Philippines Philippines cuts corporate tax for companies installing energy-saving equipment

On June 17, 2021, the Department of Energy of Philippines published the Department Circular No. DC2021-05-0011, entitled “Guidelines for the Endorsement of Energy Efficiency Projects to the Board of Investments for Fiscal Incentives”. This circular provides details of Section 71 of Department Circular No. DC2019-11-0014 or the Implementing Rules and Regulations of the Energy Efficiency and Conservation Act, and is intended to reduce corporate income tax for companies that implement energy efficiency projects. The energy efficiency projects include automated lighting control system or smart control system, HVAC upgrades such as air conditioning, and boiler replacement. This circular came into effect on July 2, 2021.

The original text of this circular can be downloaded from the following URL.
https://www.doe.gov.ph/sites/default/files/pdf/issuances/dc2021-05-0011.PDF

 

Eligible companies and corporate income tax reduction

Companies that can achieve a certain level of energy savings by installing new equipment or systems in existing or new facilities, plants, or establishments are eligible for fiscal incentives. However, the energy efficiency project must be classified as ESCO-Initiated Projects, Self-Financed Projects, or TPPD/Project SPV. In addition, the cost of capital investment must be at least Php10 million.

  • ESCO (Energy Service Company): An entity that provides services to save energy as well as improve productivity, and ultimately reduce costs. The cost of energy-saving retrofit is recovered from the reduction in utility costs.
  • ESCO-Initiated Projects: Energy efficiency projects implemented by ESCOs.
  • Third Party Project Developer (TPPD)/Project Special Purpose Vehicle (SPV): Asset owners or investors of energy efficiency projects that is not necessarily established as ESCOs, but uses the services of an ESCO for an energy efficiency project and request approval directly from the Department of Energy (DOE).
  • Self-Financed Projects: Energy efficiency projects for which the company has paid in advance with its own capital fund for ESCO services provided on progress payments or other similar schemes.

Companies can apply to the DOE for the energy efficiency projects that meet the requirements. If approved, the Board of Investment (BOI) will provide incentives for income tax holidays (ITH).

 

The percentage of ITH is determined by the degree of energy savings achieved as follows:

Annual Energy Savings at the Project Boundary

ESCO or TPPD/Project SPV EE
Rate of ITH

Self-Financed
Amount of ITH

Less than 15%

0%

None

15% to 20%

50 %

30% of the installation cost of energy-saving equipment or system

20% and up to 25%

75 %

40% of the installation cost of energy-saving equipment or system

More than 25%

100 %

50% of the installation cost of energy-saving equipment or system

*The income eligible for ITH of an ESCO or TPPD/Project SPV is required to be limited to the income directly attributable to the energy saving realized by the registered energy efficiency project.
*The type and extent of the above incentives are in accordance with the BOI guidelines implementing the Investment Priorities Plan (IPP).

 

Obligations of companies that have been endorsed by the DOE

Companies managing approved energy efficiency projects are required to comply with the followings.

  • Submit a project completion report for ESCO and TPPD/SPVC initiated project or project commissioning report for Self-financed projects to the Energy Utilization Management Bureau (EUMB) not later than 30 days upon completion or before the commercial operation of the energy efficiency project.
  • Submit a project progress report on a monthly basis during the installation and the commercial operation which ends based on the estimated payback period.
  • Undergo an independent verification by the DOE.
  • Other requirements set by the DOE to achieve the goals of the EEC Act and EEC IRR.