Leasing in Indonesia

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State of the market:

Indonesia is one the countries that was the victim of the South East Asian crisis, and as has been the common experience in all financial crises, financial companies are among the worst affected. Indonesian finance companies are still reeling under the ravages of the SE Asian crisis.

Leasing was originated in Indonesia in 1974 by a joint decree by the Minister of Finance Industry and Trade.

It is common for finance companies in Indonesia to take up leasing, factoring, venture capital and consumer financing in the same company. Therefore, these companies are called "multi-finance companies".

Leasing associations:

Associasi Leasing Indonesia
Bank Pacific Building
7th floor Suite 707
Jl Jend Sudirman Kav. 7-8
Jakarta 10220

This also happens to be the secretariat of the Asialease, federation of Leasing associations in Asia.

 Law and regulations relating to leasing:

The current regulation of multi-finance companies in Indonesia is based on a Minister of Finance Decree no 1251/KMK.00/1989 dated 18th Nov., 1989. According to this, a finance house must have a minimum capital of Rp. 10 billion. There are separate slabs of capital based on the range of activities the company wants to engage in. Multi-finance companies require a capital of Rp. 25 billion. Leasing companies are not allowed to raise deposits from the public.

The law distinguishes between financial and operating leases. The distinction is relevant for Value added tax and withholding income tax. If the lease qualifies to be a financial lease, VAT is not applicable. The withholding tax is also not applicable if the lease is a financial lease.

A lease is regarded as a financial lease if it meets the following criteria:

• The lease is a full payout lease.
• The lease term is 2, 3 or 7 years at the least, based on the category of assets.
• The option at the end of the term have been clearly set out in the agreement.

This rule is adopted for tax purposes also. Leasing companies are not allowed depreciation on financial leases.

Accounting:

Statement no. 6 of the Indonesian  Accounting Principles deals with accounting for leases. Later, a statement no. 30 has been issued in 1990 which distinguishes between finance and operating leases. In case of finance leases, lease receivables are recorded by the lessor and the lease asset is capitalised by the lessee.

Relevant links:

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