Dutch sustainable energy subsidies and energy taxes
The Paris climate agreement and increased public awareness has encouraged businesses and countries to increase their investments in renewable energy. The Netherlands wants to phase out its traditional coal and gas use and achieve zero carbon (CO2) emissions by 2050, in line with the goals set at COP21.
The Dutch government provides significant subsidies and fiscal incentives for investments that help lead to the reduction of CO2 emissions. This article provides an overview of the Dutch sustainable energy initiatives especially relevant for investors in office buildings, and the fiscal implications of investing in solar panels.
Energy Investment Allowance – EIA
The EIA (Energie-investeringsaftrek) allows businesses to deduct 45.5% of certain investments made in business assets listed on the Energy list (Energielijst) in addition to their standard depreciation for corporate income tax purposes. Businesses investing in measures to reduce CO2 emissions such as heat infrastructure or other energy-efficient technologies or assets may be eligible for the EIA.
Environmental Investment Allowance – MIA
The MIA (Milieu-investeringsaftrek) allows businesses to deduct up to 36% of certain investments made in business assets listed on the Environmental list (Milieulijst) in addition to their standard depreciation for corporate income tax purposes. Businesses that invest in environmentally friendly business assets may be eligible for the MIA, if the investment amount does exceed EUR25 million.
In practice, the application of the MIA or the EIA in the construction phase does not immediately lead to a cash flow advantage, but the tax loss can be carried forward and set off against taxable profits in future years.
Arbitrary depreciation of environmental investments – VAMIL
The VAMIL scheme allows arbitrary depreciation up to 75% of certain investments made in environmentally friendly business assets listed on the environmental list. The benefit of the VAMIL is that you have a liquidity (and interest) advantage by accelerating the depreciation of the business assets. It is possible to use both the VAMIL and the MIA with respect to the same business asset.
SDE++ is an exploitation subsidy provided to any business or organization for the production of renewable energy and the reduction of emission levels.
The SDE++ subsidy can be requested for all forms of renewable energy production (eg solar panels, wind farms, hydropower) and aims to reduce the difference in cost price between grey and green energy.1
Currently, there is a lot of activity involving the use of solar power on existing buildings. A business must qualify as a producer of solar energy to qualify for the SDE++ subsidy with respect to solar panels. This implies that the owner/lessor needs to “maintain” the solar panels. The owner of the solar panel installation is in principle expected to maintain the solar panels. But this may be different if the owner does not operate the solar panels but instead leases the solar panels to a third party. In such cases, the competent authorities may question whether the owner can still qualify as a producer under the SDE++ subsidy.
The supply of energy to the end-user and the use of energy in the Netherlands is generally subject to Dutch energy tax. This implies that the owner of solar panels that supplies energy generated with the solar panels to its tenant may be required to register for energy tax purposes.
An exemption for energy tax may apply for the use of self-generated sustainable energy. For example, a business may be able to apply for this exemption when it generates solar energy (eg through the solar panels on its roof) and uses it for its own purposes.
Legal structuring of solar panel investments
As the installation of solar panels in unbuilt or greenfield areas of the Netherlands receives increased public scrutiny, the Dutch government is under pressure to install more solar panels on roofs of public and private properties in the Netherlands.
In practice, there are many ways to structure the investment in solar power on existing buildings, all of which trigger different commercial, legal, regulatory and tax implications for both owners/lessors and tenants/users. The legal structuring also has a significant impact on the eligibility for Dutch SDE++ subsidy and levy of energy tax. The three common structures are discussed below.
Exploitation of solar panels – supply of energy to tenant
The owner of immovable property installs solar panels on the roof of its immovable property and supplies the solar energy to the tenant. The owner of the solar panel is the person maintaining the solar panels and is therefore eligible for the SDE++ subsidy. The downside of this structure is that the supply of solar energy to the tenant is generally subject to energy tax. Consequently, the owner of the solar panels would generally be required to register for energy tax purposes.
Lease of solar panels to tenant
In this structure, the owner of the immovable property owns the solar panels but leases them as part of a financial or operational lease agreement to the tenant. To apply for the own-use energy tax exemption, the energy needs to be generated for the risk and account of the user.
Based on guidance of the Dutch tax authorities, if the owner/lessor charges a fixed fee for the lease of the solar panels, the lessee takes on the risk and account of generating the solar energy. At the same time, it is questionable whether the owner/lessor would still qualify as the producer for SDE++ purposes and therefore be eligible for the SDE++ subsidy.
In practice, these kinds of leasing structures are often discussed upfront with the Dutch tax authorities and the RVO (the authority issuing SDE++s). Depending on the exact terms of the lease agreement, parties may be able to profit from both the energy tax exemption and the SDE++ subsidy.
Owner leases the rooftop to a solar energy operation
If the owner of the immovable property is not interested in owning the solar panels, it is also possible to lease the roof of the immovable property to a solar energy operator. The solar energy operator may then lease the solar panels to the tenant or supply energy to the tenant. Generally, the solar energy operator wants to acquire a right of superficies to make sure it remains the legal owner of the solar panels. In this case, similar discussions for the SDE++ subsidy and energy tax arise between the solar panel operator and the tenant.
This article provides an overview of the Dutch sustainable energy initiatives such as the MIA, EIA, VAMIL and SDE++ subsidies. Businesses investing in energy efficient technologies and other environmentally friendly assets may benefit from the subsidies and tax incentives described in this article.
Additionally, this article delved a bit deeper in the energy tax implications of the various investing structures of solar panels. Investing in solar panels seems to be one of the more straightforward ways in which businesses can contribute to the reduction of CO2 emissions, thereby realizing the COP26 goals.
1 Green electricity is electricity that is generated from sustainable sources such as the sun, wind and water. Grey electricity is generated from fossil fuels such as gas, oil and coal.