Leasing in Spain

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Recent additions:

The provisional figures for 1998 from the Spanish Leasing association estimate the rate of growth of leasing volumes in 1998 at about 20% over the previous year. This is in contrast with the dip in volumes in the early 1990s and the figures of aggregate volume in 1998 have just about reached the level that existed in1991. The activity is more pronounced in the field of equipment leasing, than real estate. [Added on 3rd April, 1999]

State of the market:

There are less than 100 companies in Spain - there were 97 in 1992 and 20 went out of business in a single year 1993. Savings associations and banks are allowed to directly undertake leasing activity. The market is shared almost 50:50 by banks and independents.

Law and regulations relating to leasing:

Since 1977, Spain has had a specific legislation relating to leasing. Most aspects of the finance lease contracts and leasing business are regulated by law.

Finance Leases were regulated by law in 1988. Legislation [Credit Entity Discipline and Control Law 26/1988] defines the "Arrendamiento Financiero" as follows:

• A contract whose exclusive purpose is the assignment of the use of movable property or real estate acquired by the lessor for that purpose according to the lessee's specifications in exchange for rentals set out in the contract. The contract must give the lessee a purchase option excercisable at the end of the lease term. The property must be connected to the lessee's business activities;
• The minimum period for movable property is two years;
• Payments should differentiate between interest and repayment of the principal.

Operating Leases (either short-term-renting or an "Arrendamiento Financiero", where there is a reasonable doubt whether the purchase option will be exercised) are a matter of civil law

Accounting

The system of accounting for leases was laid down by Decreto 1643/1990 which by and large adopts the International Accounting Standard no. 17. Finance Leases will be recorded by the lessor as Sales of assets, and the amounts receivable under the lease as a Credit granted to the lessee. The interest part of the payment will be recorded in the P & L account. If it is likely that the purchase option will be exercised, the lessee will record the right of use as an intangible asset whereas the total amount of lease payments plus the purchase option will be recorded as a deferred liability. The interest will be charged to the P & L account (as deferred expenses). The lessee is entitled to depreciation over the useful life of the asset.

 

Taxation

Tax principles do not follow the accounting principles. For the lessee, the tax deduction is equal to twice the depreciation of the property (three times for small and medium sized companies). For the lessor, only the interest part of the rental is subject to taxation.

In the case of a Finance Lease (supply of goods) the lessor will charge V.A.T. at the general rate of 16% to the lessee at the start of the lease (basis is cash value leased asset). If the transaction is to be considered as a service, the lessor will charge 16% V.A.T. on each rental as they become due.

Market peculiarities

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Leasing associations:

Asociacion Espanola de Leasing
P de la Castellana
128 28046 Madrid
Spain

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