Green Business Incentives
Government has enacted several pieces of legislation to encourage investment in green business and now provides a number of tax incentives from which you may stand to benefit. These incentives translate not only into substantial cost savings but also encourage sales of “green” products and services by making them more affordable to consumers!
- Under Section 12 of the Barbados Income Tax Act, companies which have incurred capital expenditure in respect of machinery or plant are allowed to claim an initial allowance of 20% of such expenditure. However, certain green business activities may be entitled to an investment allowance. For example, the use of recycled plastics to produce new plastic products by a company could entitle it to claim an investment allowance of 20% of the expenditure incurred in respect of machinery or plant. The benefit of claiming the investment allowance is that unlike the initial allowance, it is not deducted from the cost of the asset for the purposes of determining the annual tax depreciation.
- Companies manufacturing “green products”, are allowed to claim an annual allowance of 150% of the capital expenditure for the assets used in the business.
- Under Section 12E.10 of the Income Tax Act, companies seeking internationally recognised environmental certification as a testimony of their eco-friendly actions, can claim a deduction of 150% of the expenditure incurred in an income year for the purpose of acquiring the certification. This extends to ISO 14000 certification for manufacturing firms, the Green Globe programme certification or its equivalent for tourism organisations, and the Leadership in Environmental and Energy Design (LEED) certification or its equivalent for firms in the building industry. This is intended to alleviate the usually high costs associated with acquiring the standard requirements and to make the certification more affordable to companies, which can in turn use it as a means of promoting their products and services.
- Under Section 12C1 of the Income Tax Act, companies are also entitled to a deduction of a maximum of $3,500 in respect of expenses incurred in installing a water storage facility on a commercial building.
- Businesses undertaking an energy audit and the retrofitting of a building or the installation of a system to produce electricity from sources other than fossil fuels may now deduct 20% of the expenditure over a period of five years.
- Persons in the business of providing residential accommodation are also entitled to claim an Energy Conservation and Renewable Energy Deduction Allowance of a maximum of $5,000 per year over each of five years to cover the cost of an energy audit, and 50% of the cost of retrofitting a residence or building or installing a system to produce electricity from a source other than fossil fuels. This applies to businesses whether incorporated or unincorporated.
- Government has also reduced import duty payable on materials that promote energy efficiency by keeping buildings cooler. Materials such as thermal barriers, roof insulation, window tint and ceramic roof coatings have been classified as “energy efficient systems/components” and now attract an import duty of 5%, down from the previous 20%.
- Under Part II B Item 87 of the Customs Tariff, various items like wind turbines, photovoltaic components and systems, bio-fuel systems, hydropower systems, solar thermal systems, wave or tidal power systems, fuel cell systems and geothermal heat pump systems are exempted from import duty (20%) and environmental levy, on the basis of ministerial approval. The need for ministerial approval in each and every instance no longer applies and these items now automatically enjoy the concession from the Customs Department.
- In addition to the duty-free importation of these alternative energy systems, new legislation was proposed to enable independent power producers to generate electricity from renewable sources which can be sold to Barbados Light & Power at rates set by the Fair Trading Commission.
- To encourage use of transport systems which utilise alternatives to fossil fuels, some special concessions now apply. Hybrids, solar energy, compressed natural gas and LPG vehicles now attract an excise tax at a fixed rate of 20%, a rate far lower than that of regular cars.
As Government moves towards its goal of transforming Barbados into a green economy, it is expected that additional incentives will come on stream.
Contains excerpts from Green Business Tax Incentives, Barbados Tax Alert by Ernst & Young and Tax Notes, published by Tax and Consultancy Services Limited (TACS).
Read more articles in the latest edition of the Barbados Catalyst
Wednesday, August 31, 2011