Aug. 20, 2019
There is a current global need for clean and renewable energy sources. Colombia is an emerging market open to foreign innovation with corporate vehicles and tax reduction possibilities. The huge untapped renewable potential, ease of doing business, and encouragement of foreign investment make Colombia an exciting market for clean tech companies. Colombia is one of the major economies of South America and its main export is oil. Hydropower is the largest power-generating source in Colombia. The energy market in Colombia is based on Law 142 (the Public Utilities Law) and Law 143 (the Electricity Law) of 1994, which divide the power market into four activities: generation, transmission, distribution, and sales.
The country has abundant water resources for hydroelectric power, and in Latin America is second to Brazil in hydropower potential. With an electricity system dominated by fossil fuel and hydroelectric generation, the Colombian government has recently undertaken efforts to encourage more renewable generation.
To achieve the above, Law 1715 of 2014 was approved. This law aims to regulate the integration and promotion of non-conventional renewable sources, improve energy efficiency, and boost the implementation of demand response measures. According to Law 1715 of 2014, unconventional sources of renewable energy are considered biomass, small hydroelectric uses, wind, geothermal, solar and seas.
The small hydroelectric exploitations (PAH) are those that have a capacity of less than 10MW. The generation of energy through PAH is considered unconventional sources of renewable energy.
Current regulations establish the application of the following tax benefits to projects from non-conventional sources of energy:
a) Special deduction in the determination of income tax: deduction of 50% of the income tax on the total investment made in research, development, and investment for the production and use of energy from unconventional sources of energy or management efficient energy in a period not exceeding 15 years, counted from the next taxable year in which the investment has entered into operation. In any case, the value to be deducted annually cannot exceed 50% of the taxpayer's net income before subtracting the value of the investment.
b) Application of accelerated depreciation: application of an accelerated depreciation to increase the annual depreciation quota to the machinery, equipment, and civil works necessary for the pre-investment, investment, and operation of generation with unconventional sources of energy, which are acquired and/or built, exclusively for that purpose.
c) Exclusion of VAT for goods and services: the purchase of goods and services, equipment, machinery, elements and/or domestic or imported services destined to pre-investment and investment, the production and use of energy from the unconventional sources, as well as for the measurement and evaluation of potential resources.
d) Exemption from tariff levies: machinery, equipment, materials and supplies destined exclusively for pre-investment work and investment of projects with unconventional sources of energy and that are not produced by the national industry and its unique are exempt from import duties. means of acquisition is the import of the same.
In addition, the interests for financing infrastructure projects of the public utility companies that carry out public service infrastructure projects will be fully deductible.