Buy or rent: Leasing in Senegal, accounting and tax aspects, pros and cons

Buy or rent: Leasing in Senegal, accounting and tax aspects, pros and cons

In the Face of financing problems in Senegal, leasing remains an alternative to financing for SME-SMIs, ETI and large enterprises.

Leasing is a financing arrangement whereby an enterprise (lessor) makes available to a customer (credit-taker) a property subject to a commitment to rent it for a fixed period in return for rents. At the end of the contract, the latter may lift the option, i.e. to buy the property at its residual value fixed upon signature, to return the property or to renew the agreement.

are concerned with both movable goods (vehicles, telephone equipment, computers, industrial machinery, transport, handling equipment) and real estate (buildings, industrial land, offices). 

  • Law Governing The sector

Law No. 2012-02 of January 3, 2012 published in the Olympics N ° 6663 of Saturday 12 May 2012.

These are 60 articles on average that describe in detail the characteristics and organization of leasing in Senegal.

Excerpt from the presentation of the act: “It is the whole meaning of this law which takes account of the specificities of the activity and will also allow to respond to a pressing demand of leasing companies tending to obtain an increased protection of their Contracts and property which are the subject of such measures, such as the creation of a register of leasing and the possibility of immediate resumption of the property by acquiring such contracts an authentic act force, allowing for a greater Legal certainty in leasing operations. Therefore, it fits into the legal and regulatory framework in perfect harmony with Law No. 2008-26 of 28 July on banking regulation, the SYSCOA and the provisions of the OHADA.

The act is structured around the preservation of the interests of the parties by defining the rights and obligations of the lessee, the lessor and the supplier, the characteristics of the leasing contract and its implementing and the improvement of remedies.

In this respect, it comprises the following seven (7) chapters:

-Scope and definitions

-General provisions

-Execution of the leasing contract                          

-rights, obligations and responsibilities of the credit-taker, the lessor and the supplier

-Breach of the leasing contract and remedies

-effects of judicial adjustment and liquidation of the assets of the lessee on the leasing contract

-Final provisions National Council adopted, at its meeting on Thursday, 27 October 2011;

The Senate adopted, at its meeting on Tuesday, December 27, 2011; »

Leasing institutions:

  • and commercial banks that have for the most part departments or directorates dedicated to leasing (CBAO, BOA, SGBS Etc)·      


  • The Initial cash out is low in some cases (everything will depend on the bargaining capacity of the business manager etc.);
  • The Processing of files is more flexible (+ rapid) in Credit-lessors Senegalese that requires fewer guarantees often than banks, and that often are more well-homed in processing (fewer files than banks and analysts broken to the task);
  • The Rents go into overhead and are deductible from the result of the financial year (Art. 9 of the CGI);
  • The Apparent solvency of the company is not impacted which preserves its borrowing capacity and its bargaining power vis-a-vis its banker.

However, this assertion must be relativized insofar as if the lessor Would like to Réendetter again with another credit institution, the latter will check the ability of its customer to produce enough cash flow necessary to allow to pay all possible new financial charges (a study of the debt rate of the entity will be carried out by the financial analysts for sure) 

Certain contracts, if they do not provide for a security deposit or first increased rent, allow total financing of the operation (without any personal contribution), the rents possibly including ancillary services (insurance on the person or vehicle, maintenance,).


  • The Final cost (rents added to the residual share) is higher than a loan (slightly still); During the contract, the customer assumes most of the time the various charges (maintenance, maintenance, insurance) even if some Credit-lessors Include it in the lease contract to attract customers who tend to go into debt with commercial banks;
  • The Most leasing institutions demand 20% in contribution + a security deposit, which constitutes a very large first rent plus, the rents possibly including ancillary services (insurance on the person or the vehicle, maintenance,) ;
  • The Contract arrangements (e.g. reduction or lengthening of duration) are complicated and expensive.
  • An offer of LOA or leasing is difficult to compare with a Credit Offer Since it does not present an explicit TEG and often includes ancillary benefits that need to be detailed to quantify their actual cost. As such, Credit-lessors Be more transparent by communicating their TEG in order to allow customers to compare themselves with the Banks(Indeed a non-financier will have a crazy to calculate a TEG  Etc.) 
  • Financial companies do not want to finance very specific investments because the risk is important (insolvent tenant and material difficult to resell)
  • When the financed property is a vehicle, it is obligatory to ensure all risks (which is not negligible insofar as some establishments require to pay in advance the costs associated with this insurance). In the event of a total loss of a vehicle, the indemnity paid by the insurance company seldom covers the entire amount of the termination indemnity; A part of the termination indemnity shall be borne by the lessee unless he has subscribed to the supplementary financial insurance proposed by the lessor.


The OHADA accounting system treats this transaction as a capital acquisition with a borrowing of the same amount, thus appearing to apply the principle of “the pre-eminence of reality on appearance” (Standard I.A.S. 17: Accounting for Rental contracts).

Thus, the OHADA accounting system provides a simplified and partial application of the principle of pre-eminence, because of the difficulties that would result from a generalization of this principle to Plan de the analysis of the various forms of leasing contracts next to the “leasing”.

The accounting law of the OHADA had adopted the accounting of capital accounts for leasing contracts with an exception for low value assets.

The reprocessing mode of accounting is only required for fixed assets with an input value of more than 5% of the total fixed assets. 

At this Level, by In relation to my experiences and experience, I have always noticed that accounting professionals do not master this aspect of this rule and rarely pay attention to this threshold (this being due to some form of intellectual laziness).

Leasing contracts for goods below this threshold are registered with the lessee without reprocessing, such as simple rentals.

Therefore, the property is not in the assets and, correlatively, the rents are recorded as such (account 623).

Transportation equipment and computer equipment often fall into this category. Moreover, they are often in Senegal the most common materials.

The OHADA accounting system, however, provides a limitation to this simplification, if a company uses many “small equipment” taken in leasing, but whose overall value would represent more than 20% of the gross capital assets Used (verification of this threshold is not always carried out by accounting professionals).

 In this case a simplified reprocessing is necessary. The total of the corresponding rents is to be split between interest and economic depreciation of the goods, without a current account of an equivalent loan

Case of leasing operations not analysed in “leasing-financing”   

 By simplification, the OHADA accounting system has laid down a presumption of “financing lease” for any leasing contract.

 However, it is possible, in probably rare cases, to reverse this presumption for the benefit of an “operating lease” analysis of the contract.

If the company can prove that the conditions of the transfer on the taker of the bulk of the advantages and risks inherent in the property are not fulfilled, then it will not reprocess the transaction and register it as a simple rental. At this stage, which must interpret the Contract? , it is necessary for accountants and jurists to agree on the legal treatment to be given to the leasing contract (single rental, operating lease, financing rental)


Case of leasing operations not analyzed in “leasing-financing”:

 Accounting records rents: Accounts 623

 The rents are spent in overhead, provided that the rental period corresponds to the economic life of the rented property. Even if the first rent is more important than the others, it remains fully deductible.

There is no capital asset on the balance sheet since it is about renting a property. The law requires the inclusion in the balance sheet annex, under the heading “Off-balance sheet liabilities”, The remaining rents Due to the end of the year.

 End of year: attachment to the previous financial year, by use of the regularisation accounts (accrued expenses, accrued expenses, supplier’s invoices not yet reached) or an account “401-Suppliers”

 At the time of the exercise of the Purchase option: entry of the asset at a price X (purchase option exercise price) and definition of a plan Depreciation. The tenant by redeeming the property at the end of the contract, even for a low residual value, must amortize it at the end of the contract.

Comparison with the provisions of IAS 17 “rental Contracts”

 The classification of leases adopted by IAS 17 is based on the degree of imputation to the lessor or lessee of the risks and benefits inherent in the ownership of a leased asset.  The OHADA having treated it in the same way:

  • Risks include potential losses resulting from under-utilisation of technological capabilities or obsolescence as well as changes in profitability due to changes in economic conditions.
  • The benefits can be represented by the expectation of a profitable exploitation over the economic life of the asset and a gain resulting from an appreciation of its value or the realization of a residual value.

A leasing contract is classified as a financing lease if it transfers to the lessee almost all the risks and benefits inherent in the property. 

A lease is classified as a lease agreement
Simple if it does not transfer to the lessee almost all the risks and benefits inherent in the property. 

If we look at these two definitions, we can conclude that the OHADA is in tune with the definitions described in the IAS standard 17.

 To the extent that the transaction between a lessor and a lessee is based on a lease agreement between them, coherent definitions should be used. The application of these definitions to the specific circumstances of the lessee and the lessor may sometimes lead the lessor and the lessee to classify the same contract differently. This may be the case, for example, if the lessor has a residual value guaranteed by a Party not related to the lessee.

Whether a lease contract is a financing lease, or a simple lease depends on the reality of the transaction rather than the form of the contract (1).

Examples of situations which, individually or jointly, should in principle lead to the classification of a leasing contract as a financing lease are the Following:

  1. A) The leasing contract transfers ownership of the asset to the lessee after the term of the contract of Rental;
  2. b) The lease gives the lessee the option to purchase the asset at a price that should be sufficiently lower than its fair value on the date on which the option can be lifted so that, at the outset of the lease, there is reasonable certainty That the option will be Thrown;
  3. c) The term of the lease covers most of the economic life of the asset, even if there is no transfer of Property;
  4. D) At the beginning of the lease, the present value of the minimum rental payments amounts to at least almost all the fair value of the asset Rented; And
  5. e) The leased assets are of such a specific nature that only the lessee can use them without making any major changes.

If we look at the criteria for which IAS 17 classifies a contract as a financing lease, we will see that in SYSCOA or OHADA, the explanations have not been as Far And that it can be inferred that in future changes in OHADA Accounting Law (1st quarter 2018), one certainly will not fail to be so precise.

  1. Financing leases

Initial accounting

At the beginning of the rental period, the underwriters must recognise the financing leases on the assets and liabilities of their balance sheet for amounts equal to the fair value of the leased property or, if it is lower, to the present value of the payments Minimum leases, each at the beginning of the rental contract.

The discount rate to be used to calculate the present value of the minimum lease payments is the implicit interest rate of the Lease if it can be determined, otherwise the payee’s marginal borrowing rate must be used.

The initial direct costs incurred by the lessee shall be added to the amount recognized as an asset.

Same with the rules of the OHADA (framework Conceptual SYSCOA described it as follows)

Future evaluation

The minimum rental payments must be broken down between the financial burden and the amortization of the debt balance. The financial burden must be assigned to each period covered by the tenancy agreement to obtain a constant periodic interest rate on the remaining balance owing to liabilities for each period.
Conditional rents must be counted as a load of the period in which they are incurred.

  1. Simple rental Contracts

Payments under the single tenancy contract shall be accounted for on a linear basis throughout the term of the lease unless another systematic basis is more representative of the timing of Benefits (1) by the user.

For single leases, rental payments (excluding the cost of services such as insurance and maintenance) are recorded as charges on a linear basis, unless another systematic basis of accounting Representative of the timing of the benefits to be paid by the user, even if the payments are not made on that basis.

Same as the rules of OHADA and SYSCOA that Indicate the same accounting treatment.


Recoverable VAT on rents and smoothed over the duration of the contract, which is a means of tax optimization

Depreciation of the Deductible property (Art 10 of the CGI) within the limits of those which are generally accepted in the calculation of profits

Exempt VAT on goods whose delivery is exempt in accordance with the provisions of art 361 (Gas Butane, medicine, water, electricity, hospitalization benefits, certain foodstuffs, sale of works of art…)

The tax benefit is even more important as the duration of the reimbursement is short; A choice that proves to be doubly interesting for devices with rapid obsolescence (computer, Office, etc.).

Vehicle Leasing: VAT is not recoverable on leasing rents for a passenger vehicle.

If the goods are suspended from VAT (Accreditation of the investment code), the credit lessor may be authorized to acquire for the benefit of the lessee, in suspension of VAT, the goods necessary to carry out a programme of the latter approved by the MEF.

Why is the SAS introduced in 2015 by the OHADA law slow to take flight in Senegal? Reference framework for the tasks of the accounting professional and general outline of the normative and ethical repository