Adequate Lease Term and Legal Useful Life

• Adequate Lease Term
  A lessee can deduct all amounts of rents during the adequate lease term. According to leasing taxes
  According to leasing taxes (Refer to Outline of Leasing Taxes), 'adequate lease term' is set between the maximal and minimal lease term for which lease treatment is available, based upon the following legal useful life.
  • Minimal lease term:
    1. 70% of the legal useful life when it is less than ten years. (rounded down)　
    2. 60% of the legal useful life when it is over ten years. (rounded down)
  • Maximal lease term:
    120% of the legal useful life. (rounded up)
    Adequate Lease Term = 70%(60%)〜120% of Legal Useful Life

  ［Examples］
  　If a personal computer is durable for four years, the adequate lease term is for 2〜5 years.
  　Minimal lease term: 4(Year)× 70% = 2.8(Year)→ 2(Year);
  　Maximal lease term: 4(Year)×120% = 4.8(Year)→ 5(Year)

  　If industry equipment is durable for twelve years, adequate lease term is for 7〜15 years.
  　Minimal lease term: 12(Year)× 60% = 7.2(Year)→ 7(Year);
  　Maximal lease term: 12(Year)×120% =14.4(Year)→15(Year)

• Legal Useful Life
  Legal useful life is defined in the appendix of 1〜8 of the ministerial ordinance on the legal useful life of depreciable asset (the ordinance of legal useful life). Each type of equipment is defined with details and the legal useful life in each table.