What is a leaseback?

It is when an owner of an asset sells their property to a leasing company for financial leasing
A leaseback is a little-known operation that can be very useful at certain times, especially if the company has assets, but lacks liquid assets, and has to resort to financing to have liquidity. A leaseback, as its name suggests, is similar to leasing, but the other way around. This happens when an owner of an asset, movable or immovable property, sells it to a leasing company to then cause a financial lease contract to be executed for that asset or property.
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The party selling the asset gains a source of liquidity while also ensuring that the item will be regained through a financial lease. Ownership is transferred to the leasing company, and the selling company will retain the rights of use for the item.

In general, these actions involve fixed assets, although regulations do not stop it from being carried out using movable property.

A leaseback does not imply a loss in corporate assets, seeing as the asset stays on the balance sheet, although from a legal point of view the owner is the person who has acquired it. The selling party, when activating the asset, must acknowledge the debt as a financial liability. The financial expense will be spread over the life of the contract. It will be allocated to losses or gains under an accrual basis. On the other hand, the lessor will account for the corresponding financial asset.

As for the amortization, the selling party, and subsequent lessee, will continue to amortize the asset as if the transfer had never happened. They will simply reclassify the asset by following the accounting principle. When an asset is sold to then enter into a financial lease the gain from the action will not be acknowledged in the accounting. If anything a minor financial expense caused by the financing from the subsequent financial lease will be recognized.

From a taxation point of view, and for VAT purposes, a leaseback is considered as two things: delivery of goods due to the sale of the item, and as a provision of services due to the financial lease contract. The VAT from the sale will be settled the moment the action is carried out, while the VAT for the leasing will be recorded as fees are accrued.

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This type of operation offers advantages to both parties. The selling party gets an injection of liquidity while at the same time retaining the asset as part of their corporate assets and continues to use it in their business activity. This means they did not have to do without a business tool and a possible source of income. The advantages for the buyer revolve less around assets and more around a financial aspect. They acquired an asset that will give them guaranteed returns with little risk.
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