Murabaha

In a murabaha with purchase order, the client company asks a financier to acquire a specified asset from a seller. The financier buys it and then resells it to the client at a higher price, payable on deferred terms. The client knows and accepts the acquisition price. The difference, called profit, comprises income that remunerates the payment delay and a fee that remunerates the intermediation. Islamic finance prohibits a fixed, predetermined interest rate (riba) and requires remuneration to rest on a tangible asset. Murabaha meets this requirement with a trading margin backed by a real asset. In France, the tax guidance BOI-DJC-FIN-10 of 12 September 2012 treats this income as interest when the contract meets several conditions. The resale to the client takes place within six months of the acquisition. The invoice shows the acquisition price, the fee and the income separately. A schedule annexed to the contract sets the payment of the income, which the contract describes as the consideration for the deferred payment. The financier has credit institution status or falls under an exception provided for in the guidance. The client then deducts the income from its taxable profit in line with the schedule. The income is excluded from the asset’s depreciable base. In the variant called tawarruq, used to raise cash, the company buys an asset on deferred terms, in practice securities or commodities, then immediately resells it for cash to a third party. ADGM’s private credit fund rules apply to Islamic lenders as they do to conventional lenders.

An industrial company needs to acquire €30m of machinery. The financier buys the machines from the manufacturer for €30m and resells them to the company for €34.5m, payable in five annual instalments. The invoice shows the €30m price, a €0.6m fee and €3.9m of income. The company depreciates the machines on a base of €30.6m, fee included, and deducts the €3.9m of income in line with the schedule annexed to the contract.

• The separation of the acquisition price, the fee and the income on the invoice
• The period of six months at most between the financier’s purchase and the resale
• The schedule annexed to the contract, which sets the pace at which the income is deducted
• The regulatory status of the financier
• For a real estate asset, the registration duties payable on the financier’s purchase