Operational leasing monography: legislation, accounting records and tax treatment

Regularly, economic operators choose to outsource to specialized providers some of the services, in general, those that are not the main object of their activity. This is often the case with the car fleet, entrepreneurs preferring to opt for operational leasing. Such operations offer a complete solution for the business, consisting, practically, in renting vehicles in the medium term (from 12 months) or long term (up to 57 months) and including a whole range of services - fleet management of cars. If you are thinking of concluding such a contract and you want to better understand how it works and, especially, what the monography of car operational leasing looks like, you can read below the most important aspects.

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Operational leasing - legislation and characteristics

The general framework regulating leasing operations is Ordinance no. 51/1997 on leasing operations and leasing companies. According to this, leasing operations are those in which “a party, called a lessor, undertakes, at the request of another party, called a user, to purchase from a third party and to assign the use and the possession of movable or immovable property for the purpose of its commercial use or final consumption.” The operational leasing contract is defined by art. 7, item 8 in the Fiscal Code by referring to the financial leasing contract as “any leasing contract concluded between the lessor and the lessee, which transfers to the lessee the risks and the benefits of the property right, less the risk of capitalization of the good at the residual value, and which does not meet any of the conditions provided at point. 7 lit. b) - e); the risk of capitalization of the good at the residual value exists when the purchase option is not exercised at the beginning of the contract or when the leasing contract expressly provides for the return of the good at the expiration of the contract ”. Thus, from the above provisions, the following characteristics of the car operational leasing contract emerge:

• the owner of the car /s is the leasing company;
• the user receives only the right to use / utilize the good;
• involves paying a leasing installment (usually monthly);
• the residual value risk remains with the financing company;
• Depending on the agreement between the parties, at the end of the contract, the user may request the purchase of the property, its return or the extension of the leasing agreement.

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Accounting monography of operational leasing

In the case of operational leasing, the user must record in the accounting only an expense regarding the vehicles used. Specifically, the monthly installments paid by the lessee-user will be recorded as rental costs, based on the invoice issued by the leasing company. Any other expenses that may be incurred with the vehicles shall be recorded in the specific accounts. As the cars are not owned by the user, no depreciation expense records will be made. Instead, the receipt in the management of the means of transport is recorded off-balance sheet, in Debit account 8031 “Tangible fixed assets received with rent or based on other similar contacts” and in Debit account 8036 “Royalties, management locations and other similar debts”. In the case of the acquisition of the good at the end of the contract, it is recorded as a new fixed asset acquisition. As for the accounting monography of the operating lease with the lessor, this is the one who will enter the cars as assets in the accounting records and will bear the depreciation.

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Tax treatment

The tax treatment applicable to user leasing services differs depending on how the cars are used.

Thus, regardless of how a vehicle is owned (rent, financial or operational leasing, loan, purchase etc.), both the expenses incurred in connection with it (local taxes, compulsory insurance, rent, repairs, interest, commissions, etc.) and the related VAT are deductible as it follows:

• 50%, if the vehicle is used both for the purpose of economic activity and for other personal purposes;

• 100%, if the vehicle is used exclusively for the purpose of economic activity or if it is part of the exceptions provided by the law (used exclusively for emergency services, security, protection, courier, sales and purchasing agencies, for paid transportation of persons, including taxis, for driving schools, supplying paid services or when vehicles are used as commercial goods). In this case, the justification for the use of the vehicles shall be made on the basis of the supporting documents and by concluding a road map.

In conclusion, operational leasing services are addressed to those contractors who do not want to worry about their car fleet and get this service as complete package by companies specializing in the field, while they focus only on their business.

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Frequently asked questions and answers about the monography of operational leasing

1. How do I know what type of leasing is right for me?

‍If at the end of the contract you want to keep the car, then financial leasing could be the better choice. If you do not want to be the owner, but you are interested in using the vehicle and quickly change it with a better one at the end of the contract, you should consider operational leasing.

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2. How do I record vehicles under operational leasing in my accounts?

‍The obligation to record the assets in the accounting is with the person who owns the property. In the case of operational leasing, this person is the leasing company. You will only record rent expenses.

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3. Can I purchase the car at the end of the operational leasing contract?

‍Depending on the agreement between the parties, there is also the possibility to purchase the car at the end of the contract.

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