Short answer
SKK 7 distinguishes finance leasing from operating leasing based on what actually happens, not on what is written in the contract. Finance leasing essentially transfers the risks and rewards of ownership, and the asset then appears on the lessee's balance sheet along with the liability. The standard does not provide any numerical threshold for this determination.
| Current version | SKK 7 (2023), for periods beginning on or after January 1, 2025 |
| Classification basis | Economic content, not legal form, paragraphs 9 and 10 |
| Numerical thresholds | There are none. No 75%, no 90%, no fixed deadlines. |
| The moment of classification | Date of creation of the lease, paragraph 14 |
| Toka | Usually ordinary rent, paragraph 15 |
| Lessee, finance lease | Least significant activity and obligation, paragraph 31 |
| Tenant, ordinary lease | Linear expense over the term, paragraph 35 |
| Depreciation in finance lease | The shorter of the term and the life, when ownership does not pass, paragraph 34 |
| Micronits | They don't apply it. SKK 15 recognizes only ordinary leases. |
Verified on November 8, 2026 by Andi Haxhillari, Certified Accountant. Compared with IFRS 7 (2023), paragraphs 1 to 45, version effective January 1, 2025, and with the November 2015 version containing 48 paragraphs, which is attached below.
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The applicable version is SKK 7, updated in 2023. It applies to accounting periods beginning on or after January 1, 2025, on a prospective basis. This is specified in paragraph 44.
The November 2015 version had 48 paragraphs; the 2023 version has 45. The paragraph numbers on this page correspond to those of the version in effect.
The standard provides the principles for the recognition, measurement, and subsequent measurement of leases for both the lessee and the lessor. It is comparable to Section 20 of the International Financial Reporting Standard for Small and Medium-sized Entities, published in July 2015.
Paragraph 5 excludes certain cases, including leases for the exploration or exploitation of minerals, oil, and natural gas, as well as licensing agreements.
Paragraph 6 clarifies a practical threshold. The standard applies even when the lessor performs substantial exploitation or maintenance services. It does not apply to service contracts that do not transfer the right to use.
Paragraph 7 goes even further. Outsourcing-type agreements, telecommunications capacity contracts, and take-or-pay contracts are treated as leases if they essentially transfer the right to use, even without having the legal form of a lease.
Paragraphs 9 and 10 lay the foundation. Classification is based on the economic substance of the transaction, not on legal form. The contract's title is irrelevant.
A finance lease is one that essentially transfers all the risks and rewards of ownership, regardless of whether legal title passes or not. A regular lease is any other lease.
Ownership of the asset passes to the lessee at the end of the lease term. There is a purchase option at a price much lower than the expected fair value. The lease term covers most of the asset's economic life. The present value of the minimum payments is close to the asset's fair value. The asset is of such a specialized nature that only the lessee can use it without modifications.
Losses from cancellation are charged to the tenant. Fluctuations in the remaining value go to the tenant. There is an option to extend at a rate much lower than market.
This is the point where many practitioners go wrong. SKK 7 contains neither a percentage nor a fixed term. There is no 75 percent of economic life and no 90 percent of fair value. The criteria are qualitative.
Paragraph 13 states it even more clearly. A single indicator is a tendency, not a decision. All risks and benefits are evaluated together.
Paragraph 14 ties the decision to a date. Classification is made on the date the lease is created. Subsequent changes to the terms may turn the agreement into a new one, which is classified from scratch.
Paragraph 15 requires separate classification for the land and the building. When taken together, the payments are allocated according to their respective fair values.
Land has indefinite useful life. Therefore, its rent is generally ordinary rent, except when ownership is expected to transfer to the tenant. The building is classified using the usual indicators.
Paragraph 16 provides two instances in which separation is not made. When separation cannot be made reliably, the entire lease is treated as finance, unless it is clear that both parts meet the criteria for a standard lease. And when the land portion is immaterial, the whole is treated as the building.
Paragraph 31 requires the recognition of an asset and a liability, with the lower of the asset's fair value and the present value of the minimum payments.
Paragraph 32 adds the initial direct costs to the activity's cost.
Paragraph 33 divides each payment into two parts: a financing expense and a reduction of the obligation, with a constant periodic rate on the outstanding balance. Possible rents, such as those tied to turnover, are expensed in the period in which they occur.
Paragraph 34 sets out the depreciation rule. IFRS 5 applies, using the same rates as for its own assets. However, when it is not certain that ownership will transfer, the asset is depreciated over the shorter of the lease term and its useful life.
Paragraph 35 requires that payments be recognized as an expense on a straight-line basis over the period, regardless of when they are actually paid.
So a contract with three months of free service at the start does not provide three months at no cost. The total is divided equally. The only exceptions are cases where another systematic basis is more representative and where payments are indexed to inflation. Insurance and maintenance remain outside this rule.
Paragraph 17 requires the recognition of a receivable in the amount of the net investment in the lease. Paragraph 18 removes the asset from the financial position and replaces it with that net investment.
Paragraph 19 allocates payments to principal and financial income at a constant periodic rate. Paragraph 20 requires periodic review of the remaining unguaranteed amounts, and any reduction is immediately recognized as an expense.
Paragraphs 22 through 25 address the special case of a manufacturer or dealer that leases out. It recognizes two types of income: profit from sale and financial income. Artificially low rates limit the income recognized so that the sale is not inflated in the first year.
Paragraph 26 requires that assets be presented according to their nature. Paragraph 27 recognizes receipts as income on a straight-line basis. Paragraph 29 allocates direct initial costs over the period in proportion to the revenues.
Paragraph 30 requires ordinary depreciation and a impairment test under IFRS 5 when there are doubts.
Paragraphs 36 through 39 address the case when a business sells an asset and immediately leases it back.
If the result is a finance lease, the asset remains with the lessee and the excess of the price over the book value is deferred. No immediate gain is recognized.
If the result is ordinary rent, the gain or loss is recognized immediately or deferred, depending on the fair value of the sale price.
This is a financing instrument used when a business needs liquidity. The accounting treatment does not allow that financing to appear as operating income.
SKK 7 does not contain any numerical examples. The following example was constructed by us using rounded figures.
A company leases a machine. The fair value is 4,000,000 lek. Four annual installments of 1,150,000 lek are paid at the end of each year. The implied rental rate is 6 percent. The useful life of the machine is eight years, the lease term is four years, and ownership does not transfer.
The current value of minimum payments is 3,984,871 lekë, which is practically equal to the fair value. This is one of the indicators in paragraph 11, and together with the others it treats the lease as finance.
Initial recognition is made at the lower amount, namely 3,984,871 lekë as an asset and the same amount as a liability.
First year. The interest is 239,092 lekë and the principal is 910,908 lekë. The obligation amounts to 3,073,963 lekë.
Second year. Interest 184,438 lek, principal 965,562 lek, obligation 2,108,401 lek.
Third year. Interest 126,504 lek, principal 1,023,496 lek, obligation 1,084,905 lek.
Fourth year. Interest 65,095 lek, principal 1,084,905 lek, zero liability.
Depreciation is calculated over four years, not eight, because ownership does not transfer. It is 996,218 lekë per year.
So the first year charges the result with 996,218 lek amortization plus 239,092 lek interest, totaling 1,235,310 lek. If it had been treated as ordinary lease, the first year would have charged 1,150,000 lek.
The difference seems small in the first year, but the model is entirely different. Financial leasing makes the start heavier and the end lighter, and adds 3,984,871 lekë of assets and an equal amount of liabilities on the balance sheet. This changes every financial statement the bank reviews.
Paragraph 40 requires the lessee in finance leases to disclose the total minimum payments, the cost and carrying amount of the asset, the terms, the interest rates, and the currencies.
Paragraph 42 requires for ordinary leases the expenses or revenues of the period, the amounts remaining for non-cancellable leases, and a description of significant agreements.
Paragraph 43 also requires notes for sale-and-leaseback transactions.
The first mistake is classifying by the contract's title. A contract called a simple lease that ends with the transfer of ownership for a nominal sum is financial leasing.
The second mistake is using borrowed thresholds, such as 75 or 90 percent. They do not exist in IFRS 7 and cannot be used to justify a classification.
The third mistake is depreciating the asset over its full life when ownership does not transfer. Paragraph 34 requires the shorter of the term and life.
The fourth error is recognizing rent based on invoices. When the contract provides for free months or escalating payments, paragraph 35 requires linear allocation, not following the invoicing.
The fifth mistake is combining the land and the building into a single contract. This sets the entire classification up incorrectly.
By looking at who bears the risks and rewards of ownership. The indicators in paragraphs 11 and 12 help you, but neither of them determines it alone. Make your determination by considering them all together as of the date the lease is created.
No. SKK 7 does not contain any numerical threshold. Anyone who bases the classification on a percentage is using a rule from another framework.
The microentity applies Topic 15, which recognizes only ordinary leasehold interests. At the microentity, no leasehold interest is recognized as an asset on the balance sheet, and payments are expensed. Substantial future payments are disclosed in the notes.
No. Paragraph 35 requires a linear distribution of the total over the entire term. The free months are discounts off the total, not a cost-free period.
Usually ordinary lease under paragraph 15, because the land has an indefinite term. The treatment only changes when ownership is expected to pass to you.
It can change. Paragraph 14 states that changes to the terms may turn the agreement into a new agreement, which is classified by the first.
No. Paragraph 44 requires prospective application.
The content of this page is based on reading the 2023 version on the National Accounting Council's website. The lists of indicators in paragraphs 11 and 12 are presented in summary form in our own words, not as a verbatim quotation.
The PDF attached below is the November 2015 version with 48 paragraphs, and its paragraph numbering does not match the current version.
SSAP 7 “Accounting for Leases,” updated in 2023, paragraphs 1 through 45. Effective date: January 1, 2025, with prospective application as per paragraph 44.
The standard refers to the “accounting law” without citing its number. The law in force is Law No. 25/2018 “On Accounting and Financial Statements,” as amended by Law No. 87/2026.
Links to other standards. Depreciation and amortization in IFRS 5. Onerous contracts in IFRS 6. Microunits in IFRS 15. Materiality in paragraphs 64 to 68 of IFRS 1.
The following document is the November 2015 version with 48 paragraphs, the one in our library that was in effect until the end of 2024. The version currently in force is the updated 2023 version with 45 paragraphs.
Source of the official text: National Council of Accountancy, standards effective January 1, 2025.