Lease financing in Saudi Arabia

Possessory interest (a pledge) is the basic security device recognized in Saudi Arabia, though it is limited and sometimes impractical. With few means to secure extensions of credit, the lease of tangible personal property is being investigated as a financial instrument. If lease financing is a lawful banking activity, then the application of Saudi income tax laws should be reviewed. If the uncertainty of the tax treatment of lease payments is too great a business risk, then an alternative, income-tax free method could be adopted. Some Saudi banks have required separate promissory notes for each rent installment to aid in enforcing rent payments. Even with a contractual repossession clause in a lease, repossession may be impossible if the leased equipment is involved in a Saudi government project.