Kazakhstan's new law on financial leasing (the Lease Law) became
effective on July 13. It regulates tripartite transactions
involving a sale of assets from a supplier to a lessor, followed by
the lessor's lease of those assets to a lessee. Although this type
of transaction was first recognized by the special part of the
Civil Code in July 1999, it has remained relatively rare due to the
lack of clarifying legislation.
The Lease Law determines the rights and responsibilities of the
parties, the procedures for acquiring and transferring the leased
assets, and the terms of financial lease contracts. The most
distinctive requirements of a financial lease transaction, as
stipulated by the Lease Law, are the following:
- the term of the lease must not be less than 80% of the wear
and tear period for the leased assets;
- consumer goods, securities, and natural resources cannot be
leased under a financial lease;
- the leased assets must be used by the lessee in commercial
operations;
- the lessor must notify the supplier in writing that the
assets will be leased;
- legal entities other than banks do not need any licence to
engage in financial lease activities;
- financial lease contracts are subject to registration with
the Ministry of Justice.
The Lease Law does not deal with the taxation of financial
leases. Under the tax code, a financial lease is treated for tax
purposes as a sale and purchase agreement. However, lessors must be
careful in applying the two laws, since differences between them
exist. For example, the code's definition of "financial lease" is
not identical to the definition in the Lease Law.
The Lease Law regards a financial lease as an investment
activity on par with direct investments in Kazakhstan. Therefore,
the preferences and incentives available for investments will also
apply to financial leasing operations. Similarly, where the lessor
is a foreign company, the guarantees under the Law On Foreign
Investments will be available, including the guarantee against
adverse changes in legislation.
Given their limited capital resources and their need to
modernize production assets, the ability to utilize financial
leasing as a serious financial tool is likely to be welcomed by
many companies in Kazakhstan. While there are a number of
contradictions between the Lease Law and other legislation, as well
as some uncertainties regarding taxation and customs regulation of
financial leases, the sound legal basis provided by the Lease Law
will undoubtedly increase the use of financial leasing in
Kazakhstan.
Curtis Masters and Gennadiy Orekhov