Renewable energies are a priority for the Ecuadorian state. Since the establishment of the Organic Production Code in 2010, some tax benefits have been enabled for new investments made in the renewable energy sector, as well as in some others considered a priority. These benefits were consolidated in some normative instruments, of which the most important is the Law for the Promotion of Production and its Regulations. The use of renewable energies has been consolidated in Ecuador over time, due to the tangible environmental and economic benefits they offer to society, and to those who have invested technological infrastructure for its development.
LEGAL FRAMEWORK
International agreements, ODS and other international mechanisms demand a greater responsibility with the environment and the planet, and therefore the use of technologies for the generation of clean energies is being promoted, so that each nation of the planet generates economic and tax incentives to motivate their use.
The Ecuadorian government has issued several legal instruments through reforms and new articles which incorporate important legislation related to renewable energy. These include the Organic Code of Production or the Law of Production Promotion and its Regulations, enabling economic and tax benefits for investments in renewable energy projects.
TAX BENEFITS
The tax regulations have established an exemption in the payment of income tax and its advance for 12 years, counting from the first year in which income is generated directly, and only to new productive investment in renewable energy projects located outside the urban areas of Quito and Guayaquil.
Investments in renewable energy projects made in the urban areas of Quito and Guayaquil are eligible for the same exemption for a period of 8 years.
Furthermore, an additional 100% deduction has been defined for the depreciation and amortization of equipment, machinery, technologies, intended to or for:
- Implementation of cleaner production mechanisms.
- Mechanisms to generate energy from renewable sources (solar, wind or similar) or to reduce the environmental impact of the productive activity.
- Reduction of greenhouse gas emissions.
To have access to these exemptions, the investments, must not be necessary to comply with the provisions of the competent environmental authority to reduce the impact of a work or as a requirement or condition for the issuance of the corresponding environmental license, file or permit. In any case, there must be an explicit authorization by the competent authority.
This additional expense which is foreseen via tax reconciliation of income tax may not exceed a value equivalent to 5% of total income. This additional deduction incentive will not constitute accelerated depreciation.
‘’Clean production’’ would be understood as the production and use of goods and services that respond to basic needs and lead to a better quality of life, while minimizing the use of natural resources, toxic materials, emissions and waste pollutants without compromising the needs of future generations.
It should also be noted that solar panels currently charge 0% VAT. Ecuador also has legislation on the release of customs duties when importing equipment related to photovoltaic power generation, in order to lower costs, which generates much interest as the benefit of using this type of energy becomes further understood.
Regarding the ISD (Tax on the Exit of Foreign Currency), payments on the import of machinery and equipment related to renewable energy projects are exonerated. It must be analyzed on a case-by-case basis and it is mandatory to have the authorization of the competent authority to benefit from the exoneration.
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All information contained in this publication is up to date on 2021. This content has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this chart without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this content, and, to the extent permitted by law, AUXADI does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this chart or for any decision based on it.