• Tax and Investment Incentives for Hydro, Wind and Solar Energy in Panama
  • July 13, 2015 | Author: Eduardo Achurra M.
  • Law Firm: Pardini & Asociados - Panama Office
  • The consistent economical growth of Panama has brought to the table in public and private forums the irrefutable reality of an existent need of continuous and reliable source of energy that could guarantee a peaceful performance of national economy for the next years. Nevertheless, although we all agree with that fact, we must also concur that without any strategic planning it is not possible that energy’s projects reach on time to fulfill any countries instant and future demand.

    During the last years, the Republic of Panama has implemented strong efforts to promote the interconnection and development of new sources of energy that could meet the growing necessity of Panama´s industry and population; by enacting a list of laws focused in providing attractive incentives for national and foreign investments. These new laws encourage all energy source projects such as hydro electric plants, LNG plants, eco- friendly plants (Biofuels, Biomass), Wind and Solar energy plants.

    The actual national energy industry is diversified with all sort of energy projects, including an innovational wind plant (400Mw) and very soon and a number of solar energy plants.

    Please find below a comparative chart of incentives for energy projects.

    Energy Industry Incentives


    Incentives

    Mini-Hydro (10mw)

    Small Hydro (10mw-20mw)

    Hydro (20mw-above)

    Income Tax

    5% discount on income tax for facilities developed for public domain

    5% discount on income tax for facilities developed for public domain

    5% discount on income tax for facilities developed for public domain

    Municipal tax

     -

     -

    Import duties

    Full exemption

    Full exemption

    Full exemption

    VAT

    Full exemption

    Full exemption

    Full exemption

    Special Incentives

     Allowed to perfom direct purchase agrement with distibutors

    No distribution or transmission  fees for direct sales or spot market for the initial 10mw

    Tax incentive for reduction of CO2 emission             **Additional comments below

    Special Incentives

    No distribution or transmission fees for direct sales or spot market

    Tax incentive for reduction of CO2 emission                           **Additional comments below

    Special Incentives

    Tax incentive for reduction of CO2 emission  **Additional comments below

    -

    -

    Special Incentives

    Special Incentives

     -


    Incentives

    Solar

    Wind

    LNG

    Biofuel and Biomass

    Income Tax

    5% discount on income tax for facilities developed for public domain

    5% discount on income tax for facilities developed for public domain

    5% discount on income tax for facilities developed for public domain

    10 years full exemption including carbon credits income

    Municipal tax

     -

     -

    10 years full exemption

    Import duties

    Full exemption

    Full exemption

    Full exemption

    10 years full exemption

    VAT

    Full exemption for  a list of specific equiments

    Full exemption

     -

    10 years full exemption

    Special Incentives

    Allowed to apply expedite devaluation method for Solar generation equiments

    Allowed to apply expedite devaluation method for wind generation equiments

    Allowed to apply expedite devaluation method for GN generation equiments

    10 years exemption of distribution or transmission fees for  spot market trading

    Special Incentives

     -

    No distribution or transmission fees for direct sales or spot market

    Manufacturers: 20 years income tax exception

    Commercia license fees exemption

    Special Incentives

    Tax incentive for reduction of CO2 emission  **Additional comments below

    -

    10 years exemption National Public Service Authority supervision fees

    Special Incentives

     -

    Manufacturers: 15 years income tax exception

    5 years incentive of the 20% for raw material obtained and processed in Panamanian territory. The incentive will be processed in accordance to the rules of Industrial Promotion Certificate

    Special Incentives

    -

    Distributor: VAT and import duty exemption

    -

     

    Disclaimer: This chart does not constitute a legal opinion or statement as it has only been created for informative purposes. The interpretation and/or procurement of any right or incentive stated in this document will be subject to the procedures and regulationsfo the governmental office in charge of providing such incentives.

    Additional

    The company that develops new projects or that increases the energy production capacity of mini hydroelectric power station systems, geothermal electric power station systems and other new, renewable and clean sources power station systems up to 10 MW of installed power capacity, and that initiates its construction as of August 10, 2004, will be able to opt to obtain an equivalent fiscal incentive of up to the twenty five percent (25%) of the direct investment cost in the respective project, based upon the reduction of tons of equivalent carbon dioxide (CO2) emissions per year, calculated through the term of the concession or license, which could only be applied to the Income Tax derived in the activity, per fiscal period, during the first ten years, counted as of the beginning of commercial operation of the project, as long as the operations is not subject to other incentives, exonerations, exemptions and/or fiscal credits granted in other laws.

    The company that develops new projects or that increases the energy production capacity of small hydroelectric power station systems, hydroelectric power station systems, geothermal electric power station systems and other new, renewable and clean sources power stations of more than 10 MW of installed power capacity that initiates its construction as of August 10, 2004, will be able to choose to obtain an equivalent fiscal incentive up to the twenty five percent (25%) of the direct investment cost in the respective project, based upon the reduction of tons of equivalent carbon dioxide (CO2) emissions per year calculated through the term of the concession or license, which could only be applied as payment of up to fifty percent (50%) of the Income Tax derived from the activity, per fiscal period, during the initial ten years counted as of the beginning of commercial operation of the project, as long as the operations is not subject to other incentives, exonerations, exemptions and fiscal credits established in other laws.

    To determine the total amount of the fiscal incentive, a reference price per ton per year of carbon dioxide (CO2) equivalent will be used and a base line in metric tons per MW-hour of carbon dioxide (CO2) equivalent to be applied to the totality of MW-hours estimated to be generated during the concession or license period calculated for each project by the National Authority of Public Services, in coordination with the Ministry of Economy and Finance and the National Environmental Authority.


    The company that develops new projects or that increases the energy production capacity of mini hydroelectric power station systems, small hydroelectric power station systems, hydroelectric power station systems, geothermal electric power station systems and other new, renewable and clean source power stations that achieve to sell its carbon dioxide (CO2) emissions reduction certificates before or after taking advantage of the benefits stated in this Law, will have to report the sale of it certificates to the Tax office in order to deduct this amount from the balance of the fiscal incentive up to twenty five percent (25%) of the respective project direct investment cost.