New bill on leasing operations to be drafted

By Azernews

By Nigar Abbasova

A new bill on leasing activities in Azerbaijan is expected to be developed in 2017.  The measure is envisaged in the Strategic Road Map for the manufacture of small and medium entrepreneurship-level consumer goods in the country.

A new regulatory standard to be developed under the bill is expected to create more advantageous conditions for leasing companies operating in the country.  

Under leasing operations, one party (lessor) conveys the right of use of an asset to another party (lessee) for a specific period of time at a predetermined price. Advantages of such operations include reduction of total investment costs, exemption of leasing payments from VAT. Moreover, leasing is deemed to be an ideal option for a newly set-up business given that it requires lower initial cost.  The list of equipment that can be leased includes agricultural, medical equipment, manufacturing machinery.

The leasing company is the legal owner of the goods, but ownership is effectively conveyed to the lessee, who incurs all benefits, costs, and risks associated with ownership of the assets.

The share of leasing market in the GDP of the country is expected to reach 2 and 4 percent by 2020 and 2025, respectively. New privileges will also be provided to develop the market. Moreover, additional preferences may cover priority areas of the economy.

Leasing operations are widely used in developed countries as an investment instrument, while some 25-30 percent of all investments in economy are made by means of leasing operations.

 Leasing market of Azerbaijan appeared in 2003, and was steadily developing until 2008. In 2008, the development of the sphere was stalled, while portfolio of operations decreased from $200 million to $150 million in 2011.  

One of the main problems of companies is lack of financial means, according to the document. The coverage of leasing operations and their portfolio are at a low level, which makes them non attractive for foreign investors.

More than 30 leasing companies are currently operating in the country with volume of their operations amounting to 200 million manats ($ 113.7 million) and share in GDP to 0.5 percent.