Legislative reforms aimed at leasing development in Armenia

Based on a number of researches, as well as taking into account the intention of European Bank for Reconstruction and Development to promote the development of leasing in Armenia, from the beginning of 2014 Business Support Office-Armenia launched leasing-related legislation amendments’ project and undertook several activities and events.

At the end of 2014 the Business Support Office experts met with representatives of all leasing providing banks and leasing organizations, revealed legislative and practical problems, which are impeding the development of leasing as an alternative financial product and the provision of leasing to clinents on favorable conditions.

Leasing one pagerIn mid 2015 the Business Support Office engaged in leasing expert Aram Mkhitaryan in the project, who, being well aware of th Armenian leasing market and having scrutinize international experience, presented directions, essential for development of leasing in Armenia and outlined the gaps to be filled. In particular, leasing is at a low stage of development (from the various forms of leasing only financial leasing is practiced, leasing has only 1% share in overall credit portfolio), which is generally caused by gaps in legislative regulations. At present time leasing is regulated by Articles 677-684 of the RA Civil Code, where incomplete description and regulations are given only for financial leasing.

All the above mentioned was introduced in a form of presentation and discussed both with commercial banks and leasing organizations and concerned public bodies (the Central Bank, Ministry of Finance, Ministry of Economic Development and Investments (former Ministry of Economy), State Revenue Committee) yet in February 2016.

20160210_160940_Richtone(HDR)On the basis of analysis and proposals, presented by invited expert, legislative drafts, basically of the Civil Code (leasing contract relations were clarified) and other relative laws were elaborated in 2016. These drafts will ensure elimination of practical problems of leasing transactions. Legislative package was disseminated by the Ministry of Economic Development and Investments among the public bodies to be submitted for approval to the Government. Experts of Business Support Office together with invited expert and director of ACBA Leasing held meetings with eligible representatives of the Central Bank, Ministry of Finance, Ministry of Economic Development and Investments, during which regulations of the legislative package have been presented.

According to the legislative package:

In the Civil Code:

  • Types of leasing: financial leasing, leaseback, secondary leasing, subleasing were defined, as well as detailed description and specificities of practical application were given;
  • Specificities of contract of each leasing type were defined;
  • Process of leasing asset transfer to the lessee was defined;
  • Regulations, related to leasing asset repair were given;
  • Grounds for cancellation of leasing contract were given. 

In other legislative acts it is proposed:

  • In case of return of leasing asset to the lessor, accept independent appraiser’s evaluation as a basis for determination of revalued cost of such asset (RA Law “On Value added tax” and RA Law “On Profit tax”);
  • Eliminate double taxation, when secondary leasing is provided (RA Law “On Value added tax”);
  • Permit to set off the VAT for passenger vehicles (cars) acquired by means of leasing (RA Law “On Value added tax”);
  • Implement 50 percecnt scale for calculation of  leasing asset depreciation (RA Law “On Profit tax”);
  • Transfer to the lesee property tax payment liability in case of financial leasing (RA Law “On Property tax”);
  • Make the lessee responsible party (payer) for payment of local tax on parking places for motor vehicles (RA Law “On Local tax on parking places for motor vehicles”);
  • Make the lessee responsible party (payer) for payment of administrative offences, involving motor vehicles (RA Code “On Administrative Offences”).

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