RE Fiscal Incentives (RA 9513)

DOE-certified RE Developers of RE facilities — including Hybrid Systems, in proportion to and to the extent of the RE component — are entitled to a package of fiscal incentives under Sections 15–17 of RA 9513 and operationalized in DC2009-05-0008, RULE 5 (SEC. 13–18) [DC2009-05-0008, SEC. 13, 2009-05-25]. The incentives cover both power and non-power applications.

Incentives for RE Developers (SEC. 13)

A. Income Tax Holiday (ITH)

RE Developers are fully exempt from national income tax for:

Maximum cumulative ITH: 21 years per RE facility (initial 7yr + up to 3 additional increments of 7yr each) [DC2009-05-0008, SEC. 13(A), 2009-05-25].

RE Developers acquiring facilities already in commercial operation for more than 7 years before the Act’s effectivity are not entitled to ITH on those facilities — only on additional new investments.

New investment: Developers discovering and developing a new RE Resource distinct from their registered operations qualify as a new project (fresh ITH); separate books of accounts required. Additional investment: ITH applies only to income attributable to the additional investment (improvements, modernization, or rehabilitation registered with DOE).

B. Exemption from Duties on RE Machinery, Equipment, and Materials

Within the first 10 years from COR issuance, importation of machinery, equipment, materials, and parts (including control and communication equipment) for use in RE facilities is exempt from tariff duties [DC2009-05-0008, SEC. 13(B), 2009-05-25].

Conditions:

• Equipment must be directly and actually needed and used exclusively in RE facilities
• Parts/materials restricted to components for authorized machinery
• Must conform to the approved work and financial program
• Shipping documents must be in the RE Developer’s name

Early disposal rule: Any sale, transfer, or assignment of duty-free imported equipment within 10 years of importation requires prior DOE endorsement. Conditions and tax consequences under DC2020-02-0005 §7:

When sale or disposition occurs after 10 years from date of importation: no taxes or duties required in any case [DC2020-02-0005, §7, 2020-02-13].

Unauthorized exportation: Exporting without prior DOE endorsement and BOI approval triggers liability for twice (2×) the amount of duties originally waived [DC2020-02-0005, §8, 2020-02-13].

COE Application Procedures (DC2020-02-0005)

DC2020-02-0005 (February 13, 2020) prescribes the detailed procedure for obtaining the Certificate of Endorsement for duty-free importation [DC2020-02-0005, §§3–9, 2020-02-13]:

Eligibility conditions — two tracks:

Application requirements (§4):

1. 4 original sets of Application Form (Annex A), notarized by a duly authorized officer
2. Sworn declaration that comparable equipment is not manufactured domestically and will be used exclusively in RE operations
3. Shipping documents in the RE Developer/Operator’s name
4. Documentary attachments: BOI Certificate of Registration; pro-forma invoice; computation of estimated duties waived; technical data specification
5. File at least 30 calendar days prior to actual importation
6. File at the DOE Records Management Division (RMD)

Processing flow and timelines (§4):

Emergency importation (§5): Permitted for (a) rehabilitation/repair after force majeure; or (b) replacement of equipment causing imminent danger to workers, community, or environment. BOC bond required; proof of compliance submitted to DOE within 15 calendar days of posting bond.

Post-importation requirements (§6):

• Within 30 calendar days of release from BOC custody: submit official documents (description, quantity, price, supplier, vessel)
• Within 15 days of placement/installation: advise DOE in writing of precise location and actual use

Reporting (§9):

• Applicant: maintain database of all covered equipment and submit semi-annual reports to DOE
• RMD: submit monthly list of approved COEs to Department of Finance Mabuhay Lane for reconciliation

Post-audit (§10): Annual post-audit by DOE Financial Services Compliance Division (with REMB and BOI representatives) against the applicant’s RE Service/Operating Contract accounting records; 15 calendar days prior written notice required.

C. Special Realty Tax Rate

Realty and other taxes on civil works, equipment, machinery, and improvements actually and exclusively used for RE facilities shall not exceed 1.5% of original cost less accumulated depreciation (net book value) [DC2009-05-0008, SEC. 13(C), 2009-05-25].

For integrated RE resource development and generation facilities under EPIRA (RA 9136), real property tax applies only to the power plant — not to the RE resource field.

• “Original cost” = tangible construction cost or 80% of assessed value at effectivity/completion, whichever is lower
• “Net book value” = original cost less normal depreciation over estimated useful life

D. Net Operating Loss Carry-Over (NOLCO)

Operating losses during the first 3 years from start of commercial operations may be carried over as a deduction from gross income for the next 7 consecutive taxable years immediately following the loss year [DC2009-05-0008, SEC. 13(D), 2009-05-25].

Conditions: (1) loss not previously offset as deduction; (2) loss results from operations, not from incentive availment.

E. Preferential Corporate Tax Rate (10% CIT)

After availment of the ITH period, all registered RE Developers pay 10% corporate income tax on net taxable income (vs. standard rate) [DC2009-05-0008, SEC. 13(E), 2009-05-25].

RE Developers with existing facilities already in commercial operation for 7+ years (not entitled to ITH) pay the 10% CIT upon DOE registration.

Amended by DC2021-12-0042 (24 December 2021): The CIT availment process was substantively tightened:

• Before first year of availment: DOE must issue a Certificate of Endorsement (COE). Conditions: (a) developer holds a valid RE Contract and corresponding COR; (b) developer is not in default or breach of contract; (c) developer submits a Sworn Undertaking to pass on CIT savings to end-users as lower power rates [DC2021-12-0042, §1, 2021-12-24].

• In succeeding years: Developer must submit an annual report under oath to DOE and ERC proving it passed on savings in the prior year. Acceptable evidence includes: (1) sales reports for ITH years; (2) comparative financial statements (net income with/without CIT incentive); (3) annual sales forecasts; (4) estimated tax savings deductions; (5) statement that savings were factored into CSP/WESM/competitive retail offers; (6) other proof of pass-on [DC2021-12-0042, §1, 2021-12-24].

• PSA/ASPA: Where the developer has a PSA with a DU or ASPA with the System Operator, the ERC must have approved it and must have already factored in the 10% CIT entitlement. The developer’s annual report must certify the incentive is incorporated in the PSA/ASPA rate [DC2021-12-0042, §1, 2021-12-24].

• DOE monitoring: Random review of annual reports. Failure to prove pass-on = grounds for cancellation/withdrawal of the COE endorsement [DC2021-12-0042, §1, 2021-12-24].

F. Accelerated Depreciation

Available as an alternative to ITH — if an RE project fails to receive an ITH before full operation [DC2009-05-0008, SEC. 13(F), 2009-05-25].

Mutual exclusion: Applying for accelerated depreciation disqualifies a project from ITH.

Plant, machinery, and equipment for RE exploration, development, and utilization may be depreciated at up to twice the normal rate (double-declining balance or sum-of-years-digit method).

G. Zero Percent (0%) Value-Added Tax (VAT)

The following transactions are subject to 0% VAT [DC2009-05-0008, SEC. 13(G), 2009-05-25]:

1. Sale of fuel from RE sources or power generated from RE (biomass, solar, wind, hydropower, geothermal, ocean, and emerging sources including fuel cells and hydrogen)
2. Purchase of local goods, properties, and services needed for the development, construction, and installation of RE plant facilities
3. The whole process of exploration and development up to conversion into power, including services by subcontractors and contractors

H. Tax Exemption of Carbon Credits

All proceeds from the sale of carbon emission credits are exempt from any and all taxes [DC2009-05-0008, SEC. 13(H), 2009-05-25].

I. Domestic Tax Credit

A 100% tax credit equivalent to the VAT and customs duties that would have been paid on imported RE machinery, equipment, materials, and parts is granted to registered RE Developers who instead purchase from domestic manufacturers, fabricators, or suppliers [DC2009-05-0008, SEC. 13(I), 2009-05-25].

Conditions: equipment exclusively used in registered RE activities; purchased from DOE-prior-approved domestic sources; acquired within the validity of the RE Service/Operating Contract.

Any sale or disposal of domestically purchased equipment within 10 years of acquisition requires prior DOE approval.

Incentives for RE Equipment Manufacturers (SEC. 15)

Manufacturers, fabricators, and suppliers of locally-produced RE equipment are entitled to [DC2009-05-0008, SEC. 15, 2009-05-25]:

Incentives for Biomass Farmers (SEC. 16)

Individuals and entities engaged in the plantation of crops and trees used as Biomass Resources are entitled to duty-free importation and VAT exemption on all types of agricultural inputs, equipment, and machinery for 10 years from the Act’s effectivity [DC2009-05-0008, SEC. 16, 2009-05-25].

Eligible crops include: jatropha, coconut, sugarcane, and others actually utilized for biomass. Eligible inputs include: fertilizers, insecticides, pesticides, tractors, trailers, trucks, farm implements, harvesters, threshers, hybrid seeds, sprayers, packaging machinery, conveyors, weighing scales, harvesting equipment, and spare parts.

Other Incentives and Privileges (SEC. 17)

Tax Rebate for RE Component Purchase

The DOF (in consultation with DOST, DOE, DTI) shall provide rebates for purchase of RE equipment for residential, industrial, or community use. The DOF was directed to prescribe the rebate procedure, mechanism, and period within one year of the Act’s effectivity [DC2009-05-0008, SEC. 17(A), 2009-05-25].

GFI Financial Assistance

Government financial institutions (DBP, LBP, Phil-Exim Bank, and others) shall provide preferential financial packages for DOE-endorsed RE projects, to the extent allowed by their charters [DC2009-05-0008, SEC. 17(B), 2009-05-25]. GFIs were directed to formulate programs within 6 months of the IRR’s effectivity.

Exemption from Universal Charge

Consumers are exempt from paying the Universal Charge (UC) if [DC2009-05-0008, SEC. 17(C), 2009-05-25]:

1. The RE-generated power is consumed by the generators themselves; or
2. The RE-generated power is distributed free of charge in off-grid areas.

Cash Incentive for Missionary Electrification

An RE Developer serving off-grid/missionary areas is entitled to a cash generation-based incentive of 50% of the Universal Charge for Missionary Electrification (UC-ME) per kWh generated, chargeable against the UC-ME. Applies to RE capacities for missionary electrification upon effectivity of the Act [DC2009-05-0008, SEC. 17(D), 2009-05-25].

Transmission Charges — Per kWh Option

A registered RE Developer producing power from an intermittent RE Resource may opt to pay TRANSCO (or its concessionaire/successor) transmission and wheeling charges on a per kWh basis at the average per kWh rate of all other electricity transmitted through the Grid [DC2009-05-0008, SEC. 17(E), 2009-05-25].

Must-Dispatch / Priority Dispatch for Intermittent RE

Qualified and registered RE generating units with intermittent RE Resources (wind, solar, run-of-river hydropower, ocean energy) are classified as “must dispatch” based on available energy and enjoy priority dispatch [DC2009-05-0008, SEC. 17(F), 2009-05-25].

TRANSCO (or successor) shall determine the maximum penetration limit of intermittent RE-based power plants to the Grid through technical and economic analysis. PEMC and TRANSCO must implement technical mitigation and system improvements to ensure safety and reliability.

All WESM rules, Distribution Code, and Grid Code provisions inconsistent with must-dispatch status for intermittent RE are deemed amended or modified by RA 9513 [DC2009-05-0008, SEC. 17(F), 2009-05-25].

“Intermittent RE Resources” = RE resources where energy generated is variable, unpredictable, and irregular — and the resource is location-specific, difficult to precisely predict, and inherently uncontrollable in availability.

Conditions for Availment (SEC. 18)

COR and Certificate of Accreditation

All RE Developers must register with DOE-REMB to receive a Certificate of Registration (COR). RE equipment manufacturers, fabricators, and suppliers must obtain a Certificate of Accreditation from DOE-REMB [DC2009-05-0008, SEC. 18(A), 2009-05-25].

For existing RE projects: the new RE Service/Operating Contract pre-terminates and replaces the prior service contract.

BOI Registration

The RE sector is declared a priority investment sector under the Investment Priority Plan (IPP) [DC2009-05-0008, SEC. 18(B), 2009-05-25]. Registration with BOI is required to qualify for the incentives under SEC. 13 and SEC. 15. BOI registration is facilitated through a DOE-BOI administrative arrangement; applications are acted upon favorably on the basis of DOE certification.

Certificate of Endorsement (amended by DC2021-12-0042)

As amended by DC2021-12-0042 (24 December 2021), the COE structure was fundamentally restructured from the 2009 baseline [DC2021-12-0042, §2, 2021-12-24]:

Under the original 2009 IRR, a COE was required on a per-transaction basis for all incentives; the 2021 amendment reduced this to automatic qualification for most incentives, maintaining the COE gate only for duty-free imports (per importation) and for the 10% CIT (pre-availment, annually thereafter).

REMB must issue the duty-free import COE within 15 days of request [DC2009-05-0008, SEC. 18(C), 2009-05-25].

Non-compliance consequence (elevated in 2021 amendment): Failure to comply with good-standing criteria is grounds for termination/cancellation of the RE Contract and Certificate of Registration. REMB monitors compliance and may cancel certificates [DC2021-12-0042, §2, 2021-12-24]. The 2009 baseline only provided for loss of good standing without automatic contract/COR cancellation.

Ongoing good-standing criteria (unchanged from 2009 baseline):

1. Compliance with RE Act and IRR obligations
2. Compliance with DOE directives and circulars
3. Compliance with pre-registration/registration conditions
4. Compliance with reportorial requirements (separate books of accounts; timely submission of technical, financial, and operational reports)
5. Timely remittance of Government Share and payment of applicable fees

Revenue Regulations

The BIR (in coordination with DOE, DOF, BOC, BOI) was directed to promulgate revenue regulations governing the grant of fiscal incentives within 6 months of the IRR’s effectivity [DC2009-05-0008, SEC. 18(D), 2009-05-25].

Hybrid and Co-generation Systems (SEC. 14)

The incentives in SEC. 13 and the must-dispatch privilege in SEC. 17(F) are available to hybrid and co-generation systems utilizing both RE and conventional energy sources, but apply only to the portion of equipment, machinery, and devices attributable to the RE component [DC2009-05-0008, SEC. 14, 2009-05-25].