Leasing or loan: the tax trade-off for financing equipment (2026)

Quick answer. With leasing, rentals are fully deductible from profit (Article 39 CGI) and the asset is not depreciated by the lessee until the purchase option is exercised. With a loan, the company owns the asset: it depreciates it and deducts the interest, but not the principal repayment. The trade-off depends on initial cash flow, the asset's useful life, debt policy and the compared total cost.

Financing equipment remains a strategic decision for small and mid-sized businesses. The choice between leasing and a bank loan is not only about access to finance: it is an accounting and tax trade-off that affects profit, the debt shown on the balance sheet and the tax charge. The two routes follow different regimes, mainly governed by Articles 39 and 212 bis of the CGI. Gross financial cost alone does not settle it: the impact on cash flow, contractual flexibility and ownership matter just as much.

The leasing regime#

In a lease, a finance company (the lessor) buys the asset and rents it out; at the end, the lessee may exercise a purchase option for the agreed residual value.

During the contract, rentals are fully deductible from profit (Article 39 CGI), like an operating expense, as long as they are not abnormal. The asset is not on the lessee's balance sheet, so there is no depreciation on its side. VAT on the rentals is recoverable, except for passenger vehicles.

On exercising the option, the asset enters the balance sheet at its option price (the residual value) and is then depreciated over its remaining useful life. An abnormally low option price can lead the authority to reinstate a portion of the earlier rentals.

The loan regime#

With a loan, the company owns the asset from purchase. The asset is capitalised and depreciated over its useful life; only the loan interest is deductible. The principal repayment is not deductible. For large financings, the deduction of net financial charges is capped at 30% of fiscal EBITDA (or €3m if higher), under Article 212 bis CGI.

Take a piece of equipment of €100,000 excluding VAT, with a 5-year useful life, and a 25% corporate tax rate. The figures below are illustrative: they depend on the rental quoted and the loan rate negotiated.

Leasing assumption — annual rental of €20,000 over 5 years (i.e. €100,000 of rentals, financing cost included in the rental):

Loan assumption — asset depreciated straight-line over 5 years, declining interest (about €11,000 in total over the period):

The loan produces a higher total deduction, because interest adds to depreciation; but it requires repaying non-deductible principal and, often, a down payment. Leasing concentrates the deduction on the rentals and preserves initial cash flow. Which is cheaper depends on the actual rental and loan rate: no general rule replaces the simulation.

Passenger vehicles (Article 39, 4 CGI)#

For passenger vehicles, the portion of depreciation (loan) or rental (leasing) relating to the price above a cap is not deductible. The cap depends on CO₂ emissions: €30,000, €20,300, €18,300 or €9,900, from the lowest to the highest emitter, per the BOFiP scale. VAT on a passenger vehicle remains non-recoverable under both financing routes.

Real-property leasing#

Real-property leasing follows its own regime: on exercising the option, a portion must be reinstated to profit (Article 239 sexies CGI). This adjustment reduces the apparent advantage of real-property leasing over a loan.

Loss-making business#

In a loss position, deductions — rentals, depreciation, interest — provide no immediate tax saving. The loss is, however, carried forward against future profits (carry-forward under Article 209 CGI, the carry-back mechanism falling under Article 220 quinquies). Leasing and loan are treated alike here; by contrast, the contractual flexibility of leasing can be an asset in difficult times.

• Abnormally low option price: a token purchase option relative to the asset's value risks the reinstatement of part of the rentals. Negotiate a realistic residual value.
• Financial-charge cap (Article 212 bis): for a highly indebted company, net interest is capped at 30% of fiscal EBITDA. Leasing escapes this cap, which can weigh in the trade-off.
• VAT on passenger vehicles: non-recoverable whatever the financing route; check the quotes.
• Recharacterisation: a lease whose terms too closely resemble a credit sale may be recharacterised, changing its tax treatment.

As a firm registered with the Ordre des experts-comptables, we regularly support these financing trade-offs. We recently advised an industrial SME on financing a production line. The gross cost of leasing came out higher than the loan, but the company already carried debt near twice its EBITDA and was planning further investment. An additional loan would have weighed on its banking ratios and headroom; leasing, shown off-balance-sheet in the statutory accounts, preserved that capacity. Despite a slightly higher annual cost, we chose leasing, for cash-flow flexibility and balance-sheet headroom.

The lesson: do not reduce the decision to financial cost alone. The asset's real useful life, debt strategy, proximity to the financial-charge cap and available cash at the time of financing weigh as much as the rate gap.

Hayot Expertise advice. Before signing, ask for a comparative simulation including corporate tax and VAT: the cost after tax saving is the only one that truly counts. Check the rules specific to your asset (vehicle, real property) and, where growth is planned or debt is already high, favour the option that preserves your balance-sheet flexibility — often leasing.