What is meant exactly by these terms, often used incorrectly in everyday speech?

Leasing is a contract by which the lessor, in exchange for payment, gives the right to use an asset for an agreed period. The leasing company remains the legal owner of the asset throughout the contract. The ownership of the asset may or may not be transferred to the lessee at the end of the contract. Contracts which provide for the direct transfer of the legal ownership of assets to the customer from the start are not considered as leasing contracts.

Legal framework

Leasing was introduced in Belgium in November 1961. However, it had to wait six years, and more specifically for Royal Decree no. 55 of 10 November 1967, to be given legal status.

This royal decree, still applicable today, determines the criteria which the transactions must meet and sets the principle of approval by the Federal Public Service Economy in order to be able to practise this activity.

It distinguishes non-real estate leasing from real estate leasing:

1. Non-real estate leasing
   • must be based on capital goods for business use
   • the lessee chooses the equipment itself
   • the term of the lease corresponds to the estimated economic life of the asset
   • the amount of the lease payments is established so as to amortise the amount of the investment over the term of the lease
   • the lessee can become the owner of the asset by exercising the purchase option
2. Real estate leasing
   • must be based on constructed buildings (i.e. it is not possible to take real estate leasing on land only)
   • the term of the leasing contract must be fixed and the contract cannot be terminated
   • the lessor must give the lessee enjoyment of the building and land on which it is erected
   • the lessee can become the owner of the asset by exercising the purchase option

Commercial environment

The market distinguishes two possible leasing schemes:

1. Financial leasing: this is the oldest and simplest scheme, in the sense that few services are associated with it. It has the advantage of spreading the payment over a defined term.
   
   Although the lessor is always the legal owner of the asset during the term of the leasing contract, in practice, it is the lessee who benefits from the asset as if they were the owner, i.e. it is the lessee who bears the risks and draws the benefits resulting from the ownership of the asset.
    
2. Operational leasing: this is often accompanied by a range of additional services, i.e. in addition to administrative and financial functions, the lessor provides support as well as technical management of the assets.
   
   Here, the lessee does not bear the risks or draw the benefits of ownership.

Accountancy framework

When leasing appeared on the Belgian market, transactions were not recorded in the annual accounts of the lessee. The lessee treated these leasing transactions as lease contracts and recorded the regular leasing payments in its accounts as general expenses.

As such, the company did not show in its annual accounts the obligations arising from leasing and its commitments were therefore underestimated.

At the request of the Banking Commission (now FSMA), the Royal Decree of 8 October 1976 was established. This changed the accounting principles of leasing transactions. Indeed, this decree states that the accounting treatment of leasing transactions will be based on the economic ownership of the asset (and not exclusively on the legal ownership rights).

One of the results has been to force the lessee to show leasing transactions on its balance sheet. This is not the case, however, for leasing of non-real estate assets with purchase options of over 15% as well as for some forms of real estate leasing.

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Ask the right questions

• Do you already have several "traditional" financing obligations at present?
• Are you nurturing short-term projects that will require use of your liquid funds?
• Would you like the option of regularly renewing your equipment (cars, computers, etc.) and not having to worry about re-selling?
• Would you like to stagger payment of VAT linked to your purchase?
• Do you want to benefit from additional tax advantages?
   

Choose the leasing that suits you best

• Are you searching for a solution that won't affect your balance sheet?
• Are you thinking of purchasing the equipment upon maturity of the leasing contract?
• Would you like to rid yourself of any administrative formalities (ordering, follow-up, maintenance, etc.)?
• Are you looking for an "all-inclusive" package (insurance, assistance, etc.)?
• Do you want to pay the same amount every month/quarter or a higher initial payment?
• In the case of vehicle or IT leasing, how many vehicles (commercial and/or passenger) or computers do you require?

The answers to these questions will allow your relationship manager to better define your needs and to determine the type of leasing you require. Please contact him or her if you require any further information.

It's not always easy to navigate your way through the maze of leasing legislation. Our specialists explain.

Can the customer choose not to enter its leasing on its balance sheet?

Philippe Tilkin, Marketing & Solutions Manager at BNP Paribas Leasing Solutions:

“This depends on the scheme in question. In the case of leasing based on capital assets (car, IT or other), there are two possibilities. Either the purchase option is less than or equal to 15% of the investment amount and the lessee will amortise it on their balance sheet (on-balance sheet leasing). Or the purchase option is greater than 15% of the investment amount and they could book it as general expenses on their income statement. This will allow them to reduce their taxable profit and therefore the amount of tax to be paid. The transaction will then be entered on the balance sheet of the lessor and not on that of the lessee (off-balance sheet leasing).

There are also two options if the leasing relates to a building. Either the capital is fully repaid during the term of the lease (full pay out) and then the transaction is accounted for on the balance sheet (realisation and amortisation by the recipient, debt on the liabilities side). Or the transaction is not fully paid out – usually a contract with a residual value of 10% for the building, plus the value of the building lot if part of the lease – and then the transaction is not accounted for on the balance sheet (the leasing payments are considered costs).

I would like to stress that all this is ‘within the meaning of current legislation’, as the international accounting regulations seem to be gaining ground. As such, it could be that, in future, any transaction arising from leasing must appear on the balance sheet of the lessee. However, nothing has yet been decided. And I add the advice of Mr Tanguy van de Werve, Managing Director of Leaseurope (professional association representing the European leasing industry), who confirms that in a context where the European political decision-makers are striving to promote access to productive assets to boost growth, playing with the current leasing accounting model would carry considerable risks.”

How should the customer deal with VAT?

P. Tilkin: “Leasing allows companies liable to VAT to pre-finance it and spread the cost over the term of the contract. Furthermore, they can recover the VAT on leasing payments, and also on the interest included in the leasing payments. Finally, if the maintenance and repair costs are covered by the lessee, they are also liable for VAT and are therefore recoverable.”

Marc Melis, Sales Director at Arval: “In the context of vehicles, one of the advantages of operational leasing is the fact that the client only has to fulfil part of their VAT obligations, calculated on the delta between the initial investment and the salvage value of the vehicle at the end of the contract. Companies liable to VAT can recuperate part of the VAT paid by means of their monthly leasing payments. This recovery is done by way of VAT administration which, since January 2013, has established various methods in order to determine the level of recovery depending on the ratio of professional/private usage (with a maximum of 50%).”

P. Tilkin: “In terms of real estate leasing, the distinction should be made between recent buildings or buildings to be constructed, which are liable to VAT – and therefore recoverable provided that the recipient is liable to VAT and entitled to deduction –, and old buildings which do not fall under the VAT system. Consequently, you do not need to pay VAT on the rents.”

BNP Paribas Fortis is ready for the mobility of tomorrow. And Laurent Loncke, General Manager Retail Banking and member of the bank’s management committee confirms this when he says “We do much more than lease electric vehicles”.

How can companies leverage mobility as part of their transition?

"If we look at vehicle usage alone, switching from fossil fuels to electric energy can reduce CO₂ emissions by a factor of four. This transition is being encouraged in our country more than ever by tax incentives and tax breaks. From 2035, the European Union will also ban the sale of cars with combustion engines. Whether it’s for the company fleet or company cars for employees, electric driving is the way forward, alongside other forms of mobility."

Are all businesses aware of this?

"These days, two out of every three new vehicles are company cars. And 80% of those orders are electric vehicles, a trend that is also apparent at our partner Arval."

So companies are playing a pioneering role in this transition?

"Certainly. First and foremost because former company cars find their way to the second-hand market at some point, making electric driving more accessible for everyone. Secondly, by choosing an electric car, you can encourage your friends and family to follow your example. Our recent Profacts survey (only in Dutch and French) showed that 85% of electric vehicle owners are satisfied to very satisfied that they switched to an electric vehicle. However, 42% of Belgians are still reluctant. Half of them are worried their battery will run out before they can get to a charging point."

Is their fear justified?

"Not really. Most drivers only feel comfortable with a range of 500 kilometres, even if they only drive a few dozen kilometres a day. It’s true the charging network does need to be developed further. Many people, especially those living in cities, cannot install a charging point at home. BNP Paribas Fortis is contributing to the expansion of the charging network through its participation in Optimile. This Ghent scale-up offers software solutions for charging electric cars and is developing strategic partnerships for the installation and maintenance of charging points."

Can an electric car be part of each employee’s remuneration package?

"Today, there are already less expensive vehicles on the market, making electric driving an option for middle and lower-management. The Total Cost of Ownership of an electric car is the most important factor, however. And this is still much lower than that of a vehicle with a combustion engine. Leasing is often the best solution. We have a comprehensive, tailor-made offering for all companies, regardless of their size and needs."

What exactly do you mean by a 'comprehensive offering'?

“In addition to leasing, we are able to offer charging solutions at home or at work, a charging card for public networks, the automatic reimbursement of electricity consumption at home, an app to find charging stations, and electric driving training through our many partners.”

So a complete ecosystem?

"We want to contribute to the mobility of tomorrow. By financing it, through credits or leasing, and with insurance, but also by working with partners outside our traditional activities. Like Optimile, and Touring, an organisation that is synonymous with reliability."

But mobility isn't just about cars, is it?

"We believe we need to rethink our relationship with the car. Given the climate targets and the increasing scarcity of resources, it is simply not possible to replace every internal combustion engine with an electric car at the moment. Arval offers its extensive expertise to companies considering a different approach to mobility. We help them analyse their needs, propose alternatives to the car, establish a mobility budget or draw up a mobility policy. We offer bicycle leasing, sometimes in combination with car leasing. We strongly believe in multimodality and mobility-as-a-service solutions: the option to combine different transport modes and pay for them without too much hassle. This is also one of the specialities of our partner Optimile."

Are companies and their employees open to this idea?

"The idea of employees no longer saying 'I have this amount for my car in my salary package', but rather 'I have this amount for my mobility'  is gaining traction. People are already paying for use rather than ownership in gyms or for streaming services. Mobility is going down the same route, with car-sharing and flat-rate subscriptions, making costs more predictable for businesses and private individuals. But the pace of change will also depend on the success of the federal mobility budget. For now, uptake is slow."

BNP Paribas Fortis SA/NV – Montagne du Parc/Warandeberg 3 – 1000 Brussels – VAT BE 0403.199.702 – RPM/RPR Brussels

Optimile SA/NV – Sassevaartstraat 46 bus 204, 9000 Ghent – RPM/RPR Ghent – VAT BE 0648.837.849 – www.optimile.eu – BNP Paribas Fortis SA/NV holds a greater than 10% stake in Optimile SA/NV.

Arval Belgium NV, Ikaroslaan 99, 1930 Zaventem – Brussels Register of Companies – VAT BE 0436.781.102.

Touring SA/NV, Koning Albert II-laan/Avenue Roi Albert II 4 B12, 1000 Brussels – Brussels Register of Companies – VAT BE 0403.471.401, is registered under this number with the FSMA, Rue du Congrès/Congresstraat 12-14, B-1000 Brussels, and acts as an associated agent on commission for AG Insurance SA/NV. AG Insurance SA/NV owns a greater than 10% stake in Touring SA/NV.

Belgium’s three regions provide a range of grants for companies and self-employed people making investments. Our experts can help you make sense of the situation and submit your application.

The terms and amounts of investment grants vary greatly from one region to another. The applicable rules depend on the location of the operational entity making the investments. The company’s registered office is not relevant and can be located in any country. You should also bear in mind that applying for a grant is still a fairly cumbersome administrative process. That’s why our experts take care of all the steps, from submitting the grant application to collecting the grant money.

Flanders: a range of grants

Various types of grants are available in Flanders, the most important of which are support for strategic transformations, the ecology bonus, strategic ecological support, the SME e-wallet and the SME growth subsidy.

Each type of support targets different types of investment and different companies. Subsidy levels also vary widely, from 8% for a strategic investment by a large company to 50% for consultancy fees paid by an SME.

Our experts can help you identify subsidy opportunities and then arrange for you to meet a specialist from VLAIO, the Flemish Agency for Innovation and Entrepreneurship, who will then help you with the rest of your application.

Wallonia: traditional and ecological aid

In Wallonia, investment grants are reserved for companies operating in a limited number of eligible sectors. Excluded activities include retail, transport and the liberal professions.

The terms and conditions also differ according to the size of the company. Small businesses must invest a minimum of €25,000. Large companies need to reach higher thresholds and invest in a development zone.

Examples of eligible business investments include buying/building a property, buying land and buying new business equipment.

The basic grant varies from 4% to 6%, but can be higher if the applicant creates jobs, takes an innovative approach or diversifies abroad, for example. A larger grant, up to 20%, may be obtained for projects that promote the sustainable use of energy and environmental protection.

Please note that it is essential to submit the request before any firm investment commitment is made: investments for which you have already accepted a quote can no longer be subsidised.

Our experts can guide your company through the entire process.

Brussels: the most generous

The Brussels subsidy for investments in goods, property or works is open to most sectors. In total, around 80% of the capital's economic activities are eligible for grants. The two main exceptions are education and real estate.

To qualify for a grant, the investment project must be worth at least €10,000 for a start-up business and at least €15,000 in other cases, depending on the size of the business. In addition, it must aim to develop or improve an existing activity: simple replacement expenditure does not qualify.

The aid can amount to up to 30% of the investment, although the average is 12.5%. The level of subsidy depends on a number of criteria, such as whether the company is a start-up and whether the investment will increase the number of people employed by more than 30%.

Over the course of 2024, reforms to the aid system will increase incentives for sustainable and circular economy projects.

Please note that it is essential to submit the request before any firm investment commitment is made: investments for which you have already accepted a quote can no longer be subsidised.

Our experts can guide your company through the entire process.