BIR Issued Policies and Guidelines for the Availment of Tax Incentives Under the Renewable Energy Act of 2008

On 22 June 2022, the Bureau of Internal Revenue (“BIR”) issued Revenue Regulation No. 7-2022 (the “Regulation”) which provides for policies and guidelines to avail of the tax-incentive provisions of Republic Act (RA) No. 9513, or the “Renewable Energy Act of 2008.” The Regulations apply to Renewable Energy (“RE”) Developers and manufacturers, fabricators, and suppliers of locally produced RE equipment. Renewable Energy Developers are defined as individuals or entities engaged in the exploration, development, and/or utilization of RE resources and actual operation of RE systems/facilities.

Required Certifications from the Appropriate Government Agencies

RE Developers and manufacturers, fabricators, and suppliers of locally produced RE equipment must secure the following certifications/accreditations listed to be entitled to the tax incentives:

1. Registration/Accreditation with the Department of Energy – There must be registration with the Department of Energy (“DOE”), through the Renewable Energy Management Bureau (“REMB”). 
   
   
2. Certificate of Endorsement by the DOE – For RE Developers, they must secure the certificate of Endorsement from the DOE prior to the first year of availment of the 10% corporate income tax rate incentive. On the other hand, manufacturers, fabricators, and suppliers of locally produced RE equipment who import components for the manufacture of RE equipment must secure a Certificate of Endorsement from the DOE, through the REMB, on a per importation basis.
   
   
3. Registration with the Board of Investments (BOI) – Aside from the DOE, RE developers, manufacturers, fabricators, and suppliers of locally-produced equipment must also register with the Board of Investments (“BOI”).
   

4. Certificate of ITH Entitlement (CE) – The CE issued by the BOI is required to be attached to the current annual income tax return to be filed with the BIR. 

Fiscal Incentives for Renewable Energy Projects and Activities of RE Developers

The Regulation also provided the tax incentives and treatments for existing and new RE developers. For RE developers of hybrid and cogeneration systems using both conventional energy sources and RE sources, they may avail of the fiscal incentives under the Regulations but only in proportion and to the extent of the RE component. The fiscal incentives are as follows:

1. Income Tax Holiday (ITH) – For existing RE projects, the developer is entitled to ITH for seven (7) years from start of commercial operations. For new investment in RE Resources, the developer is entitled to ITH for seven (7) years from the start of commercial operations resulting in new investments. For additional investments in RE Project, the Regulation provides that availment of ITH cannot be more than three (3) times the period of the initial availment by the existing or new RE Project or covering new or additional investments. 
   
   
2. Net Operating Loss Carry-Over (NOLCO) – The NOLCO of the RE Developer during the first three (3) years from the start of commercial operation shall be carried over as a deduction from gross income for the next seven (7) consecutive taxable years immediately following the year of year of such loss subject to the conditions provided in the Regulations.
   
   
3. Corporate Tax Rate – After availing the ITH, all registered RE Developers must pay a corporate tax of ten percent (10%) on their net taxable income as defined in the National Internal Revenue Code and RE Developers shall pass on the savings to the end-users in the form of lower power rates. For RE Developers that acquire and operate existing RE facilities for more than seven (7) years, they must pay a corporate tax rate of ten percent (10%) on their net taxable income. It is important to note that the RE developer must submit the requirements under the Regulations which include, among others, a Certificate of Endorsement by the DOE, the renewable energy service/operating contract, and others.
   
   
4. Accelerated Depreciation – The RE developer may also apply for accelerated depreciation if an RE project fails to receive an ITH before full operation. However, if an RE developer applies for accelerated depreciation, the project may no longer be eligible to avail of the ITH. For plant, machinery, and equipment necessary and actually used for the exploration, development, and utilization of RE resources, they may be depreciated using a rate not more than twice the rate which would be used had the annual allowance been computed. 
   
   
5. Zero Percent Value-Added Tax Rate – The sale of power generated through renewal sources of energy, as well as ancillary services generated through renewable sources, shall be subject to zero percent (0%) value-added tax (“VAT”) rate. The purchase by an RE Developer of local goods, properties, and services needed for the development, construction, and installation of plant facilities and the whole process of exploration and development of RE sources shall be subject to zero percent (0%) VAT. Accordingly, local suppliers/sellers of goofs, properties, and services of duly-registered RE developers should not pass on the twelve percent (12%) VAT on the latter’s purchases of goods, properties, and services that will be used for the development, construction, and installation of their power plant facilities.
   
   
6. Tax Exemption of Carbon Credits – All proceeds from the sale of carbon emission credits shall be exempt from any and all taxes. 

Fiscal Incentives for RE Commercialization

In addition to incentives for RE Developers, the Regulation also provides the following incentives to manufacturers, fabricators, and suppliers of locally produced RE equipment and components:

1. VAT-free Importation of Components, Parts, and Materials – All shipments necessary for the manufacture and/or fabrication of RE equipment and components shall be exempt from VAT subject to the conditions provided in the Regulations.
   
   
2. Income Tax Holiday and Exemption – The RE manufacturer, fabricator, and supplier of RE equipment is exempt from income taxes on net income derived from the sale of RE equipment, machinery, parts, and services for seven (7) years starting from the date of registration. 
   
   
3. Zero-Rated VAT Transaction – All manufacturers, fabricators, and suppliers of locally-produced RE equipment shall be subject to zero-rated VAT on their transactions with local suppliers of goods, properties, and services needed in the manufacture/fabrication of RE equipment. 

In addition to the abovementioned incentives, all individuals and entities engaged in the plantation of crops and trees shall be exempt from payment of VAT on all types of agricultural inputs, equipment, and machinery within ten (10) years from the effectivity of the Act subject to the conditions provided in the Regulations. 

Purchasers of RE equipment for residential, industrial, or community use shall be entitled to a rebate equivalent to the VAT passed on to the said purchasers. The rebate is only available to purchasers who are not VAT-registered and shall be in the form of a tax credit from the income tax liability of the purchasers during the year of purchase. 

Finally, the Regulation provides for a prohibition against double availment of incentives. The registration/accreditation to avail of incentives under this Act will disqualify the availment of other tax and non-tax incentives under the NIRC as amended by the CREATE Act. For developers and manufacturers, fabricators, and suppliers of locally produced RE equipment, they must comply with the filing and reportorial requirements under the CREATE Act.