New rules clarify incentives under the 2008 RE Act
By Euney Marie Mata-Perez on July 14, 2022
FINALLY, last June 30, 2022, nearly 14 years since the passage of Republic Act (RA) 9513, or the “Renewable Energy (RE) Act of 2008,” the Bureau of Internal Revenue (BIR) issued Revenue Regulation (RR) 7-2022, entitled Tax Incentives Under the Renewable Energy Act of 2008, which provides long-awaited policies and guidelines for the availment of tax incentives under the law.
Section 3 of RR 7-2022 requires RE developers and manufacturers, fabricators and suppliers of locally produced RE equipment to first secure certifications or accreditations from the Department of Energy (DoE) and register with the Board of Investments (BoI) before they can avail of any incentive. They are also required to register with the DoE through the Renewable Energy Management Bureau. It is only when the foregoing requirements are complied with that RE developers will be able to enjoy the following fiscal incentives per Section 4 of RR 7-2002:
* Income tax exemption and income tax holiday (ITH). The RE law grants duly registered RE developers a seven-year ITH from the date of commercial operations. RR 7-2022 reiterates the provision but provides that commercial operations are deemed to have started only when the RE project has been issued a certificate of compliance from the Energy Regulatory Commission (ERC) and is ready to inject power to the grid. It also provides that RE developers that may have acquired or operated facilities in commercial operation for more than seven years are no longer qualified.
The seven-year ITH is also extended to RE resources, defined as energy resources that do not have an upper limit on the total quantity used.
RR 7-2022 further clarifies the availment of ITH for additional investments in the RE project, stating that such will be applied only to the income attributable to the additional investment. Such investment may cover improvements, modernization or rehabilitation that are duly registered with the DoE and which may or may not result in increased capacity.
* Special corporate income tax rate. After enjoying the ITH, a registered RE developer will be subject to the 10-percent corporate tax on net income provided it passes on the savings to end-users in the form of lower power rates. To prove the passing on of savings, RR 7-2022 prescribes that the developer submit a copy of its DoE certificate of endorsement, existing renewable energy service/operating contract and its corresponding certificate of registration, and the prescribed sworn undertaking. Further, the RE developer is required to submit proof of submission of reports to the DoE and the ERC as well as the rates charged to its end-users.
* Net operating loss carry-over (Nolco). RR 7-2022 provides for new conditions for the entitlement of Nolco. The Nolco should not have been previously offset as a deduction from gross income and the loss should be a result from operations and not from the availment of incentives provided for in the RE Act. Guidelines and procedures under RR 4-2001 should be strictly complied with to enjoy the benefits of Nolco.
* Accelerated depreciation. Both the RE Act and RR 7-2022 provide that if an RE project fails to enjoy an ITH before full operation, the developer may apply for accelerated depreciation in its tax books and will be taxed on the basis of the same. If a developer applies for accelerated depreciation, the project or its expansions will no longer be eligible to avail of the ITH. RR 7-2022 provides that the developer should inform the BIR that it is availing the accelerated depreciation instead of the ITH.
* Value-added tax (VAT) zero-rating. RR 7-2022 provides that ancillary services granted through renewable sources of energy will also be subject to zero percent VAT.
More importantly, under RR 7-2022, local suppliers/sellers of goods, properties and services of duly registered RE developers are prohibited from passing on the 12-percent VAT on the RE developer’s purchases of goods, properties and services that will be used for the development, construction and installation of power plant facilities. The RE developer is, however, mandated to submit to the local suppliers/sellers a copy of the RE developer’s BoI and DoE registration for purposes of availing of the VAT-zero rating incentive.
It was emphasized that entities registered under the RE Act for the purpose of availing of its benefits will be disqualified from availing of other tax and non-tax incentives under the National Internal Revenue Code as amended by the Corporate Recovery and Tax Incentives for Enterprises.
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Euney Marie J. Mata-Perez is a CPA-lawyer and managing partner of Mata-Perez, Tamayo and Francisco (MTF Counsel).