Energy and Power

In March 2016, the Panamanian government approved the National Energy Plan 2015-2050. This new plan proposes that by 2050, 70% of the energy matrix coming from renewal energy with emphasis in solar and wind power.

Currently, the following investments are in the pipeline –

1. 1. Construction of the 4th Transmission line with capacity of 1,280 (MW) by circuit of 500 KV with a length of 330 km.
   2. Incorporation of liquefied Natural Gas (LNG) energy generation plants such as AES 670 MW LNG plant already in operation in Colón, plus a new gas plant in the pipeline.
   3. The Colombia-Panama interconnection line through an underwater cable with capacity of 400 megawatts (MW).
   4. Construction of the large Changuinola Dam II.
   5. Update and expansion of transmission and distribution network.

As part of Panama’s strategy to diversify the country’s energy matrix, in 2011, 2012 and 2013, the Panamanian Government enacted various statutes that set forth tax and other incentives for renewable sources of energy, such as wind-based, biomass, natural gas-based and solar-based power generation facilities.

An excerpt of the tax benefits that applies to each of type of energy source follows:

Gas Power

• • Tax credit applicable to the income tax of a maximum of 5% of the total direct investment value for civil works that become infrastructure for public domain, like highways, road, bridges, sewage systems, schools, health centers and other of similar nature, previous to an evaluation by the Public Entity that receives the corresponding work, in coordination with the Ministry of Economy and Finance. The referred credit cannot be subject of compensation, cession or transfer.
  • Exoneration of customs duties that could be caused due to the importation of equipment, machinery, materials, spare parts and others necessary for the construction, operation and maintenance of the plants.
  • Right to use an accelerated amortization method to depreciate fixed assets.
  • The exemption of all national taxes, for a period of 20 years, for companies dedicated to the manufacturing of natural gas generation equipment within Panama. Equipment includes mechanical, electronic, electromechanical, metallurgical and electrical type of equipment.

Wind Power

• • Tax credit applicable to the income tax of a maximum of 5% of the total direct investment value for civil works that become infrastructure for public domain, like highways, road, bridges, sewage systems, schools, health centers and other of similar nature, previous to an evaluation by the Public Entity that receives the corresponding work, in coordination with the Ministry of Economy and Finance. The referred credit cannot be subject of compensation, cession or transfer.
  • Exemption of all taxes pertaining to the importation (which includes customs duties, introductions fees and VAT) of equipment and materials for the construction, operation and maintenance of wind powered generation plans. The exemption applies also to any natural or legal persons who import equipment for the construction, operation and maintenance of wind-powered generation plants with the purpose of promoting and selling this type of equipment.
  • The application of the accelerated depreciation method for equipment used for wind-powered generation.
  • The exemption of all national taxes, for a period of 15 years, for companies dedicated to the manufacturing and installation of wind-powered generation equipment within Panama.

Solar Power

• • Tax credit applicable to the income tax of a maximum of 5% of the total direct investment value for civil works that become infrastructure for public domain, like highways, road, bridges, sewage systems, schools, health centres and other of similar nature, previous to an evaluation by the Public Entity that receives the corresponding work, in coordination with the Ministry of Economy and Finance. The referred credit cannot be subject of compensation, cession or transfer.
  • Exemption of all taxes pertaining to the importation (which includes customs duties, introductions fees and VAT for specific items) of equipment and materials for the construction, operation and maintenance of solar-based generation plans.
  • The application of the accelerated amortization method to depreciate fixed assets.

In addition to the tax incentives previously mentioned, there are additional tax benefits that applies to other renewable power projects, such as mini and small hydro generation facilities.