Heavy Vehicle Renting
WHAT IS IT?
Heavy Vehicle Renting (or Operational Leasing) consists in the operational rental of a new Heavy Vehicle, for a determined duration and mileage, where the maintenance is assured against the payment of a fixed monthly rent.
Several fleet management services are made available and, usually the contracts have a duration between 24 and 72 months.
• Access to a modern and up-to-date fleet;
• No entry fee and the client only pays for the useful life of the vehicle he uses;
• Flexible service and adaptable to the evolution of the companies’ business;
• Variable costs are transformed into fixed costs through fixed monthly rents;
• Maintenance and repair services as well as other complementary ones: insurance, tires, taxes, substitution vehicle, fuel management, etc.;
• The risks associated with the sale of the vehicle at the end of the contract, are fully transferred to the Renting (lessor).
The publication of the Decree-Law nº 158/2009, 13th of July, instituted the Accounting Normalization System (local GAAP) in Portugal with a group of accounting and financial reporting standards.
The accounting of Heavy Vehicle Renting is regulated by NCRF 9 – Leases, which is based on IAS 17 – Leases.
Operating Leasing is understood as every lease which is not a finance lease, meaning the standard defined what financial leasing is to then classify as operating everything else.
Financial Leasing is understood to be “a lease that transfers substantially all the risk and rewards incidental to ownership of an asset” to the lessee and where the “title may or may not eventually be transferred.”
To be qualified as financial leasing, a contract must verify at least one of the following conditions:
• The lease transfers ownership of the asset to the lessee by the end of the lease term;
• The lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised;
• The lease term is for the major part of the economic life of the asset;
• At the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset;
• The leased assets are of such a specialized nature that only the lessee can use them without major modifications.
Other indicative qualifying elements still exist.
If a contract does not verify at least one of the conditions stated above, it is classified as operating leasing and:
• The leased asset is not recognized in the lessee’s balance sheet nor depreciated by him;
• A cost is recognized on a straight-line basis (unless another systematic basis is more representative of the time pattern of the lessee’s benefit), meaning: it is considered as service in which the invoice paid to the Heavy Vehicle Renting is registered under External Services and Supplies of the company.
Note: this information is merely indicative and does not substitute consulting the law in force nor consulting professionals to analyze the specificity of each case.