Domestic Lease and International Lease

Definition: The Domestic Lease and International Lease are the types of leases classified on the basis of the places where the parties to the lease agreement reside. The lease is the agreement between the lessor and the lessee; wherein the lessor grants permission to the lessee to use his property in return for periodical rental payments.

Domestic Lease: When all the parties to the lease agreement Viz. Lessor, lessee and the equipment supplier are domiciled or belongs to the same country, is called as a domestic lease.

International Lease: The international lease refers to the type of lease agreement where one or more parties to the lease agreement reside or are domiciled in different countries.

There are two types of international lease: the Import Lease and the Cross Border Lease. In the former type of lease, both the lessor and the lessee belong to the same country, but the equipment supplier stays in some other country. In the case of a cross-border lease, both the lessor and the lessee stay in different countries, irrespective of where the equipment supplier stays.

The major difference between the domestic lease and international lease is that the latter is exposed to two types of risks: country risk and the currency risk. Country risk refers to the tax and the regulatory framework prevalent in the country concerned, and the currency risk means the risk involved in the fluctuations in the exchange rate as the payments tend to be denominated in different currencies.