El Salvador has enacted a new Law for the Promotion of the Use of Renewable Energy aimed at contributing to the sustainability of the country’s energy matrix through the adoption of electricity generation systems powered by renewable sources in households, commercial establishments, and industrial facilities.
The law establishes a legal framework to facilitate the importation, commercialization, installation, and maintenance of electricity generation systems powered by renewable sources, both conventional and non-conventional, as well as their use, storage, and reinjection into the distribution grid. It also introduces a comprehensive package of tax incentives for suppliers and end users.
Rights for end users
End users will be entitled to:
- Install renewable generation systems for self-consumption.
- Inject surplus energy into the distribution grid and receive compensation as determined by the General Superintendence of Electricity and Telecommunications (SIGET).
- Access tax benefits when acquiring equipment from qualified suppliers and when contracting installation or maintenance services.
Tax incentives
The law grants incentives for a period of 10 years from its entry into force:
For suppliers:
- Full exemption from Income Tax on revenues derived from incentivized activities.
- Exemption from Income Tax withholdings related to incentivized activities.
- Full VAT exemption on sales and installation services.
- Exemption from import duties and taxes on essential equipment, materials, and spare parts required for the sale, supply, or installation of systems for end users.
For end users:
- VAT exemption on the purchase and installation of equipment acquired from qualified suppliers.
- Deduction of expenses related to the purchase and installation of equipment from taxable income.
Regulation and oversight
- SIGET will serve as the competent authority responsible for regulating the system, issuing the special regulations, and defining the tariff schedule applicable to the compensation of surplus energy. SIGET will also create a catalogue of certified equipment and oversee the proper implementation of the law.
- Market oversight is further strengthened through the Consumer Protection Authority, which must ensure that tax benefits are reflected in final prices and report any abusive practices.
Recommendations for companies and users
- Assess the technical and financial feasibility of installing renewable generation systems, taking into account the 10-year incentive period.
- Review electricity supply agreements to determine how surplus energy reinjection may impact operating costs and consumption strategies.
- Monitor the issuance of SIGET’s special regulations (expected within the next 60 days), as they will establish mandatory technical requirements and applicable reinjection tariffs.
- Conduct internal energy audits to identify modernization opportunities that maximize the benefits of the regime.
- For importing or installation companies, prepare a compliance and traceability plan for the use of tax incentives, which will be subject to oversight by the Ministry of Finance through the General Directorate of Internal Taxes and the General Directorate of Customs.
