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Lease financing in greece


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Lease financing in greece

  1. 1. Lease Financing in Greece Gauri Devpura Roll No. 864 V Semester
  2. 2.  Estimated no. of employees in leasing industry: 468  Share of Lease Europe Market: 0.53%  Leasing Volumes: 1189 Million Euro  Growth: 31.15 % per year  Equipment and Automotiv Leasing: 446 Million Euro.  Real estate leasing volume: 742 Million Euro
  3. 3. machinary and industrial equipment 42% Computer and business machines 11% Commercial vehicles 19% Motor cars 11% Others 17% share in leasing market
  4. 4.  In Greece, leasing is regulated under Law 1665/1986 "Finance lease contracts (Leasing)".  In article 1 of the above mentioned law the definition of finance lease contract is given as follows: 1. Under a finance lease contract the lessor (the leasing company as it is described in Article 2) has to convey to the lessee, in return for rent, the right to use the movable asset destined for the enterprise or the profession of the lessee, giving him, at the same time, the option either to purchase the asset or to renew the contract for an agreed period of time. The contracting parties may prescribe that the purchase option may be exercised before the expiration of the contract period. 2. A movable asset which the leasing company (lessor) had previously purchased from the lessee may be the subject of a finance lease between these parties.
  5. 5.  The introductory text of the draft law on "Finance lease contracts (Leasing)" gives the following clarification: "The term finance lease has been preferred to any other term referring to financing or credit, to avoid confusion with a bank credit.”  Under Law 1665/1986 no distinction is made between finance lease and operating lease. Therefore no specific definitions of these terms are provided
  6. 6.  In practice as well as in the Greek law and the Greek General Accounting Plan, there is no distinction between finance leases and operating leases as far as the accounting treatment suitable for them is concerned.  The law for finance leases addresses only movable assets, it provides for the "sale and leaseback" form of leases, it does not make any distinction between finance leases and operating leases and it does not impose any disclosure requirements for the leases in the financial statements.
  7. 7.  Rules issued by other regulatory bodies on lease contracts Lease contracts are not addressed by other regulatory bodies in the following countries: - Denmark - Greece - Italy - Portugal  They don’t even apply IAS (International Accounting Standards.)
  8. 8.  In the following countries the national professional bodies have not issued any recommendations or rules on leasing contracts: - Belgium - Denmark - France - Greece - Italy - Luxembourg - Netherlands - Portugal - United Kingdom
  9. 9.  In Greece neither the Company Law (L. 2190/1920) nor the General Accounting Plan (Decree 1123/1980) deal with accounting and disclosure requirements regarding lease contracts.  Since 1986 a specific Law (L. 1665/1986) for finance leases is applicable in Greece providing that: a) from the point of the lessee. 1. The leased assets with their nominal value are included in memo accounts (debit accounts-credit accounts) of the balance sheet, together with other items as off-balance sheet items;
  10. 10. 2. The rents involved in a lease are included as operating expenses in the financial statements together with other items. 3. This rent is deductible from the gross income. 4. The lessee is entitled to make either tax- free allowance or tax-free reserve for productive investments (article 19 of the law 1892/1990, amended article 6, sections 9 and 10 of the law 1665/1986). These provisions are accounted for on the liability side of the balance sheet.
  11. 11. b) from the point of lessor 1. The leased assets either are shown separately from other assets in the balance sheet or are disclosed in the notes to the balance sheet the lessor. 2. There is no distinction between finance leases and operating leases in the balance sheet;
  12. 12. 3. the lessor is entitled to account for the depreciation on the leased assets as if they had been acquired by the lesseestraight line basis for depriciation is used, according to the decree 88/1973 concerning the depreciation of fixed assets; 4. The rents are treated as income on accrual basis and they are shown in the profit and loss account together with other items (e.g. turnover: rents and commissions). 5. the lessor is entitled to make tax-free allowance for doubtful debts
  13. 13. Comparision  When looking at country level, large differences in the use of leasing appear.  As per European Commission survey:  35.7% of small and Medium entreprises (SMEs) used leasing, hire-purchase or factoring in the whole EU.  However, while more than half of all SMEs made use of these instruments in Estonia, Sweden and Germany, only a relatively small fraction of SMEs used these financing sources in Cyprus, Malta, and Greece.  In Greece only 13.3% of SMEs used these services.
  14. 14. Who can receive Financing through Leasing?  Financial Leasing is a financial tool used by companies and/or freelancers for obtaining and using capital assets for their productive and investing purposes.  Pursuant to Article 1 of the Law, notwithstanding the lessee’s nationality and/or place of establishment, the asset leased by means of a financial leasing should solely be destined for the lessee’s professional use. Thus, any person (legal entity, natural person) may be eligible to contract a financial leasing agreement as long as such persons exercise any kind of profession or business activity and intends to use the leased asset for such purposes.  On the contrary, employees, consumers, public servants and/or any other person not conducting a commercial business activity are not entitled, in principal, to financial leasing.
  15. 15. Which are the entities entitled to provide financial leasing?  Pursuant the provisions of Law, as currently in force, leasing contracts may only be concluded by the following entities as lessors: 1. leasing sociétés anonymes established with the object of conducting the operations referred to in Article 1 of the Law; 2. credit institutions, within the meaning of Article 1(a) of Law 3601/2007, lawfully established and operating in Greece; 3. credit institutions, within the foregoing meaning, based in EEA Member States and established in Greece through branches or providing cross-border services in Greece, within the meaning of Articles 13 and 15 of Law 3601/2007;
  16. 16. 4. credit institutions, within the foregoing meaning, registered in third countries and established in Greece through branches; 5. financial institutions, within the meaning of Article 2(11) of Law 3601/2007, based in EEA Member States and established in Greece through branches or providing cross- border services in Greece, under Article 18 of Law 3601/2007; and 6. financial institutions registered abroad and established in Greece through branches.  The establishment of leasing companies in order to conduct leasing activities in Greece is subject to authorization by the Bank of Greece, which is responsible to supervise and control such companies, define the conditions of authorization and set solvency, liquidity and risk concentration ratios.  If a simple notification from bank of greece is taken then a financial or credit institution can provide for cross-border leasing even without espablishing branches or subsidiaries in
  17. 17.  Pursuant to the Law, as amended and currently in force, any asset could in fact become the object of a sale and lease back transaction. In practice however, sale and lease back transactions are mainly encountered in real estate (commercial buildings) transactions.  The Law provides minimum term requirements for leasing transactions depending on the asset leased. Thus the minimum lease term for equipment is three (3) years, for aircrafts five (5) and for real estate ten (10) years.