COP28: these are the tax incentives in Spain aimed at boosting climate action

The concern with global warming and its effects on climate change – which some newspapers reported on back in 1912, more than 110 years ago – achieved full international recognition with the adoption of the United Nations Framework Convention on Climate Change (UNFCCC). It entered into force on March 21, 1994, and as of today, it has been ratified by 197 countries and by the European Union as a regional organization.

The 28th Conference of the Parties to the UNFCCC (COP 28) has concluded – laboriously – with a global commitment in relation to renewable energies and energy efficiency. Worthy of note is the goal of tripling the installed renewable energy production capacity worldwide, and collectively doubling the global annual average rate of improvements in energy efficiency in 2030, as well as the boosting of zero- and low-emission technologies. To achieve these commitments, the signatory states, of which Spain is one, must adopt comprehensive and ambitious national measures, which can include tax measures.

In past blog posts, we mentioned the increasing importance of sustainability as a guiding principle of both investments and business activity in general, and the role which taxation is expected to play in facilitating the transition towards sustainable development.

In this respect, our tax system has been going green in the last years, timidly perhaps, through the integration of different incentives aimed primarily at promoting renewable energies and sustainable vehicles.

Regarding measures to promote renewable energies, corporate income tax legislation establishes a case of unrestricted amortization of investments in (i) facilities intended for self-consumption of electricity that use energy from renewable sources, or in (ii) facilities for thermal use for own consumption that use energy from renewable sources, which replace facilities that use energy from fossil fuels. Those investments (except for the buildings) may be freely amortized in tax periods commencing or ending in 2023, if they are made available to the taxpayer after the entry into force of Royal Decree-law 18/2022, of October 18, 2022 (that is, as from October 20, 2022) and are put into operation in 2023.

To apply this incentive, during the 24 months following the first day of the tax period in which the acquired assets come into operation, the total average workforce headcount of the entity must be maintained with respect to the average workforce headcount in the preceding 12 months. The maximum amount of the investment that can qualify for this unrestricted amortization regime will be €500,000.

Renewable energies also receive support in local taxes. In this regard, construction, installation projects and works which incorporate systems for harnessing thermal and electrical solar energy may benefit from a reduction of up to 95% in tax on construction, installation projects and works (“ICIO”). Moreover, for real estate on which such systems have been installed, city councils can reduce the real estate tax (“IBI”) by up to 50%. Taxpayers that pay municipal tax on business activities (“IAE”) and that use or produce energy using renewable energy installations or cogeneration systems can also benefit from the same reduction.

In relation to sustainable vehicles, both new FCVs, FCHVs, BEVs, REEVs or PHEVs, and new charging infrastructures for electrical vehicles, whether normal or high power, may be depreciated on an unrestricted basis for corporate income tax purposes. The incentive (which in both cases permits multiplying the maximum straight-line depreciation rate by 2) requires that the investments must be used for economic activities and that they enter into operation in the tax periods commencing in 2023, 2024 and 2025.

With the same aim of incentivizing the installation of charging stations, the possibility is provided for tax ordinances to regulate a reduction of up to 50% of IBI and IAE, and up to 90% of ICIO. These new reductions are in addition to the one that already existed in IAE for companies that implement an employee transport plan to reduce energy consumption and emissions caused by traveling to work to promote the use of more efficient means of transport, such as collective or shared transport. Also, the 75% reduction in road tax (“IVTM”) continues to apply, depending on the environmental impact of both the type of fuel the vehicle consumes and its engine.

Lastly, apart from the business area, state personal income tax legislation establishes tax credits for the acquisition of plug-in electric and fuel cell vehicles and recharging points, and for works to improve the energy efficiency of dwellings, besides the various incentives approved by the autonomous communities.

In short, as may be seen, special attention should be paid to the range of incentives provided for in our tax system to facilitate achieving sustainable development objectives.

UPDATE- January 15, 2024:

Royal Decree-law 8/2023, of December 27, 2023, has extended for one more year the time period for applying the corporate income tax and personal income tax incentives for renewable energies and energy efficiency. Therefore:

• The unrestricted amortization, for corporate income tax purposes, of investments that use energy from renewable sources can be applied in tax periods commending or ending in 2024, if the investments enter into operation in 2024.
• The personal income tax credits for works to reduce the demand for heating and cooling, and for works to improve the consumption of nonrenewable primary energy, may be applied to the amounts paid up to December 31, 2024. The energy efficiency certificate evidencing the compliance with the requirements for applying the tax credit must be issued before January 1, 2025. In the case of dwellings that are expected to be leased out, the deadline for leasing the dwelling is extended to December 31, 2025.
• The personal income tax credit for owners of dwellings located in predominantly residential buildings on which energy renovation works have been carried out, may be applied to the amounts paid up to December 31, 2025, and the energy efficiency certificate must be issued before January 1, 2026.