Rent or rent with the right to purchase?

Leasing or Renting?

No, don’t worry, it’s not about any English course, or any Instagram fad. In this post we are going to talk to you about two ways to acquire necessary products for your company that have a considerable price.

Now that we know a bit about what we are talking about, let’s highlight the similarities and differences between these two models.

The main similarity between both models is the possibility they offer to acquire a necessary product for our company at a great price.

At an economic level, obtaining a product through these options is much more profitable than making a one-time payment using conventional methods. Another similarity is that in both cases, while the rental lasts, a monthly fee must be paid, the amount of which must be determined in the contract.

Although it is true that both options are similar, what is decisive to choose one of these two are the differences between them.

The main and great difference between the two is that the leasing includes a possible purchase option when the lease ends, while in the case of renting it is a rental of a personal property that does not exceed five years. Therefore, at the end of the rental contract, we must return the property that we have rented.

That is to say, in more conventional terms we are faced with a rent with an option to buy, and a conventional rent.

When we talk about the rental object, that is, what we want to rent, there is also a difference between these options. In the case of renting, it is only applicable to movable property, while with leasing we can rent both movable and immovable property (the duration of the contract is at least two years for movable property and ten years for real estate). However, in the case of leasing, there is another peculiarity, and that is that this type of rental is aimed exclusively at companies, unlike renting that is available to anyone.

When talking about the maintenance of the leased object, we also find certain discrepancies. In a rental contract it is stipulated that it is the landlord who bears the maintenance costs, since it has to be returned at the end of the stipulated time, he will want it to return to his hands in the best possible condition. This does not happen with leasing, since it is the lessee who takes care of the maintenance of the property, going to other companies.

But, at the accounting level, which one favours me the most?

Both options have great tax and accounting advantages that make them very attractive for any business, although in this case there are also certain differences between them.

If you decide to lease, all the paid installments can be deducted, including amortizations or interest paid. In other words, leasing has better tax advantages, but when it comes down to it, you have to pay for that asset that you have rented.

On the other hand, if you opt for renting, you can only deduct the fees paid for the lease of the property, which reduces the corporation tax. But do not forget that in the end that goods must be returned.

Now that you know all the advantages and disadvantages of each of the options, it’s up to you to decide which one best suits the needs and objectives of your company.