This blog was last updated on June 27, 2021
An Emphasis on Renewable Energy fuels Tax Incentives
With recent variable energy prices and continued concerns about global warming, there has been a major emphasis on creating more alternative sources of energy. Geothermal, wind, solar, and other sources of clean, renewable power are currently the most popular forms of alternate energy. According to the Renewable Energy Policy Network for the 21st Century Global Status Report for 2014, approximately 19% of final global energy consumables came from renewable energy sources in 2012 and by early 2014, at least 144 countries had renewable energy targets and 138 countries had renewable support policies in place; a 5% increase from the previous year. Furthering this effort, many countries/economic unions even recommend or require that specific numbered percentages of their nation’s energy come from renewable sources. For example, European Union leaders have agreed that 20% of the Union’s energy should come from renewable energy by 2020. Likewise, Argentina has set a target to have 8% of its electricity come from renewable energy sources by 2016. This growing present-day emphasis on renewable energy has caused governments to seek ways through legislation to stimulate the source’s research, development, and manufacturing.
Tax Incentives for Renewable Energy Technologies
One means of stimulating the development of alternate sources of energy, which aligns with the public policy goals of many countries, is for governments to create flexible tax incentives that target specific renewable energy technologies. Common global tax incentives from the past few years include:
- Investment tax incentives – such as Belgium’s 13.5% tax deduction on all renewable technologies;
- Production tax incentives – such as the United States’ production tax credit of 1.9-cent per kilowatt-hour benefit for the first ten years of a renewable energy facility’s operation;
- Property tax incentives – such as the Czech Republic’s 100% property tax reduction on certain renewable technologies (5 year limit);
- VAT or Sales/Excise tax incentives – such as Italy’s reduction in VAT to 10% for solar energy parts and 28% excise tax reduction for bio-fuel technology;
- Import duty incentives – such as up to a 100% duty reduction in the Philippines for hydro-related technologies;
- Plant and equipment depreciation incentives – such as Portugal’s 25% per year accelerated depreciation of solar technologies;
- Research and development incentives – such as South Korea’s 10% tax credit for renewable energy R&D;
- Tax holidays – such as occurs in many states within the United States where, during certain defined periods of time, purchases of energy-efficient products are not subject to sales and use tax; and
- Fuel tax incentives – such as in Austria and Denmark where the taxing of conventional fuels has risen, while renewable energy is not subject to the same tax.
Many of these incentives can last for merely a single transaction, for a period of days or years, or indefinitely. Some governments take the approach of creating strong incentives in the early stages of renewable energy development and then phasing out the incentives as time passes and the energy becomes more self-sustaining.
The Impact on Leasing
In respect of the growing global need and emphasis for renewable energy, as well as the desire by consumers to obtain the offered tax incentives, the leasing of equipment related to such has skyrocketed. The major economic reason for the rise in demand for these types of leases is due to the capital-intensive nature of renewable energy production as compared to conventional energy production. It is often extremely expensive for consumers to develop or to install new or additional renewable energy systems. The costs of the systems themselves, along with other internal and external economic factors, are just a few of the drivers that go into the decision to lease versus purchase equipment outright. Equipment leasing is an affordable way to keep costs to the consumer reasonable, while not losing the benefit of the tax incentives mentioned above. The leasing of renewable energy equipment, however, is not only a favorable and cost-efficient option for the consumer purchasing it, but is also a favorable, low-risk situation for the lessor providing the lease. There are many factors that make the ventures noticeably low-risk to creditors. Generally, renewable energy equipment has a long useful life, the equipment requires little maintenance, and at the end of the lease, the equipment has a strong residual value. For example, many pieces of equipment such as solar panels, wind turbines, wave power machines, and geothermal photovoltaics can last over 20 years. This life span has continually increased every year, as technologies related to renewable energy get better, more reliable and more sustainable. Additionally, many of the above-described tax incentives require a ten-year guarantee by the consumer to qualify for rebates, which lowers risk and adds stability. This is just another positive indicator that leasing will be beneficial to not only the lessee, but also to the lessor. Lastly, as markets continue to become more global, renewable energy lessors are increasing their flexibility and offering more diverse products.
Future Growth
In closing, taking into consideration the fact that concerns over energy prices and global warming are not going away any time soon, and as a result of the all of the positive incentives that result to both lessors and lessees as a consequence of leasing renewable energy equipment, the future of this growing market is strong. The worldwide financing market continues to gain new players every day and the number of lessors eager to lease is growing even faster. It appears that this growing niche has the backbone to survive globally for many years to come.
Taxware Knows Tax Rules
Taxware is the leading provider of sales, use and value-added tax compliance software, with more than 34 years of experience in the transaction tax compliance business. Whether your business is conducted within the U.S. or around the world, Taxware has software, filing and compliance solutions you need to help get it right. Taxware can integrate with your ERP, POS system, custom-billing application or web store, maximizing your business’ bottom line. With a comprehensive repository of more than 210 million tax rules, Taxware tracks and analyzes tax law changes in approximately 13,000 state and local jurisdictions in the U.S. and nearly 200 countries around the world. Taxware is known for having reliable and robust tax research and world-class technology. Taxware Systems support content related to various types of leasing scenarios, as well as support reduced rates and exemptions for sales and leases of several renewable energy resource items. For more information please contact Taxware at: http://taxware.com/contact.php
