On October 27, the Law for the Promotion of the Use of Renewable Energy (Decree 436) was published in the Official Gazette, a regulation that may represent significant savings for companies in El Salvador that are considering installing renewable energy systems, such as photovoltaic solar panels. These systems must be for self-consumption, but the law also provides for the possibility of reinjecting the surplus energy produced.
What are the benefits?
The law establishes a tax incentive scheme that substantially reduces investment and operating costs in renewable energies:
– Reduction in initial investment: Qualified suppliers of renewable energy generating systems will enjoy 10-year exemptions on DAI, VAT and ISR on the importation and installation of equipment. These savings will be passed on to the end user in the form of lower equipment and installation prices.
– Reduced operating costs: Tax exemptions also apply to operation and maintenance services, making these recurring costs cheaper over a decade.
– Immediate tax deductibility: The acquisition of these systems will be exempt from VAT for the user companies, which can also deduct the purchase and installation expenses from their taxable income in the same fiscal year in which the operation is carried out.
How to enjoy these benefits?
As a supplier, the main requirement is to be qualified by the General Superintendence of Electricity and Telecommunications (SIGET) and as an end user the fundamental requirement is to contract with a supplier qualified by SIGET. The law contemplates that SIGET will issue within 60 days after the entry into force of the law the regulations that will establish, among others:
– Requirements and procedures for suppliers and users to access benefits
– The catalog of eligible systems and equipment
– Technical guidelines for installation and eventual re-injection of surpluses
A strategic opportunity
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