Ijara Muntahia Bittamleek
In one sentenceA lease of an asset for a fixed term at a periodic rent, combined with a promise to transfer ownership of the asset to the lessee at the end of the term by gift, for a nominal price or otherwise.
Simply put
The lessee uses the asset (a car, equipment, property) and pays periodic rent, while ownership remains with the lessor throughout the term. At the end, ownership passes to the lessee in the agreed way.
In the lessee's books you apply IFRS 16: you record a right-of-use asset and a lease liability at the present value of the rent, then depreciate the right-of-use asset and charge the finance cost over the term, instead of only recording the rent as a monthly expense.
Worked example
A transport establishment leased a truck under Ijara Muntahia Bittamleek at a rent of 5,000 SAR per month for 36 months, with ownership passing to it after the last installment. The present value of the rent is assumed for illustration.
Total rent: 5,000 × 36180,000 SAR
Present value of the rent160,000 SAR
Finance cost over the term: 180,000 − 160,00020,000 SAR
Right-of-use asset and lease liability at inception160,000 SAR
Don't confuse it with
Operating IjaraIn an operating Ijara the asset returns to its owner at the end of the term and there is no promise to transfer ownership.