The General Authority for Zakat and Tax (GAZT) have announced that all lease-to- own and rent-to- own contracts of assets (i.e., automobiles, real estate) which have been signed prior to VAT implementation date of January 1, 2018 are not covered by the VAT Law and its Implementing Regulations provided that the corresponding assets were delivered by the supplier to customers prior to January 1, 2018.
This means that all monthly payments on these contracts in 2018 and thereafter are not subject to VAT.
This is a big relief to the general public who has been clamoring for the exemption from VAT of the pre- January 1, 2018 finance lease contracts considering that the related assets have been made available and put to use prior to the VAT implementation date.
VAT of 5% will be applied on all lease-to- own and rent-to- own contracts of assets signed after January 1, 2018, and the VAT will be calculated only on the contracted asset’s value without regard to the associated profits or interest rate which is exempt from VAT. VAT needs to be accounted for by the supplier at the earlier of the contracted asset being supplied, the VAT invoice being issued or payment is made in part or full.
Read the relevant pronouncement of the GAZT on this subject: here