As it is common knowledge, at the beginning of the year 2021, on February 10th, the Congress of the Republic approved the Leasing Law contained in Decree 02-2021. This new regulation focused on promoting within the commercial and financial sphere, the regularization of the financing activity through leasing contracts according to the authorities in charge of promoting the competition climate, is part of the Economic Recovery Plan proposed by the Ministry of Economy, and whose mission is to promote and diversify the traditional mechanisms to access credit, both for medium and for micro and small enterprises (MSMEs).
This law is important as it will have a significant impact on aspects such as commercial growth due to the ease of access to financing with competitive costs compared to the traditional banking sector, the economic reactivation through this same credit for tools, new efficient equipment, and its consequent job generation and sale production growth in companies in the country.
This law is focused on the micro, small and medium businesspersons, and entrepreneurs, encouraging productivity besides supporting the growth of some sectors such as real estate, housing, contracts, or with a social interest. Individuals, estates, or entities that generate leasing operations may finance such operations with resources coming from their capital, through credits, public stock exchange offer, or by any other means or source allowed by law.
It is important to note that legal entities or entities that carry out leasing operations in their capacity as lessors must have expressly stated in their corporate name and within their purpose or activity the description of leasing, operating lease, financial lease with option to purchase or finance lease. In the case of supervised financial entities, they must comply with the specific regulations and with the provisions of this Law. Likewise, the name or corporate name must include the words “leasing”, “lease”, “financial lessor”, “operating lessor”, or others derived from these terms or in the description of their business and/or advertising. Additionally, it should be considered that these entities, by financial provisions, are regulated by the Special Verification Intendance of the Superintendence of Banks.
Regarding the formalization or documentation of the leasing contract, the law only specifies that since it is a commercial contract, it must be in writing as a requirement of validity, and must be made through a public deed for its registration in the Property Registry or some other written form for goods subject to registration before the Registry of Movable Guarantees. When the contract is for a mandatory term, the lessee assumes the obligation to pay all the installments or rent established in the contract. Also, within the regulations, it is established that all leasing contracts in which a purchase option is agreed must do so through a residual value to be paid, in which the lessee may exercise this right and acquire the good, under the terms and conditions initially agreed or subscribed. In the case of leasing real estate, the residual value is in respect of which the tax rate levied on the sale will be paid. We must note that the Law has a supplementary character to the principles of commercial contracting. Therefore, most of the conditions of the same are susceptible to be freely agreed, as long as it does not affect its tax value or the rights of third parties.
Which leasing modalities are contemplated in the regulations?
a) LEASING CONTRACT or FINANCIAL LEASING WITH OPTION TO PURCHASE: It is the contract by which a person, autonomous patrimony or entity, called lessor, acquires according to the request and given specifications by the lessee and, for the account and interest of the latter, certain goods, which it delivers the lease title for a determined term and receives in exchange, the right to pay rent or installment, granting the lessee, at the expiration of the term of the contract, the option to coordinate the contract under new conditions or acquire the goods object of the lease contract for a previously established amount of residual value.
b) HOUSING FINANCIAL LEASING CONTRACT WITH OPTION TO PURCHASE: It is the contract that refers to real estate property intended for housing.
c) SOCIAL INTEREST HOUSING FINANCIAL LEASING CONTRACT WITH OPTION TO PURCHASE: It is the contract that refers to real estate property intended for decent, adequate, and healthy housing, following the provisions of the Housing Law, Decree 9-2012 of the Congress of the Republic.
d) REAL ESTATE LEASING OR FINANCIAL LEASING CONTRACT WITH OPTION TO PURCHASE: It is the contract that refers to the acquisition of real estate described for commercial use, and industrial establishments, offices, professional offices, educational centers, warehouses, among others.
e) OPERATING LEASING OR OPERATING LEASING CONTRACT: It is the contract by which a person, autonomous patrimony or entity called lessor, delivers in lease to a person, called lessee, for an established term, certain assets it has acquired, with the purpose that the lessee uses them during such term, the lessee acquires the obligation to pay rent or installment to the lessor and may not terminate the contract before the expiration of the agreed term unless otherwise agreed.
f) LEASE
Regarding its tax aspects we can point out that it is no secret that leasing operations had been accumulating tax objections from the SAT, due to the treatment given to these operations before the issuance of the Law, and how these operations were declared to the said tax authority, both by the leasing entities and their clients, was one of the major proponents of said regulation; Therefore, with the issuance of the Law, greater legal certainty is granted to the operations and their respective tax treatment, depending on the type of leasing contracted.
The value of the rents or lease payments agreed in the contract and invoiced by the lessor are recorded by the lessee as a deductible expense of its gross income for the calculation of the Income Tax (ISR) of the corresponding fiscal period, during the term of the contract, and the income generated in favor of the lessor entity will be subject to the Income from Lucrative Activities regime. As a consequence of a leasing contract where interest, price differentials, factoring, and other financial charges arise, these are accounted for by the lessor as usual income and by the lessee as deductible expenses in items other than the agreed leasing rent or installment.
Regarding the ownership of the goods (movable or real estate), for the lessor that holds the property, these must be included in its balance sheet as goods under a financial lease, and the lessee could not include these goods within its fixed assets, until the purchase option is exercised and these goods become its property, being able to apply the corresponding depreciation of assets until that moment. In case of exercising your leasing purchase option, VAT or Stamp Tax, as applicable, must be paid for the final sale and purchase (on the residual value at the date of sale), and this value will vary according to what has been depreciated during the term of the contract, since it could not be paid on the total initial value, thus avoiding double taxation.
Finally, on the financial aspects, according to studies of the existing financial instruments in the market, and according to preliminary estimates by the Leasing Association (of the Chamber of Industry of Guatemala), of the credit portfolio managed in the country by 2020, approximately 4.9% represent financial leasing operations, equivalent to around ten million Quetzals, and with medium-term growth prospects. Another foreseeable benefit would be the generation of access to credit, which generates certain liquidity for MSMEs and the capacity to acquire assets in a deferred manner over time.
According to the Guatemalan Chamber of Finance, the financial leasing mechanism offers payment flexibility, which is different from that obtained through traditional financing, as noted above, and facilitates covering the future liquidity needs of lessees (merchants), proof of which is that there are already entities in the local banking sector that provide financial leasing and that are part of already established financial groups, intending to serve this credit niche in the market.
Therefore, the legal and financial perspective generated by this law to date is perceived as positive and offers sufficient certainty on credit operations in the targeted sectors.