the final obligation of one party in relation to the other in accordance with the following rules ( clause 3.1 of Resolution No. 17

).

If the payments received by the lessor from the lessee (except for advance payments) together with the cost of the leased asset returned to him are less than
the amount of financing provided to the lessee proven by the lessor
,
fees for said financing
for the time before the actual return of this financing,
as well as losses of the lessor and other sanctions
established by law or agreement,
the lessor has the right to recover the corresponding difference from the lessee
(
clause 3.2 of Resolution No. 17
).

If the payments made by the lessee to the lessor (with the exception of advance payments), together with the cost of the returned leased asset, exceed the amount of financing provided to the lessee, proven by the lessor, fees for said financing for the time before the actual return of this financing, as well as losses and other sanctions provided for by law or contract, the lessee has the right to recover the corresponding difference from the lessor ( clause 3.3 of Resolution No. 17

).

At the same time, Resolution No. 17 establishes the procedure for determining the cost[1]

the returned leased item, the amount of financing
[2]
, financing fees
[3]
, losses and other sanctions
[4]
.

Thus, when resolving disputes in court in the event of early termination of a leasing agreement providing for the right to repurchase the leased property, the balance of counter obligations under such an agreement is calculated in the manner prescribed by Resolution No. 17

.

At the same time, we note that in general, VAT amounts on purchased services
are deductible
if the following conditions are simultaneously met:

- the amount of tax must be presented, as evidenced by the corresponding invoice (clause 1 of Article 172 of the Tax Code of the Russian Federation);

— services purchased for carrying out transactions subject to VAT (subclause 1 of clause 2 of Article 171 of the Tax Code of the Russian Federation);

— services are accepted for accounting on the basis of relevant primary documents (clause 1 of Article 172 of the Tax Code of the Russian Federation).

Thus, in relation to services provided under a leasing agreement, the lessee’s right to deduct VAT arises monthly during the entire term of the leasing agreement on the basis of the relevant invoices issued by the lessor.

In the case we are considering, we can assume that the lessee calculated monthly lease payments payable to the lessor in accounting and tax accounting, and the corresponding amounts of VAT were taken for deduction.

At the same time, the lessee committed significant violations of the terms of payment of lease payments, and therefore, the lessor decided to terminate the lease agreement early and return the leased asset to the lessor.

Since the leasing agreement was terminated ahead of schedule, the lessor correlated the mutual representations of the parties in accordance with the explanations of the Plenum of the Supreme Arbitration Court of the Russian Federation, set out in Resolution No. 17 dated March 14, 2014 and determined the amount of debt that is payable by the lessee at the time of termination of the leasing agreement

.

Thus, in the case we are considering, when correlating mutual obligations in connection with the early termination of the leasing agreement, the lessee was determined to be in arrears in paying part of the leasing payments.

By virtue of paragraph 3 of Article 170 of the Tax Code of the Russian Federation, the amounts of VAT accepted for deduction by the taxpayer for services in the manner prescribed by this chapter are subject to restoration by the taxpayer in the following cases:

4) changes in the cost of services provided downwards, including in the case of a decrease in price (tariff) and (or) a decrease in the volume of services provided

.

Tax amounts are subject to restoration in the amount of the difference between the tax amounts calculated on the basis of the cost of services provided before and after such a reduction.

Reinstatement of tax amounts is carried out by the buyer in the tax period on which the earliest of the following dates falls:

— date of receipt by the buyer of primary documents for changes in the direction of reducing the cost of services provided;

- the date the buyer receives an adjustment invoice issued by the seller when the cost of services provided decreases.

In our opinion, in the event of early termination of the leasing agreement at the initiative of the lessor and the correlation of mutual representations of the parties

in accordance with the explanations of the Plenum of the Supreme Arbitration Court of the Russian Federation,
in essence, there is a change in the cost of services provided under the leasing agreement
.

In this case, in our opinion, the total cost of leasing services at the time of termination of the leasing agreement
will be the amount between the lease payments paid by the lessee at the time of matching mutual representations, and the remaining debt of the lessee for payment of such payments
.

Based on the above, we believe that the adjusted cost of services provided to the lessee under the leasing agreement will be

the following value:

Accordingly, in the event that VAT accepted for deduction was calculated from the amount of leasing payments

exceeding the adjusted cost of services
,
then the lessee should recover VAT
on accrued payments and the VAT calculated on the adjusted cost of services.

As we noted above, VAT restoration is carried out in the period falling on the earliest of the dates:

— date of receipt by the buyer of primary documents for changes in the direction of reducing the cost of services provided;

- the date the buyer receives an adjustment invoice issued by the seller when the cost of services provided decreases.

In the case we are considering, it is unlikely that the lessor will issue an adjustment invoice. Therefore, we believe that the restoration of the corresponding amount of VAT

should be carried out
at the time of receipt from the lessor of documents
confirming the early termination of the leasing agreement, and containing a calculation based on the correlation of mutual representations of the parties, or
at the time the court decision enters into force
, if the amount of obligations incurred in connection with the early termination of the agreement was the subject of legal proceedings.

We note that official explanations from the fiscal authorities regarding the procedure for adjusting VAT amounts in the event of early termination of a leasing agreement and the correlation of mutual representations of the parties in accordance with the explanations of the Plenum of the Supreme Arbitration Court of the Russian Federation, set out in Resolution No. 17 dated March 14, 2014, are currently missing.

In this connection, we cannot completely exclude the possibility of a different interpretation by the tax authorities of the procedure for recovering the corresponding amounts of VAT from the lessee.

Meanwhile, in our opinion, the procedure we have outlined most accurately corresponds to the economic essence of the operation associated with the correlation of mutual representations of the parties in accordance with the explanations of the Plenum of the Supreme Arbitration Court of the Russian Federation, and the norms of the Tax Code of the Russian Federation, in particular, the provisions of paragraph 3 of Article 170 of the Tax Code of the Russian Federation.

College of Tax Consultants, August 7, 2021

[1] The cost of the returned leased asset is determined by its condition at the time of transfer to the lessor of the risk of accidental death or accidental damage to the leased asset (according to the general rule of Article 669 of the Civil Code of the Russian Federation - when returning the leased asset to the lessor) based on the amount received by the lessor from the sale of the leased asset in a reasonable period after receipt of the leased asset or within the period stipulated by the agreement between the lessor and the lessee, or on the basis of the appraiser’s report (in this case, the courts should take into account the shortcomings given in the act of acceptance and transfer of the leased asset from the lessee to the lessor) (clause 4 of Resolution No. 17) .

[2] The amount of financing provided by the lessor to the lessee is determined as the purchase price of the leased asset (minus the advance payment of the lessee) in combination with the costs of its delivery, repair, transfer to the lessee, etc. (clause 3.4 of Resolution No. 17).

[3] Clause 3.5 of Resolution No. 17 establishes that the payment for the financing provided to the lessee is determined as a percentage per annum on the amount of financing. If the corresponding interest rate is not provided for in the leasing agreement, it is established by the court by calculation based on the difference between the amount of all payments under the leasing agreement (except for the advance payment) and the amount of financing, as well as the term of the agreement.

The financing fee (in percentage per annum) is determined by the following formula:

,

where PF is the financing fee (in percent per annum),

P is the total amount of payments under the leasing agreement,

A - advance amount under the leasing agreement,

F is the amount of financing,

— term of the leasing agreement in days.

[4] The lessor's losses are determined according to the general rules provided for by civil law. In particular, the real damage to the lessor may include the costs of dismantling, returning, transporting, storing, repairing and selling the leased asset, fees for early repayment of the loan received by the lessor for the purchase of the leased asset (clause 3.6 of Resolution No. 17).

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Postings for VAT under a leasing agreement

Accounting for leasing transactions is regulated by the relevant order of the Ministry of Finance of the Russian Federation dated February 17, 1997 No. 15. The leased object can be recorded on the balance sheet of one of the parties: the lessor or the lessee. This procedure is fixed in the contract or in an additional agreement to it.

In accounting, it is usually shown in the fixed assets account. If the property is accounted for on the lessor’s balance sheet (account 01 “Fixed assets”), then the lessee reflects its value on off-balance sheet account 001 (“Leased fixed assets”).

Accounting for all payments under the leasing agreement is made on account 76, with separate analytics for payments: advance payment (for accounting for advances), current payments (monthly payments), redemption value (cost of property upon redemption). Next, all the nuances of accounting for the seller and buyer of leased property are taken into account.

VAT postings from the lessee

Under a leasing agreement, the lessee's property will be accounted for in an off-balance sheet account. He will not make depreciation deductions, since off-balance sheet accounts do not provide for changes in value before the transfer of ownership. Other transactions under the agreement are reflected in accordance with the documents provided by the lessor. Accounting entries:

• Debit 001 - the fixed assets received under the leasing agreement were placed in an off-balance sheet account.
• Debit 20 Credit 76 - payment under the leasing agreement is reflected in expenses (posting is done monthly).
• Debit 19 Credit 76 - VAT is reflected on the monthly lease payment.
• Debit 68 Credit 19 - VAT is accepted for deduction (monthly posting).
• Debit 76 Credit 51 - transfer of the obligatory lease payment.

After making all mandatory payments, the lessee reverses the amount from the off-balance sheet account, making an entry to credit 001. At the same time, the property is placed on the lessee’s balance sheet account (Debit 01 Credit 02 - the amount of the fixed asset minus VAT, since the amount of VAT on the property was accepted for offset against the issued lessor's invoices).

Tax accounting of leasing by the recipient

Now let’s decide how to properly organize the accounting of leasing transactions with the recipient of property for tax purposes. As in accounting, there are two scenarios for the development of events. In each of them, the taxation procedure differs significantly.

So, if the asset is listed on the lessor’s balance sheet, then the only costs that the recipient can take into account when calculating the fiscal burden are periodic lease payments. So, in accordance with paragraphs. 10 p. 1 art. 264, paragraphs. 3 paragraph 7 art. 272 of the Tax Code of the Russian Federation, these company costs can be reflected as part of other costs when calculating corporate income tax. Costs are accepted by NU as they accrue, in accordance with the conditions set forth in the leasing agreement.

But tax accounting of leased property on the lessee’s balance sheet has its own characteristics.

In terms of corporate income tax, the following may be recognized:

1. Depreciation. The amounts of accrued depreciation on a leased asset can be taken as part of depreciation costs when calculating income tax.
2. Leasing payments. They can be taken into account as part of other expenses, but only in the amount of the difference between the periodic payment and the amount of accrued depreciation.

Regarding transport tax:

• the lessee is recognized as a taxpayer of transport tax if the property is listed on his balance sheet (Letters of the Ministry of Finance of Russia dated August 17, 2015 No. 03-05-06-04/47422, Federal Tax Service of Russia dated December 11, 2013 No. BS-4-11/22368).

Regarding property tax:

• according to paragraph 1 of Art. 374 of the Tax Code of the Russian Federation, the lessee is obliged to charge and pay tax on the property of organizations, as well as advance payments on it, if the property is listed on its balance sheet.