On Thursday, October 15, 2015, the Congress of El Salvador agreed to amend the Law of Tax Incentives to Promote Renewable Energies in Power Generation. The main amendments are:
- The following 4 articles of the law have been reformed: (a) Art.1; (b) Art.3; (c) Art.11; and (d) Art.12.
- The reforms essentially consist of:
- The inclusion of new renewable energy sources that can be subject of tax benefits, being these sources: marine and biogas. Furthermore, the reform states that any other source that is deemed renewable in the future would also be included.
- Incorporation of those projects that generate more than 20 megawatts (MW), within the benefits of income tax exemption for 5 years. Currently, projects that generate more than 20 megawatts do not enjoy income tax exemption.
- Incorporation of projects that generate more than 20 megawatts (MW), within the subjects benefited from the 10-year exemption regarding the payment of customs duties on imports (Derechos Arancelarios a la Importación, DAI for its initials in Spanish). Currently, projects that generate more than 20 megawatts do not enjoy the DAI exemption. Included within this exemption are equipment, materials and others related with transmission lines (currently only sub transmission lines are included) and those destined for investment and expansion work.
The reform also states that furniture and household appliances or vehicles for human transportation (individual or collective), will not be included for DAI exemption.
- Extension of the term for SIGET to qualify projects, as well as the term in which the Ministry of Finance is to issue the agreement of tax benefits. The extended term shall be of 45 business days for each institution.
Currently each institution has a deadline of 10 business days to resolve (20 business days combined) but with the reform each institution would have 45 business days to resolve (90 business days combined).
- Addition of existing projects aimed to the expansion of renewable energy power generation plants to the tax benefits. Currently only new projects are included, not expansions.
- The law establishes the obligation to keep accounting systems that identify revenues, costs and expenses related to the new investment subject to tax benefits.
- The law states that companies that already enjoy tax benefits, will continue to do so in accordance to the terms contained in their Benefits Agreement and those projects that have been awarded by the corresponding processes prior to the enactment of these reforms and that have not submitted an application for qualification to SIGET shall indicate in their application if they opt for the new legislation or for the regulation that was in force when the project was awarded.
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