Ireland’s Revenue has published a new Tax and Duty Manual (TDM) setting out the VAT treatment of transactions that arise at the end of a lease, aimed at financial institutions that lease movable property.
Irish Revenue has issued eBrief No. 144/26 on 7 October 2026, introducing a new Tax and Duty Manual (TDM) on the VAT treatment of end-of-lease transactions. It applies where the lessor is a financial institution that buys an asset (movable goods) and leases it to a lessee.
The manual treats a lease as a supply of services, generally subject to VAT at the standard rate. Under a lease, the lessee uses an asset owned by the lessor for a specified period in exchange for payment, with no provision to transfer ownership. Plant, machinery and vehicles are typically leased for three to five years, while leases of assets such as construction assets often run to seven years.
At the end of the term, the lessee has four options, each with its own VAT treatment:
- Secondary lease: a further leasing period for the same asset is a supply of services chargeable to VAT at the appropriate rate.
- Trade-in: the lessor sells the leased asset, often to the original seller (the dealer, in the case of vehicles), for an agreed trade-in value and charges VAT as appropriate. That value reduces the purchase price of the new asset, which the financial institution acquires and then leases to the lessee.
- Purchase by the lessee: the financial institution typically uses a special purpose vehicle (SPV) to dispose of the asset, so the lessee can obtain ownership without buying directly from the lessor.
- Hand back: if the lessee returns the asset, the lessor may sell it to a third party and must charge VAT at the appropriate rate on that supply.
For a purchase by the lessee, the selling price generally reflects the bulk of the lease payments already made. Three steps are required. First, the lessor sells the asset to the SPV at market value and invoices the SPV. Second, the SPV sells the asset to the lessee and invoices the lessee at the actual selling price. Third, the lessor issues the lessee a credit note, which is a rebate of the lease payments paid over the life of the lease and usually equates to the bulk of the sales price in the first step.
Where the process must be reversed, for example because of a mistake or at the lessee’s request, the lessor issues the SPV with a credit note for the asset, and the SPV issues a credit note to the lessee. The lessor then cancels the credit note covering the rebate of lease payments.
The guidance covers only arrangements in which a financial institution buys a movable good and leases it to a lessee.
