Equipment leasing is one of the various ways by which the acquisition of capital goods can be financed. Other methods of financing capital acquisitions include conditional sale, loan, and hire purchase. These methods of asset financing have their respective legal, accounting and tax implications, all of which form part of the considerations for choosing a particular method.
In structuring a leasing transaction the tax consideration is of particular importance because it impacts directly on the cash flow of the parties. In cross-border leasing transactions the foreign party would usually be most interested in the domestic tax rules of the host country, which in most cases is the country of the lessee. Another factor that would usually interest the foreign lessor is the recourse that it could have in the event that the lessee defaults on the terms of the lease agreement, especially as repossession may not necessarily be an effective remedy.
Equipment Leasing in Nigeria is presently governed by the principles of common law whilst the tax rules applicable to leasing are contained in the Companies Income Tax and the Value Added Tax and Stamp Duties Acts respectively. Its accounting rules are contained in the Statement of Accounting Standards No. 11 (SAS 11), which is an adaptation of the International Accounting Standard No.17 (IAS 17)1. Also unlike corporate finance, which is regulated by the Securities Exchange Commission, there is no regulatory body responsible for leasing. The regulatory framework for equipment leasing may soon be changing however, withthe draft bill that has been undergoing debate at the National Assembly. Hopefully there will emerge an all-encompassing legislation on leasing, which will enhance the confidence of potential investors.