Import of Leasing Asset
Current legislation of Ukraine stipulates that assets brought in as leasing assets to the territory of Ukraine can be imported in accordance with two procedures – import procedure and temporary import procedure.
Pursuant to Article 188 of the Customs Code of Ukraine, import is customs procedure under which the goods are brought into the customs territory of Ukraine for free circulation on the territory of Ukraine and can be used without any customs limitations.
Bringing goods into the customs territory of Ukraine pursuant to import procedure requires the submission of documents to the customs authorities that certify the grounds and conditions of import, as well as payment of duties and taxes in accordance with the Ukrainian law. As such, it is mandated to pay all customs duties and value added tax when importing a leased asset into the customs territory of Ukraine.
The Ukrainian Customs Code defines temporary import procedure as a procedure when goods can be brought into the customs territory of Ukraine on the mandatory condition that these goods will later be brought out of the territory of Ukraine without any changes except natural depreciation or losses that may happen under normal transportation conditions.
The general term of temporary import is one year as from the date of import to the customs territory of Ukraine. Under certain conditions the customs authorities can extend this term for an indefinite period of time. The permit to relocate goods under the temporary import procedure is granted by the customs authorities pursuant to the procedure established by the Cabinet of Ministers of Ukraine.
Article 209 of the Customs Code of Ukraine stipulates that an exemption from taxes during the relocation of goods under temporary import procedure is regulated exclusively by tax related laws of Ukraine.
Therefore, tax exemption is not necessarily characteristic for temporary import of goods and, since it is import transaction which is the object of taxation, such goods are taxed on the same grounds as those applied in case of import procedure. The only exception is an exhaustive list of assets specified in Article 206 of the Customs Code of Ukraine. These assets can be temporarily imported to the territory of Ukraine (based on leasing agreement inclusive) provided that such import was allowed with conditional full tax exemption (specifically exemption from value added tax).
The above mentioned assets include:
- goods designed for demonstration or use during exhibitions, fairs, conferences or other similar events;
- professional equipment indispensable for people who arrive at Ukraine (depart from Ukraine) to prepare reports, record programs for mass media or shoot films;
- containers, trays, packages, and any other goods brought in (brought out of) Ukraine in connection with commercial transaction but import of which by itself is not a commercial transaction;
- samples of goods, articles and commercial films provided that they remain the property of person residing outside the territory of temporary import and their use on the territory of Ukraine has no commercial implication;
- goods imported for educational, scientific, or cultural purposes, i.e. scientific and educational equipment, equipment for sailors’ leisure activity, and any other goods imported for educational, scientific or cultural activity;
- personal belonging of passengers and goods brought in for sport purposes;
- advertisement and tourism materials;
- transport means used exclusively for transportation of passengers and goods over the customs border of Ukraine;
- marine and river vessels, other water crafts and aircrafts imported for repair purposes;
- equipment and materials imported by non-residents for building and repair of marine and river vessels, as well as other water crafts and aircrafts.
However, it is not mandatory to import such goods based on leasing agreement, and, as a rule, it is not leasing agreement that serves as a basis for importing the above mentioned goods to the territory of Ukraine.
Article 23 of the Law of Ukraine “On Unified Customs Tariff” stipulates that “goods and other articles temporarily imported to the customs territory of Ukraine and intended to be brought out of Ukraine within the established time in unchanged or repaired condition” are admitted duty free over the customs border of Ukraine.
Therefore, a person that imports leasing asset to the customs territory of Ukraine under temporary import procedure is exempt from duty. However, such person is mandated to fully pay value added tax , unless a specific case of VAT exemption is stipulated by the Law of Ukraine “On Value Added Tax”.
Regarding temporary import procedure it is also worth noting that Ukraine has joined the Convention on Temporary Import and issues related to the application of temporary import procedure are also regulated by Convention provisions and addendums thereto. For example, pursuant to provisions of Article 2 of Chapter ²² “Scope of Convention” parties to an agreement are mandated to give their consent to temporary import of goods specified in Addendums to this Convention. Pursuant to Convention provisions temporary import procedure is applied with general conditional exemption from import duty and taxes, as well as free of import limitations or economic interdictions. The list of respective goods is similar to that specified in the Customs Code of Ukraine. As a rule import of such goods is not accompanied by the conclusion of leasing agreement.
Problems Related to Determining Customs Value of Leasing Asset
As mentioned above, if Ukrainian lessee imports leasing asset under leasing agreement and receives it from a foreign lessor, a lessee is mandated to pay all customs duties and value added tax.
Information on customs value of goods serves as a basis for determining taxes and duties payable during the passage of such goods over the customs border of Ukraine. Customs value is calculated in accordance with methodology established by the Customs Code of Ukraine.
The primary method for determining customs value of goods is the method based on the value of agreement related to imported goods. All other methods are applied only if the principal method proves to be inapplicable.
Under the assessment method, which is based on the value of agreement pertaining to imported goods, customs value is “… actually paid price of agreement or price payable in accordance with agreement”. In connection therewith, in practice customs authorities use specifically this method and demand the inclusion of full value of leasing payments into the customs value of leasing asset. This significantly increases customs value of leasing asset compared to its market value and ultimately makes leasing asset more expansive for a lessee.
Another problem with regard to the application of this method for determining customs value of leasing asset is related to the fact that pursuant to Article 267 of the Customs Code of Ukraine the above method is applied to determine customs value of goods if “there are no limitations that restrict the rights of a buyer (importer) to use the appraised goods”. The problem is that such limitations do exist under leasing agreements since a lessee has no right to dispose of leasing asset and there might be certain contractual restrictions regarding the right to own and use leasing asset.
In view of the above, it would be expedient to amend customs related legislation in order to establish the method for evaluating customs value of leasing asset itself disregarding certain expenses of a lessee directly related to the fulfillment of leasing agreement (compensation of loan interest, remuneration payable to a lessor, etc).
Export of Leasing Asset
Export and temporary export procedures can be applied if leasing assets are exported from the customs territory of Ukraine.
Pursuant to Article 194 of the Customs Code of Ukraine, export is customs procedure under which the goods are brought out of the customs territory of Ukraine for subsequent free circulation without commitment to return such goods to the customs territory of Ukraine and without establishment of terms for the use of such goods outside the customs territory of Ukraine.
Taking goods out of the customs territory of Ukraine pursuant to export procedure requires the submission of documents to customs authorities that certify the grounds and conditions of export, as well as payment of export duties and taxes.
Thus a person that takes leasing asset out of the customs territory of Ukraine pursuant to export procedure pays export duty and other customs fees as leasing asset passes the customs border of Ukraine. As for value added tax, pursuant to clause 6.2 of the Law of Ukraine “On Value Added Tax” the rate of value added tax applied in case of export of goods (and services related to such export) is “0” percent of tax deduction basis.
Temporary export is customs procedure under which goods can be taken out of the customs territory of Ukraine on condition of mandatory subsequent return of these goods without any changes except natural depreciation or losses that may happen as a result of normal transportation conditions. Temporary export procedure is governed by the rules similar to those applied to temporary import procedure.
Return of Leasing Asset to a Lessee
In case of expiration of validity of leasing agreement leasing asset must be returned to a lessor unless otherwise agreed by the parties.
Leasing asset may be also subject to return upon the demand of a lessor resulting from default of a lessee.
Leasing asset imported to the territory of Ukraine in accordance with import procedure, can be taken out of Ukraine and returned to a foreign lessor only pursuant to export procedure. Accordingly, leasing asset taken out of Ukraine pursuant to export procedure can be returned to Ukrainian lessor only in accordance with import procedure. This implies payment of the above mentioned taxes and duties on general grounds established for these procedures by current legislation of Ukraine.