Short answer: financial leasing is in substance a credit-extension transaction “wearing the clothes” of a lease — not ordinary asset leasing. Misidentifying its nature means applying the wrong law and losing the dispute. The current framework is the 2024 Law on Credit Institutions (32/2024/QH15, effective 01/7/2024) and Circular 35/2024/TT-NHNN — with Decree 39/2014/ND-CP having expired on 20/12/2024 (repealed by Art. 14.2 of Decree 162/2024/ND-CP); all old contracts and templates citing that decree need review. This article systematizes how to identify, distinguish, and resolve financial leasing disputes under the new framework.
1. Financial leasing is credit extension: four identification criteria
Under Art. 4.4 and Art. 120 of the 2024 Law on Credit Institutions, financial leasing is medium- and long-term credit extension under a financial leasing contract. Art. 120.4 sets out four alternative criteria — a contract meeting one of the following qualifies as financial leasing:
- (a) At lease end, the lessee receives ownership of the leased asset or continues leasing as agreed;
- (b) The lessee has a priority purchase right at a nominal price below the actual value of the asset at purchase time;
- (c) The lease term is at least 60% of the assets depreciation period;
- (d) Total rentals payable under the contract are at least equal to the asset value at signing.
Key legal consequence: as a credit-extension activity, only organizations licensed by the State Bank of Vietnam may conduct financial leasing. A lessor without such license signing a “financial leasing contract” is the first red flag to check when disputes arise.
The business scope of financial leasing companies is set out in Art. 120.3: financial leasing; sale-and-leaseback; plus certain banking operations under Art. 115. Note: sale-and-leaseback, while permitted, is a structure closely scrutinized by tax authorities and the State Bank on transaction substance — not a tool for circumvention.
2. Distinguishing financial lease vs. operating lease vs. ordinary leasing
| Criterion | Financial lease | Operating lease |
|---|---|---|
| Nature | Credit extension (Arts. 4.4, 120.4) | Ordinary asset leasing — follows asset-lease rules in the 2015 Civil Code (Art. 16, Circular 35/2024) |
| At lease end | Ownership transfer / nominal-price purchase priority / continued lease | Asset returned to the lessor |
| Asset risk | Borne mostly by the lessee (linked to the four Art. 120.4 criteria) | Borne by the lessor |
| Eligible lessor | Only SBV-licensed organizations | Any asset owner |
| Limits | Financial-leasing outstanding at least 70% of total credit outstanding (Art. 15.5, Circular 35/2024) | Leasing companies may conduct operating leases up to 30% of total assets (Art. 124.1(e)) |
Operating-lease assets include machinery, equipment, transport vehicles, other movables, and real estate (Art. 16, Circular 35/2024). Common mistake: labelling a contract “financial leasing” when its substance is an operating lease (asset returned at end, no ownership-transfer condition) — in disputes, courts and tribunals re-characterize by actual substance, not by the parties chosen label.
3. Four typical dispute groups and handling
(a) Lessee defaults on rentals. Handling sequence: demand payment, then early termination as agreed, then asset repossession, then disposal/sale of repossessed assets to cover losses, then claim the shortfall plus contractual penalties/damages. New-framework note: the sequence and repossession rights now follow the financial leasing contract itself — the new framework no longer details party rights and obligations as the old Decree 39/2014 did (now expired). Contract-drafting quality therefore decides enforcement capability.
(b) Non-conforming assets — the tripartite relationship. In financial leasing, the lessee designates the asset and selects the supplier — a triangle among lessor, lessee, and supplier. Asset-quality liability falls first on the supplier under the sale contract; the lessor is typically exempted where it has assigned its claim rights against the supplier to the lessee as agreed. When negotiating, lessees must ensure this assignment clause is crystal clear.
(c) Early termination and settlement. Final settlement typically comprises: remaining rentals plus the assets residual value plus agreed penalties/damages. Disputes usually center on how the repossessed assets value is calculated — agree the valuation method upfront in the contract (market price, book residual value, or independent appraisal).
(d) Lessee insolvency or bankruptcy — handle with special care. Old Decree 39/2014 (Art. 17) provided that the lessor retains ownership and leased assets are not treated as the lessee assets in creditor distributions. The new framework (2024 Law on Credit Institutions plus Circular 35/2024) has no equivalent provision — a protection gap for lessors to note. In writing and in practice: state the contractual ownership principle, and recommend in-depth counsel advice for every insolvency scenario — the current insolvency framework is the 2025 Law on Recovery and Bankruptcy (142/2025/QH15, effective 01/3/2026, replacing the 2014 Bankruptcy Law).
4. Step-by-step dispute resolution
- Step 1 — Correctly characterize the contract (financial vs. operating lease): this decides the applicable law and asset treatment;
- Step 2 — Direct negotiation, then commercial mediation (Decree 22/2017/ND-CP);
- Step 3 — Arbitration (with an arbitration agreement — 2010 Law on Commercial Arbitration) or court litigation;
- Step 4 — Enforcement: seizure and disposal of leased assets to enforce the award or judgment.
5. Cross-border elements
- Governing law: parties may agree on foreign law or international commercial practice, if not contrary to fundamental principles of Vietnamese law (Art. 5, 2005 Commercial Law);
- Foreign arbitral awards are recognized and enforced in Vietnam under the 1958 New York Convention (Vietnam a member since 1995, with reciprocity and commercial reservations);
- Foreign exchange: rentals in foreign currency must go through licensed credit institutions (Art. 22, Foreign Exchange Ordinance; Circular 32/2013/TT-NHNN);
- Limitation: commercial disputes under Vietnamese law — 2 years (Art. 319, 2005 Commercial Law); cross-border contracts follow the contracts governing law;
- Legal standing of foreign lessors: a foreign financial leasing company with no Vietnam presence contracting with a Vietnamese lessee — check its legal standing and license scope; there is no clear basis on SBV licensing obligations for every case.
6. Checklist when signing a financial leasing contract
- Verify the lessor license (SBV license for financial leasing operations);
- Test the contract against the four Art. 120.4 criteria — confirm true financial-lease nature;
- Specify asset repossession rights, early-termination procedure, and the asset valuation method for settlement — the new framework no longer details these as old Decree 39/2014 did;
- Include the assignment of supplier claim rights to the lessee;
- Review all references to Decree 39/2014 in old contracts and templates — expired since 20/12/2024;
- Agree the dispute-resolution mechanism (arbitration or court) and governing law for cross-border deals.
FAQs
How does financial leasing differ from ordinary equipment rental?
Financial leasing is credit extension (Arts. 4.4, 120.4) — typically ending in ownership transfer or nominal-price purchase; ordinary (operating) leasing ends with asset return and follows asset-lease rules in the 2015 Civil Code.
May the lessor repossess assets on its own when the lessee defaults?
Repossession rights and procedures follow the financial leasing contract — the current framework no longer details them as old Decree 39/2014 did. The more detailed the contract, the smoother the handling.
Is Decree 39/2014 still effective?
No. Decree 39/2014/ND-CP expired on 20/12/2024 (Art. 14.2, Decree 162/2024/ND-CP). Citing it as current authority is wrong.
If the lessee goes bankrupt, are leased assets seized for general creditors?
This is legally complex: the new framework has no equivalent of old Art. 17 of Decree 39/2014 on leased assets not being treated as lessee assets. In-depth advice under the 2025 Law on Recovery and Bankruptcy is needed case by case.
Legal sources
- 2024 Law on Credit Institutions (32/2024/QH15, effective 01/7/2024; replacing the 2010 Law and Law 17/2017/QH14): Art. 3, Art. 4.4 (financial leasing as credit extension), Art. 4.12, Art. 115, Art. 120.3 (scope, sale-and-leaseback), Art. 120.4 (definition and four criteria), Art. 122.2, Art. 124.1(e) (operating leases capped at 30% of total assets), Art. 139.2.
- Circular 35/2024/TT-NHNN (effective 01/7/2024): Art. 15.5 (financial-leasing outstanding at least 70% of total credit outstanding), Art. 16 (operating leases).
- Decree 162/2024/ND-CP (effective 20/12/2024): Art. 14.2 repealing Decree 39/2014/ND-CP.
- 2015 Civil Code: Art. 480+ (asset lease contracts — for operating leases).
- 2025 Law on Recovery and Bankruptcy (142/2025/QH15, effective 01/3/2026).
- Decree 22/2017/ND-CP (commercial mediation); 1958 New York Convention.
Is your business in a financial leasing dispute — a lessee in arrears, non-conforming assets, or complications on early termination? Reach us via the Contact page of FLAT Law Firm for advice under the current legal framework.
The legal content of this article is reviewed by the FLAW AI Legal Council and submitted to the owner for approval; it is not an opinion of a licensed lawyer and does not replace legal advice for specific cases.
For reference only, not legal advice.
