FINANCIAL LEASING LAW

By: Ioanna Solomou, Associate of Michael Kyprianou & Co LLC

The Law regulating Financial Leasing and the activities of Financial Leasing Companies of 2016 (L.72 (I) / 2016) (the “Law”) came into force on April 28^th, 2016.

The Central Bank of Cyprus (“CBC”) will be the regulatory authority for financial leasing companies, whereby any company wishing to provide financial leasing will have to obtain the relevant license and be regulated accordingly. The purpose of the Law is to regulate the provision of leasing services to the public, as well as the supervision of the leasing services providers’ activities, targeting at a smooth operation of leasing institutions.

Financial leasing is an alternative to traditional credit financing whereby medium to long – term financing may be granted. A leasing company as this will be licensed and regulated by the CBC, will be able to acquire on the request of the client an asset. The asset will be made available to the client for a certain period of time in exchange for frequent payments. There are certain formalities in order for the agreement between the company and the client to be valid. The agreement must be concluded in writing. Accordingly, the client as the lessee will take exclusive possession of the asset from the company (the lessor). The agreement must also expressly provide to the lessee the right of the property purchase during the term of a contract or its renewal.

The Law provides the situation that the financial leasing activities may be offered to the public as follows:

(a)    financial leasing companies having obtained the relevant license by the CBC; or

(b)   credit institutions having the necessary license by the CBC, provided that it includes the financial leasing license; or

(c)    credit institutions having the necessary license by another EU member state provided that it includes the provision of the financial leasing services; or

(d)   branch or subsidiary company of a credit institution of an EU member state, having the necessary license to offer financial leasing services.

Certainly certain exceptions are applicable.

The Law does not apply to:

(a)    services of this type offered within the group of companies to which the company belongs;

(b)   provision of the financial leasing services by physical or legal persons whose principal activity is the sale of movable property, and which provide leasing services for the sale of movable property up to the amount of five thousand euro (€ 5.000) per object, and only to the extent required for the exercise of their main business purposes;

(c)    financial leasing services for which the agreement provides a credit for a total period of less than three (3) months.

The content of this article intends to provide a general guide to the subject matter. Specialist advice should be sought on your specific circumstances. For further information, please contact Ioanna Solomou at ioanna@kyprianou.com.cy