What tax benefits can companies get by renting equipment?

Do you consider renting as a way of financing your business equipment: IT equipment, telecoms, trucks, or lighting systems? This solution could allow you, among other benefits, to reduce your taxable profit and therefore your income or business tax, as applicable depending on the corporate structure of your company.

RENTing: a financially smart option*

Purchasing is not the only way for companies to acquire equipment. Renting is an option for every type of business equipment (from computers to light fittings, telephone switchboards, and specialized medical equipment). This option comes with many advantages and these advantages come in many forms:

• Spreading the cost over several years; this way a steady cash flow is maintained, the company does not need to take out a loan to finance a big investment, and thus can finance other developments.
• Making budgeting easier for the company, with regular fixed rent payments.
• Staying technologically up-to-date, with the option of upgrading the rented piece of equipment either while the contract is running or when it is up for renewal.
• Easing the company’s balance sheet (which lists how much the company has and how much it owes at a given moment). Rented equipment is considered not as a liability, but an expense.

And there’s more: renting also offers tax benefits as compared to purchasing.

A solution for optimizing the balance sheet*

Equipment renting payments are considered external expenses and are therefore deductible from the company’s taxable profit under common law provisions. This taxable profit determines the taxable portion of earnings for corporation tax, or income tax. In other words, by reducing the company’s taxable profit, monthly equipment rental payments bring down its corporation tax or income tax bill.

There are, however, exceptions to this rule. Some equipment rental payments or portions thereof are not deductible from final profits. Namely:

• A fraction of the rental payment for certain passenger vehicles, depending on the date they were first put on the road and their level of CO² emissions, as stipulated on the French Public Finances website.
• Renting of equipment that are considered luxury items, such as yacht or pleasure boat leasing.

A way of spreading out Value Added Tax (VAT) payments over time*

Also worth noting: since the company is not the owner of the rented equipment, it is not subject to Value Added Tax (VAT) on its acquisition, but will see it added to its rental payment bill. This way the company can spread out its VAT payments over time as it pays its rental payment bills.

• *Information valid for French companies. Please consult with us for other countries.