When Can Asset Leasing Be Considered Financial Leasing?

In recent years, many companies have implemented business models based on investing in assets and allowing customers to use those assets through periodic payments, such as rent-to-own models, leasing of machinery and equipment, or leasing of rooftop solar power systems. These models are often structured as standard asset leasing transactions, with the aim of enabling customers to access assets with lower upfront investment costs. 

However, from a legal perspective, the term “leasing” does not always determine the true nature of a transaction. In certain cases, the competent authority may look at the economic structure and specific contractual terms to assess whether the transaction bears the nature of financial leasing. 

Correctly distinguishing between a standard asset lease and financial leasing is of practical importance for companies, as a transaction considered financial leasing may trigger compliance requirements applicable to credit institutions. 

1. What is financial leasing? 

Under Vietnamese law, credit extension means an agreement for an organization or individual to use a sum of money, or a commitment allowing the use of a sum of money, on the principle of repayment, through operations such as lending, discounting, financial leasing, factoring, bank guarantees, letters of credit and other credit extension operations.3 

Financial leasing is defined as medium- and long-term credit extension based on a financial leasing contract between the financial lessor and the financial lessee. Under this mechanism, the financial lessor purchases the asset at the request of the lessee and retains ownership of that asset throughout the lease term. The financial lessee uses the asset and pays rent in accordance with the financial leasing contract.4 

The key distinction is that financial leasing does not merely allow the lessee to use an asset for a certain period. It also reflects a financing element, enabling the lessee to exploit the asset in the medium or long term. 

2. When can a leasing transaction be considered financial leasing? 

Under Article 120.4 of the Law on Credit Institutions 2024, an asset lease-purchase transaction may be considered by the competent authority as financial leasing if it satisfies at least one (01) of the following conditions:  

a. Transfer of ownership or lease extension: Upon expiry of the contractual lease term, the lessee receives ownership of the leased asset or continues to lease the asset as agreed by the parties.

Accordingly, if the contract records that the customer will receive ownership of the asset after the lease term expires, the transaction may satisfy this criterion. In that case, the transfer of ownership is no longer an independent possibility arising in the future, but an outcome contemplated by the parties from the time of contract execution. 

Where the parties have agreed in advance that the customer may continue using the asset after the lease term expires, instead of returning the asset to the lessor, the transaction may also fall within Item (a). 

b. Priority right to purchase at a nominal price: Upon expiry of the contractual lease term, the lessee has the priority right to purchase the leased asset at a nominal price, i.e. a price lower than the actual value of the asset at the time of purchase.

When the purchase price is set at a nominal level or is significantly lower than the remaining market value of the asset, the lessee is relatively likely to exercise the purchase right in practice. In that context, ownership may be viewed as being transferred as part of the transaction structure, while the periodic payments during the lease term serve to help the lessor gradually recover the value invested in the asset. 

c. Ratio of the lease term to the depreciation period: The asset lease term must be at least 60% of the time required to depreciate, i.e. the wear-and-tear period of, that asset. 

This criterion targets cases where the lessee is able to exploit the asset for most of its depreciation period. Where the lease term accounts for a significant proportion of the depreciation period, most of the economic benefits from using the asset will, in substance, belong to the lessee. 

For assets with a long depreciation period, if the lease term under a lease-purchase model is structured to account for 60% or more of the depreciation period, the transaction may satisfy this criterion, even if the contract does not provide for the transfer of ownership or the right to purchase at a nominal price as mentioned in Items (a) and (b) above. 

d. Ratio of total rent to asset value: The total rent for the asset stipulated in the contract must be at least equal to the value of that asset at the time of contract execution. 

This criterion seeks to identify cases where the lessor may recover the entire asset value through rent during the contract term. If the total rent is equal to or higher than the value of the asset at the time of contract execution, the transaction may no longer be purely an asset lease in exchange for rent, but may reflect a mechanism for recovering the lessor’s investment. The determination of the “total rent for the asset” should be assessed based on the actual payment structure, the specific contractual terms, the nature of the transaction and the approach of the competent authority in each case. 

3. Legal risks companies should note 

Based on the criteria above, financial leasing is, in substance, a form of credit extension and not merely an asset leasing transaction. Therefore, companies should not rely solely on the title or form of the contract when assessing the legal risks of a transaction. 

Even if a contract is titled “Asset Lease Agreement”, “Lease-Purchase Agreement”, “Rent-to-Own Agreement” or otherwise, the competent state authority may still review the overall transaction structure to assess whether the transaction satisfies the criteria for financial leasing. 

Companies implementing long-term asset leasing models, particularly lease-purchase models for equipment or assets, should therefore carefully review provisions on ownership, purchase rights, lease term and payment structure. If the transaction is classified as financial leasing, the company may be subject to the Law on Credit Institutions 2024 and other legal regulations relating to financial leasing activities.  

As asset leasing models become increasingly flexible and more widely used in business operations, identifying the correct legal nature of a transaction from the contract structuring stage is important. An appropriate transaction structure not only helps companies mitigate the risk of being viewed as conducting financial leasing activities without satisfying legal requirements, but also supports the stability and feasibility of the business model during implementation. 

(3) Article 4.4 of the Law on Credit Institutions 2024

(4) Article 1.1 of Circular 26/2024/ Điều 1.1 Thông tư 26/2024

Submission date: Jun 20 2026

Disclaimers:

This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.

For issues related to the content or intellectual property rights of the article, please email cs@apolatlegal.vn.

Apolat Legal is a law firm in Vietnam with experience and capacity to provide consulting services related to Business and Investment and contact our team of lawyers in Vietnam via email info@apolatlegal.com.



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