Gaining
much popularity in recent days, the basic concept of leasing, goes way back in
financing history. Generally, leasing refers to the sale of the usufruct, not
the sale of the item. As time demanded, clauses got modified and various type
of leasing got introduced. Among them, Cross-border leasing is considered one
of the financial world's most unusual niches. The sensitivity involved in
arranging the tax-driven deals at the very heart of the business is the reason
behind this claim. Also the publicity is positively discouraged and marketing
is low key.
In a Cross-border leasing arrangement, the contract is signed between the lessee and the lessor dwelling or situated in two or different countries. Regarding Cross-border leasing, some notable tax shelter and avoidance related additional issues are often discussed. To arbitrage the difference in the tax laws of various jurisdictions, the Cross-border leasing is mostly practiced in some EU countries, normally between the US and a European country. In simple words, someone is living in UK leasing a car fleet from Germany much cheaper than UK by using the different VAT rules for vehicles in Germany. There is a common misconception that the countries under the EU go with the similar VAT rules. The reality is EU drawn a common outline or general guideline and every country then suitably implemented that within its own VAT system.
When a business situated in UK leases a vehicle from a UK leasing company, has to pay a 17.5 percent VAT on the leasing charges and for using the vehicle on both business and non-business intentions will recover them only half of the VAT money they paid. On the other hand, if the same business leases a vehicle from a German lessor, has to pay 16 percent German VAT on the lease. Additionally, under the German VAT rules a full recovery of the whole amount does an immediate saving for the lessee.
Now from the German lessor’s viewpoint, while sourcing the vehicle in the UK abiding the UK rules like UK specification, right hand drive etc. either he has to buy it or lease it from another leasing company (third party or related). Whatever the method he chooses an UK VAT will be due on him. But this amount is fully recoverable and the German Leaseco can recover it from the UK VAT authorities as the vehicle is going to be used leaseco’s business.
The VAT recovery from other countries is only applicable within the EU. The system also faces few problems in some countries. Leading to costly litigation may make the foreign VAT authorities to refuse to refund the VAT amount. Even though quarterly claims are possible to make but still a cash flow cost occurs as it takes about 6 months to get the refund in both Germany and UK. Additionally, extra costs and a corporation tax will be charged in Germany while setting up a leasing operation.
Now a day leasing companies are being pressurized for considering to introduce this kind of scheme by their customers, especially the customers with large fleets are exerting good deals of pressure. This type of consumers are capable of going alone and set up their own cross border leaseco, risking the business of the leasing companies.
In a Cross-border leasing arrangement, the contract is signed between the lessee and the lessor dwelling or situated in two or different countries. Regarding Cross-border leasing, some notable tax shelter and avoidance related additional issues are often discussed. To arbitrage the difference in the tax laws of various jurisdictions, the Cross-border leasing is mostly practiced in some EU countries, normally between the US and a European country. In simple words, someone is living in UK leasing a car fleet from Germany much cheaper than UK by using the different VAT rules for vehicles in Germany. There is a common misconception that the countries under the EU go with the similar VAT rules. The reality is EU drawn a common outline or general guideline and every country then suitably implemented that within its own VAT system.
When a business situated in UK leases a vehicle from a UK leasing company, has to pay a 17.5 percent VAT on the leasing charges and for using the vehicle on both business and non-business intentions will recover them only half of the VAT money they paid. On the other hand, if the same business leases a vehicle from a German lessor, has to pay 16 percent German VAT on the lease. Additionally, under the German VAT rules a full recovery of the whole amount does an immediate saving for the lessee.
Now from the German lessor’s viewpoint, while sourcing the vehicle in the UK abiding the UK rules like UK specification, right hand drive etc. either he has to buy it or lease it from another leasing company (third party or related). Whatever the method he chooses an UK VAT will be due on him. But this amount is fully recoverable and the German Leaseco can recover it from the UK VAT authorities as the vehicle is going to be used leaseco’s business.
The VAT recovery from other countries is only applicable within the EU. The system also faces few problems in some countries. Leading to costly litigation may make the foreign VAT authorities to refuse to refund the VAT amount. Even though quarterly claims are possible to make but still a cash flow cost occurs as it takes about 6 months to get the refund in both Germany and UK. Additionally, extra costs and a corporation tax will be charged in Germany while setting up a leasing operation.
Now a day leasing companies are being pressurized for considering to introduce this kind of scheme by their customers, especially the customers with large fleets are exerting good deals of pressure. This type of consumers are capable of going alone and set up their own cross border leaseco, risking the business of the leasing companies.
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