Brazil: Balancing of Leasing Contracts adapted to International Standards

Up until now, the balancing of leasing contracts in Brazil depended on their classification either as Finance-Leasing or Operate-Leasing. This classification will be discontinued starting January 1st, 2019 in order to comply with international standards. From then on, all leasing contracts will be treated as financial leasing scenarios.


The before-and-after comparison is depicted in the following table:

Current Regelation Future Regulation
Leasing model Operate- Leasing Finance-Leasing All Leasing contracts
Active Fixed Assets Usage rights
Passive Expenses Expenses
Result Operating costs Amortization Amortization



Resulting changes

Due to the new regulation there will be no changes to the Finance-Leasing booking.

The situation is different for Operate-Leasing. Here, the mandatory recognition of the right to the leased asset and the liability in connection with the timing of the lease payments must be taken into account.

Specifically, this means that there will be interest expenses (financial) and write-downs on the related asset instead of “rental cost” in the income statement, which of course increases the balance sheet total and debt.

In addition to the (in some cases) relevant effects of changing various business performance indicators (such as debt ratio, EBITDA and return on investment), the bookkeeping maintained to date also needs to be adjusted accordingly.

This also means, more or less, that the results of companies that currently have operating leases will be more or less affected in the coming years, depending on the contractual conditions. This will affect the amount of tax payable (income tax and social contributions). Lease agreements that are active until after January 1st, 2019, must be adjusted accordingly.

This is because Law No 12,973 / 14, by the expiry of the Transitional Tax Act (RTT), as set out in Article 58 and its single paragraph [3], provides that changes in accounting policies and criteria will have an impact only after its publication.


Uncertainty about legislative implementation on the part of the RFB

The new tax law regulates the matter, but to do so, the RFB must advise taxpayers on how to implement it accurately.

So far, the Internal Revenue Service has not – as usual – positioned itself with a normative instruction on this topic. It is therefore important that taxpayers take care. Because the RFB has omitted a clear ruling, it is upon the affected taxpayer to himself take the necessary steps to avert the adverse consequences of the new accounting standard.