Under a closed-ended finance lease, once the leased asset has been handed over to the customer, an invoice is issued for the entire principal under the repayment schedule in the lease agreement and the associated VAT. If the customer does not wish to pay the VAT immediately, the VAT amount is added to the principal and spread over the full term of the agreement, with interest charged on it together with the principal. No VAT is charged on the interest included in the monthly instalments under the repayment schedule. Once all obligations under the lease agreement have been paid in full, the asset becomes the customer's property; until then it is legally owned by the lessor and registered in the lessor's name. The customer may choose not to pay the VAT immediately. In that case, the VAT amount is added to the principal and spread over the full term of the agreement.
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