Featuring: *Lease Financing in Uganda *Finance Lease and Operating Lease Main Menu Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 This presentation is designed and organised by the New Vision Internet Department. Editor Davis J. Weddi   What laws relating to leasing say By A. Balimwikungu To some people, especially the business entrepreneurs, the subject of leasing may be as ‘foreign’ as rocket science is to a greater part of the population. However, with the numerous sensitisation seminars and workshops on leasing sponsored by dfcu, the subject of leasing is slowly being demystified, only that many still don’t know some of the underlying laws that govern leasing in Uganda. Mark Muyobo, the business development manager, in charge of leasing at dfcu, says the tax system governs leasing and is the core of the business. “In Uganda, the Income Tax Act of 1997, the VAT statute and international standards govern the tax and account treatment of lease transactions,” Muyobo says. He says the Income Tax Act and the VAT statute guide the classification and treatment of lease transactions on the account books of both the lessor (lender) and the lessees (borrowers). Lately, as Muyobo notes, the international accounting standards have been adopted to enhance disclosure of lease transactions. He says lease transactions are specifically provided for under part V11 section 60 of the Income Tax Act. Here are some of its dictates: 1. Where a lessor (lender) leases property to a lessee (borrower) under a financial lease for the purposes of an act- a) The lessee is treated as the owner of the property and b) The lessor is treated as having made a loan to the lessee in respect of which payments of interest and principal are made to the lessor, equal in amount to the rental payable by the lessee. 2. The interest component of each payment under the loan is treated as interest expense incurred by the lessee and interest income derived by the lessor. 3. A lease of property is a finance lease if: a) The lease term exceeds 75% of the effective life of the leased property or b) The lessee has an option to purchase the property for a fixed or determinable price at the expiration of the lease or c) The estimated residual value of the property to the lessor at the expiration of the lease term is less than 20% of its fair share market value at the commencement of the lease. 4. For purposes of subsection (3), the lease term includes any additional period of the lease under an option to renew. Muyobo explains that the act also sets out the basis for the classification of finance and operating leases plus the determination of the accounting and tax treatment of each category. He says leases that are considered to transfer substantially all risks and rewards of ownership of the leased asset are capitalised in books of the lessee and are reported as receivables in the books of the lessor. However, all other leases are treated as operating leases and are off the balance sheet.