However, financial leasing is a kind of leasing behavior. Although the lessee actually bears the costs and risks caused by the leased property, legally speaking, the ownership of the leased property is still nominally owned by the lessor.
2. Financial leasing and installment payment are also different in accounting treatment. In financial leasing, the ownership of the leased property belongs to the lessor. Therefore, the lessor's assets are included in its balance sheet, and the leased property is amortized, while the lessee includes the rental expenses in the production cost.
Items purchased by installment belong to the buyer, so they are included in the buyer's balance sheet and amortized by the buyer.
3. The above two items also lead to the difference in tax treatment between them. In financial leasing, the lessor can deduct the amortized depreciation from the accrued income, and the lessee can deduct the amortized depreciation from the taxable income. In the installment transaction, the buyer can deduct the amortized depreciation from the taxable income, and the buyer can also deduct the interest cost from the taxable income. In addition, in some western countries, he can enjoy tax-free investment income when purchasing certain fixed assets.
4. From the term, the payment term of installment payment is often lower than the economic life of the traded goods, while the lease term of financial lease is often equivalent to the economic life of the leased goods. Therefore, the credit period of the same goods obtained by financial leasing is longer than that obtained by installment payment.
5. Installment payment is not full credit, and the buyer usually pays a part of the loan in one lump sum, while financial leasing is full credit, which provides financing for the full rental price and even additional expenses such as transportation, insurance and installation. Although financial leasing usually requires a certain deposit at the beginning of the lease, this fee is generally much less than the immediate payment required for installment transactions. Therefore, the total amount of credit provided by financial leasing is generally greater than that provided by installment transactions.
6. There are also differences in payment time between capital lease and installment transaction. The latter usually has a grace period at the end of each period and a grace period before installment payment. Generally, there is no grace period for financial leasing, and the rent should be paid after the lease begins. Therefore, the rent is often paid at the beginning of each period.
7. When the asset lease expires, the leased item usually has residual value. Generally speaking, the lessee cannot dispose of the leased property at will, and needs to go through the exchange procedures or purchase procedures. However, the buyer of the installment transaction can dispose of the goods he owns after the specified installment payment.
8. The object of asset leasing is generally long-lived and high-value items such as machinery and equipment.
Legal basis: Civil Code of People's Republic of China (PRC).
Article 707 Where the lease term is more than six months, it shall be in written form. Article 707 Where the parties fail to confirm in writing that the lease term exceeds six months, they shall do so in writing. If the parties fail to determine the lease term in writing, it shall be regarded as an indefinite lease. If the lease term is fixed, it shall be regarded as an indefinite lease.
Article 710 Where the lessee uses the lease item in accordance with the agreed method or the nature of the lease item, thereby causing losses to the lease item, it shall not be liable for compensation.
Article 715 The lessee may, with the consent of the lessor, improve or add the lease item. If the lessee improves or adds other things to the lease item without the consent of the lessor, the lessor may require the lessee to restore the original state or compensate for the losses.