Guideline for

Description of the Product The Ijarah is executed by the lessor (the financier) when the lessee (the finance recipient) requests to obtain the equity or any of the other real rights derived from the equity, such as the right to benefit from the asset in return for a known rent and for an agreed period. to ensure the financing recipient’s willingness to acquire the asset and to accept the obligations thereof, the financing provider can request the financing recipient to pay a deposit (security payment). The financing provider cannot take amounts out of this sum, unless the financing provider suffers actual damage (in cases where the financing recipient does not act in accordance with its promise and related obligations). The financing provider and financing recipient can agree that the financing provider is allowed to invest the security payment. Furthermore, parties can also agree that the security payment is able to be applied by the financing provider as payment for the amounts due upon execution of the contract, in which case the deposit no longer acts as security for execution of the contract. The financier will obtain the actual or constructive ownership of the asset (or usufruct) of the asset to be leased. If agreed between the finance provider and the finance recipient, the financee acting as lessee for this asset (or usufruct) can also act as lessor to sub-lease out the assets (or usufruct) to another party. In most cases, the financier obtains full ownership of the asset to be leased under Ijarah. However, it is also possible that the financier and the finance recipient jointly acquire an asset. In that case, the financee will only pay lease fees for that part of the asset it does not own. The financing structures may have the aim to either: • allow use without contemplating ownership transfer to the customer, or • allow use with the contemplation of transferring the ownership of the asset. 6.1.1 Financier Allows Use Without Contemplating Ownership Transfer to the Customer In the case of allowing use without contemplating ownership transfer to the Customer, the financier throughout the contract remains in constructive possession of the asset. The financee, however, is allowed to use the asset within the limits set in the contract, resulting in actual possession. Simplified, this structure can be depicted as follows: 6.1.2 Financier Allows Use Followed by Subsequent Transfer of Ownership In the case of allowing use followed by a transfer of ownership to the financee, the financee becomes the full owner of the asset as a condition for the termination of the contract. Simplified, this structure can be depicted as follows: Financing Provider Financee Asset (Use and Return) Asset Rental Payments Supplier Cash Financing Provider Financee Asset (Use) Asset Installments Supplier Cash 6.2. VAT Treatment of the Product The following VAT treatment applies to the financing structure as described above, provided that it concerns a Shari’ah-Compliant Financing Product. In this respect, a distinction should be made between leasing without contemplating ownership transfer to the Customer (Paragraph 6.2.1) and leasing which contemplates transfer of ownership (Paragraph 6.2.2). Financing structures that are offered under these conditions, but under a different name, have the VAT treatment as described below.