What’s in this article
Leasing, in general, refers to the provision of capital assets for use by a company or an individual for a specific period. In leasing, the lessee, who is the user of the capital assets, secures financing from a leasing company, known as the lessor.
According to the Indonesian Language Dictionary (KBBI), a lease for use of business (sewa guna usaha) is a form of financing involving capital assets, with or without an option, utilized by the recipient over a specified duration.
What is in a Lease?
Parties involved are the lessee and lessor. The lessee, or user of the assets, secures financing from the lessor which is the leasing company or entity that owns the assets.
A lease agreement, also known as a lease for use of business (sewa guna usaha), is a contractual arrangement between the lessee and lessor. It outlines the lessee’s right to utilise the asset and the corresponding obligation to make periodic payments to the lessor, the asset owner.
The Leasing Process
Leasing practices are commonly adopted by capital-intensive industries. Leasing allows companies to acquire significant assets without disrupting their cash flow. Here’s how it works:
Key Characteristics of Leasing
The Steps to Leasing in Indonesia
The leasing process in Indonesia involves several steps that individuals or businesses need to follow when entering into a leasing agreement. Here’s a simplified overview of the leasing process in Indonesia:
1. Identifying the Need:
The process typically begins with identifying the need for a particular asset, such as equipment, vehicles, or machinery. The lessee (the individual or business seeking the lease) determines what they require and why leasing is a suitable option.
2. Choosing a Lessor:
The lessee selects a lessor, which is usually a financial institution or leasing company that owns the desired asset. Lessees often compare different lessors based on terms, interest rates, and lease conditions.
3. Application:
The lessee submits an application to the chosen lessor. The application includes details about the lessee, the asset to be leased, the lease term, and other relevant information. The lessor evaluates the application and conducts credit checks, if necessary.
4. Credit Approval:
Upon reviewing the application and assessing the lessee’s creditworthiness, the lessor decides whether to approve the lease. If approved, the lessor provides the lessee with a lease agreement detailing the terms and conditions.
5. Negotiation and Agreement:
The lessee and lessor may negotiate specific terms of the lease agreement, such as lease duration, interest rates, and any additional conditions. Once both parties agree on the terms, they sign the lease agreement.
6. Due Diligence:
Before the lease begins, the lessor typically conducts due diligence to verify the lessee’s financial stability and ensure that the asset is in good condition. This may include inspections and assessments.
7. Lease Commencement:
Once all conditions are met, the lease officially commences. The lessee takes possession of the leased asset and starts making lease payments according to the agreed-upon schedule.
8. Lease Payments:
Throughout the lease term, the lessee makes regular lease payments to the lessor. These payments may include both principal and interest, depending on the lease structure.
9. Maintenance and Insurance:
The lessee is responsible for maintaining and insuring the leased asset as per the terms of the lease agreement. This ensures the asset remains in good working condition.
10. End of Lease Term:
At the end of the lease term, the lessee typically has several options, including returning the asset, purchasing it at a predetermined price (if a purchase option exists), or renewing the lease.
11. Return or Purchase:
If the lessee decides to return the asset, the lessor may inspect it for any damages beyond normal wear and tear. If the lessee opts to purchase the asset, a final payment is made to transfer ownership.
It’s important to note that the leasing process may vary depending on the type of lease (financial lease or operating lease) and the lessor’s specific terms and conditions. Lessees should carefully review and understand the lease agreement before entering into any leasing arrangement. Additionally, legal and regulatory requirements in Indonesia should be followed throughout the process.
Regulatory Framework
Leasing agreements in Indonesia are designed to provide a structured and secure environment for lessors and lessees.
Here’s an overview of the key aspects of this framework:
1. The Financial Services Authority (OJK):
The Financial Services Authority, or Otoritas Jasa Keuangan (OJK) is the primary regulatory authority overseeing the leasing industry in Indonesia. It sets policies, regulations, and guidelines to ensure the stability and integrity of the leasing sector.
Leasing companies in Indonesia are also required to obtain a licence from the OJK to operate legally. The licensing process involves stringent requirements, including minimum capital, compliance with prudential regulations, and risk management standards.
To read more on the regulations done by OJK, click here.
2. Taxation:
Tax regulations also play a role in leasing agreements. Leasing transactions may be subject to value-added tax (VAT) and other taxes, which are typically borne by the lessee. The lessor may be responsible for income tax on the interest earned.
3. Lease Agreement Requirements:
Lease agreements in Indonesia must meet specific legal requirements, including clearly defining the terms and conditions, interest rates, and lease duration. These agreements should be in compliance with the prevailing regulations
FAQs
Lease termination is based on the terms agreed upon in the lease agreement. Typically, a landlord can terminate the lease when the tenant breaches lease terms, such as non-payment of rent.
Unless otherwise stated in the lease agreement, the transfer of a lease or subletting requires prior written consent from the landlord.
The lease continues even if the owner sells the leased property, unless otherwise agreed upon at the lease’s inception.
Foreclosure on the property does not typically terminate the lease, and tenants’ rights under the lease remain intact unless otherwise stipulated in the lease agreement or related documents.
Leases in Indonesia come in various forms, and there is no required format for them. Parties can negotiate and draft leases according to their specific needs and preferences.
