Saving the planet
Israel has just passed tax incentives for renewable energy and the OECD has pronounced on finance for energy saving investment. This follows the Paris Agreement of December 2015, in which 195 countries adopted an action plan to avoid dangerous climate change by limiting global warming to below 2° celsius.
New Israeli Renewable Energy Law
On December 22, the Knesset passed the Law for the Encouragement of Investment in Renewable Energy (Tax Incentives for Generating Renewable Energy), 2016 (Book of Laws 2589). The law is effective retroactively from January 1, 2016.
It aims to encourage the supply of renewable energy by wind turbines and photovoltaic installations for two groups of people: (1) individuals and residents’ associations, (2) landowners.
Individuals and residents’ associations that sell renewable electricity may choose between an exemption on income from the sale of electricity of up to NIS 24,000 per year or 10% tax on income of up to NIS 99,006 (in 2016), being the maximum income for exempt dealers under the VAT Law. In addition, national insurance contributions will not be due. (It is not yet clear to us whether/how a residents’ association will allocate income to its members.)
Individuals, if any, who rent out the land on which the renewable energy installation is located may choose between: (1) an exemption for such rental income of up to NIS 5,000 per year plus 31% tax on the excess, or (2) 10% tax on such rental income.
In each scenario, expenses and depreciation are only deductible on a pro rata basis to the extent revenues exceed NIS 99,006 (in 2016). Losses can only be offset against income from the same installation – presumably in future years although this is not spelled out.
If the energy installation is sold, the reduction in income is added to the sale consideration when calculating capital gains tax or land appreciation tax. (It is unclear to us presently what happens if the 10% tax rate is elected).
Other conditions also apply including the following: the electricity must be sold to an authorized supplier (such as the Israel Electric Company, presumably); this is not a business activity; no depreciation has been claimed other than that permitted under this law; all installations of an individual are taken into account and those of relatives (spouse, offspring, spouse’s offspring, spouse of the aforementioned, if they [unclear who] are aged under 21) unless good faith is proven.
Notification must be filed with the electricity supplier in the case of a renewable energy seller, or with the Israeli Tax Authority in the case of a landlord. Switching between alternative breaks must also be notified and take effect the year after that notification. Full business books need not be kept if full applicable tax is withheld and, in the case of renewable energy sellers, revenues do not exceed NIS 99,006 (in 2016).
The maximum duration of these tax breaks is 25 years. Let’s hope the planet is saved by then.