On September 24, 2020, the Legislative Assembly of the Republic of El Salvador approved the Law for the Promotion and Incentives for the Import and Use of Electric and Hybrid Means of Transportation, whose purpose is to promote, through the establishment of fiscal and economic incentives, the use of this type of motor vehicles in the country, both for the transportation of people in the public and private sectors. The regulation will be applicable to bicycles and other velocipedes powered only by electric motors.
The aforementioned regulation is promoted in compliance with international commitments pledged to mitigate the effects of climate change, taking into account that we are in the process of consolidation of legal instruments to achieve the implementation of the 2030 agenda and its 17 sustainable development objectives.
The transition to electric mobility can help the countries of the Central American region reduce polluting emissions and meet the commitments of the Paris Agreement on climate change, while creating new green jobs as part of the post-COVID-19 recovery plans, according to recent environmental and health studies.
The Central American region is strengthening and promoting sustainable mobility schemes with technologies such as electricity and supporting the implementation of relevant projects within the fulfillment of national actions in the framework of the Paris Agreement (CC -2015), thus reducing the emission of carbon dioxide in productive activities and stimulating environmentally friendly transportation. It is a phenomenon that is occurring, and Central American governments and public and private institutions are already strengthening joint efforts in the creation of norms, regulations, and infrastructure necessary for electric and sustainable mobility.
In the case of El Salvador, the Vice-Ministry of Transportation will be responsible for creating, guiding, and executing a public policy that promotes the use of electric and hybrid vehicles throughout the country, as well as promoting the replacement of combustion engines for electric and hybrid vehicles in public passenger and cargo transportation. Concurrently, the Ministry of the Environment will ensure that there is an adequate final disposal of batteries for electric and hybrid vehicles and other components that may generate environmental damage.
To this end, it must develop, together with these vehicles’ importers, distributors, and marketers, a system for the recovery, handling, and final disposal of hazardous waste and residue generated by the cars.
This regulation establishes a 0% import duty for electric and hybrid vehicles. They are exempt from paying the Tax on the Transfer of Goods and Services (VAT) generated by the vehicles’ importation, as well as 100% of the Special Tax on the First Registration of Goods in the National Territory for new electric motor vehicles and new hybrid motor vehicles, whether plug-in or non-plug-in.
For used vehicles, the exemption will be 25% and for bicycles and other velocipedes powered only with an electric motor it is 100%. These exemptions will be valid for ten years from the date the regulation comes into force.
New electric vehicles and hybrid electric vehicles that must be registered in the Public Registry of Motor Vehicles will be exempt from 100% of the payment of annual registration endorsement fees, stipulated in the Law on Tax Fees for the Circulation of Vehicles, for a period of two years counted from the year of issuance of the first circulation card.
Likewise, this legal framework establishes the use of green parking spaces for electric vehicles within public parking lots, as well as supermarkets, shopping centers, and other private parking spaces. The recharge centers may be installed in private or public environments, and their construction and implementation, as well as the marketing of recharge for electric batteries in these centers corresponds to the distributors and marketers of electric energy.
n these centers corresponds to the electrical energy distributors and marketers.
Individuals or legal entities that obtain income by providing electric recharge services, in the corresponding recharge centers, will enjoy total exemption from the payment of Income Tax for a period of five years, from the date on which said income is generated.
In this same context, the regulations mandate that the Ministry of the Environment and Natural Resources must create the adequate final disposal of batteries for electric and hybrid electric vehicles and other components that may generate environmental damage.
Similarly, the incentives extend to bicycles and other velocipedes that will not pay taxes and are declared one hundred percent exempt from the payment of the Tax on the Transfer of Goods and Services (VAT) generated by the import of bicycles and other velocipedes powered only by electric motors.
The vision for the regulation is that the sector can develop solidly and grant benefits for 10 years. Benefits will extend for 10 years from the date on which the law goes into effect. Once half of the aforementioned period has elapsed, the Ministry of Finance must carry out an evaluation of the tax benefits granted by this law, and must submit a report to the Legislative Assembly recommending the reduction, extension, or maintenance of the established period.
In addition, it establishes that the country’s public or private financial institutions may implement financing lines for the purchase of electric and hybrid vehicles for public passenger transportation.
Along the same lines, Article 8 of the law establishes restrictions to the benefits that electric or hybrid vehicles with the following characteristics may not be imported:
1) They are more than three years old, counting from the date of their manufacture.
2) They do not have new electric batteries.
3) When the vehicles are prohibited from circulating in the country of origin or have any of the following titles of origin:
Salvage- Parts only; Lemon Salvage; Salvage cert-lemon law buybak; Destruction; Salvage certificate-no VIN (when the VIN does not match another VIN number on other parts of the vehicle) Non-rebuildable; Salvage/fire damage; Crush; Scrap; Salvage Katrina; Parts only; Total loss; Dismantlers; Non-repairable.
The law also states that the prohibition will apply when the title or equivalent document indicates that the vehicle is damaged by flooding of fresh or salt water and contains any of the following legends: Flood Salvage, Flood Title, Flood Non-repairable, Flood Title-Water Damage, among others that refer to damage in claims of this type.
Sustainable mobility is an alternative for the region. Among citizens there are still reservations, such as fear of running out of batteries in traffic or exposing the electric motor to flooding caused by rain, when it comes to acquiring these models. There are studies that support the duration of energy up to five days and ruled out electrocutions due to low voltage and watertight batteries.
This regulatory initiative follows international trends such as the legal framework of Costa Rica and Chile, whose governments have eliminated the cost of tariffs for these electric vehicles. Also, that the private sector invest in recharging centers and determine a business model for reselling energy in charging centers.
In addition, the Colombian cities of Medellin and Cali, along with Santiago de Chile, are leaders in the use of this type of transportation. They have joined Guayaquil in Ecuador and Sao Paulo in Brazil, and have introduced electric buses in their urban fleets. It is estimated that by 2025 the cost of an electric vehicle and a conventional one will be similar.
Chile stands out for having the largest fleet of electric buses in the region, with more than 400 units, while Colombia is expected to incorporate almost 500 electric buses in its capital, Bogotá. The increased efficiency of electric buses, the reduction in their operation and maintenance costs, as well as the growing concern about the impacts of emissions on health and the environment are the main drivers of this transition in the various Latin American economies, and Central America is no exception.
It is important to note that transportation is responsible for 15% of greenhouse gas emissions in Latin America and the Caribbean and is one of the main drivers behind the marked deterioration of air quality, which causes more than 300,000 premature deaths per year in the Americas, according to the World Health Organization.
Between 2016 and September 2019, more than 6,000 new electric vehicles were registered in Latin America and the Caribbean, according to a report by the United Nations Environment Program.
The need to increase the number of recharging points has generated new business and service ideas. For example, the “electric corridors” that can already be found in Brazil, Chile, Mexico and Uruguay allow users to extend the autonomy of their vehicles thanks to networks of rapid recharge points. Electric bicycle and skateboard carpooling businesses are also being developed in at least nine Latin American countries.
The development of electric vehicle charging infrastructure has the potential to encourage new investments and jobs, which are key to post-COVID-19 efforts.
We are all called upon to contribute to this effort that intertwines the environmental, energy efficiency, and new technology spheres. Governments are developing a clear medium- and long-term roadmap that provides legal certainty for private investment and considers sustainable mobility in plans to expand the electricity grid, in line with the climate commitments made under the Paris Agreement. Our region is gradually advancing in this matter at its own pace to generate the conditions that will allow the use of transport for ecological sustainability, trusting that it will be a multiplying benefit in the quality of life, in the diversification of investments, and in the adequate use of energy resources, be they renewable or non-renewable.
Our area of practice at a regional level in matters of regulated sector (energy and others) and new technologies, is made up of multidisciplinary specialists with extensive experience and continuous updating in aspects of electric mobility, for any future interest in the matter or advice on investment.