There are two main types of lease which are being used in Pakistan:
Financial Lease
A lease is classified as a finance lease if it transfers the ownership of assets to the lessee. The example of finance lease may be the car lease in which lessee makes periodic payments to the lessor and after a specific period of time say after five years, the possession of car is transferred to the lessee.
Operating Lease:
In operating lease, the asset is provided to the lessee by the lessor to use that for specific period of time. At the end of that period, the asset is returned by the lessee to the lessor and it remains the property of lessor.
Normally, the lease term is short compared to the useful life of the asset or piece of equipment being leased. For example, an aircraft which has an economic life of 25 years may be leased to an airline for 5 years on an operating lease.
Ijarah:
Ijarah is an Islamic form of lease in which the lessor gives the right to the lessee to use the asset for specific period of time against payment of lease rentals. At the end of the lease term, the lessor may transfer the ownership of asset to the lessee.
All type of assets raging from home appliances to heavy machinery to commercial buildings can be leased under finance/operating lease and Ijarah.
Leasing has become the most accepted settlement in solving the necessity of fixed asset than purchasing the asset. While assessing the investment, the owner of the property must understand thoroughly that if this process is fetching the returns or not? Purpose of Leasing:
Leasing has become the most accepted settlement in solving the necessity of fixed asset than purchasing the asset. While assessing the investment, the owner of the property must understand thoroughly that if this process is fetching the returns or not? Purpose of Leasing:
Benefits of taxes
Avoid ownership and thereby avoiding risk of ownership.
There are four different things possible post termination of lease agreement:
The lease is renewed by the lessee for a definite period of time.
The asset goes back to the lessor.
The asset comes back to the lessor and he sale it off to a third party.
