- March 11, 2019
- Posted by: khawaja senan
- Category: Equipment Rental, Heavy Equipment
A complete Guide to Equipment Leasing in the UAE
Regardless of the volume of construction work, when you need new equipment, whether in a construction site or office, you have to decide between leasing or purchasing tools and heavy equipment. Knowing the advantages and disadvantages of buying or leasing equipment will help you make a decision. We recommend getting an expert advice on tax matters and equipment leasing.
If your operating funds are not sufficient, then leasing may be the best alternative. Leasing equipment allows you to get what you need – if you do not have enough money. You can also get rid of the big down payment in the UAE when leasing, in this way without affecting your cash flow too much, you can get the equipment. Leasing contracts are more flexible, so you can make longer leasing periods in order to reduce your monthly payments. As far as there is a credit problem for you, so you will not need to find someone who offers a loan to buy equipment.
In addition, leasing allows you to get expensive equipment model that you could pay more if you purchase it. For better productivity, profits and off-course the types of tenders you can participate in, you need to have highly advanced equipment with higher capabilities and technological improvements that makes a leasing decision a perfect choice for you.
On the other hand, unless this is a condition on the lease, once the lease term expires, you will not own the equipment. If you want to keep the equipment in the long run and create a net worth over it, try negotiating the purchase option in your lease so that some or all of the lease payments are added to the purchase price. With this type of lease, the purchase price is determined at the time of equipment lease.
Keep in mind that when you hire tools or heavy machines instead of buying, you are likely to pay a higher price for them. In order to get the total cost – of the equipment, you need to compare the total cost of the lease – with the purchase price and all financial charges.
In leasing equipment, chances are you can often change it to newer models. As new technologies enter the market, leasing companies offer incentives to change the equipment – for new machines and maintain the contract of the lease.
In that case, you will be like the owner, if you wish to buy equipment, or need to update it, you will have to sell the used equipment in order to get the latest one.
Tax advantages can be very large. Monthly lease payments are usually deductible from taxes, depending on the type of equipment you lease and the length of lease, doing so you may also be able to declare -equipment as a financial asset, thus reducing the tax burden.
When buying new equipment, it is directly recognized as a financial asset. Usually you can deduct equipment cost over the period of 5 years. However, there are some changes to some tax laws that might allow you to deduct the total cost of the equipment in the first year, which reflects in a good savings.
To be well informed about the tax advantages you need to consult a tax professional in the UAE in this regard.
Types of lease
There’re many types of equipment leasing. Among them the lease of “operation” is very common. With the operation lease, the leasing company pays for the maintenance of equipment, its taxes and insurance, which can less the cost more.
Contrary to this, with the “finance” lease, the owner is responsible for all the maintenance, taxes and insurance costs of the machinery. However, with a finance lease, the equipment is considered as “your own property” from the fiscal point of view, and therefore tax incentives for equipment purchases apply.
Some conditions can be complex, and some leases cannot be canceled or changed. It is common for the company or any business to continue making payments even though it no longer uses the equipment. Though some types of leases allow the cancellation of a contract, but this kind of option – usually comes with a large penalty charges.
All companies and businesses have different needs and circumstances affecting the decision of leasing or buying the equipment they need. So therefore, it is important before making the decision, prepare the cost and benefit analysis of equipment that the costs of finance, insurance and maintenance; the useful life of the equipment and its potential for improvement; and financial benefits and opportunities.