Global

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  • Service: Tax
  • Type: Survey report
  • Date: 4/25/2013

Green buildings 

Buildings accounted for approximately one third of global energy-related CO2 emissions in 2004, according to the Intergovernmental Panel on Climate Change (IPCC).1
GREEN BUILDINGS
US 1
Germany, Netherlands 2
Belgium, China, France 4

Source: The KPMG Green Tax Index, 2013.


The buildings sector also offers the largest low cost emissions reduction opportunity for governments worldwide when compared with other sectors, including energy generation, transportation, industry and agriculture.2


It therefore comes as no surprise that governments are increasingly focusing policy on reducing the energy consumption of buildings, as well as improving their water efficiency and the sustainability of building materials.


While non-tax approaches such as grants and subsidies remain, for the time being, the preferred tools to encourage the construction and occupation of green buildings, tax-related instruments do exist. These offer potential benefits for corporations and warrant exploration. In the analysis undertaken for this Index, no tax penalties were identified specific to the energy consumption of commercial buildings. Countries that rank at the top of the Index in the green buildings category do so due to the number of incentives they have in place.




US

The US tax code includes two federal tax incentives specific to efficient buildings. Firstly, a tax credit is available to the construction industry of USD1,000 for every home built that is 30 percent more energy efficient than standard, and USD2,000 for every home that is 50 percent more efficient. In addition, within the US, companies may claim a tax deduction (under Section 179D) for the cost of equipment installed in commercial buildings that significantly reduces heating, cooling or lighting costs. The deduction is equal to the cost of such energy efficient commercial building property placed in service during the taxable year. The amount of the deduction cannot exceed USD1.80 per square foot.


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Germany

Germany provides deductions and accelerated depreciation in relation to leased and owned buildings that meet certain requirements. The deductible/depreciable amount varies depending on whether the building is leased or owned, the length of lease or ownership and the location of the property.


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Netherlands

Investments in green buildings may qualify for accelerated depreciation under the Dutch VAMIL program, which aims to encourage corporate investment in environmentally friendly assets. Accelerated depreciation of up to 75 percent of the cost of the qualifying asset is permitted, with a maximum of EUR10 million (USD13.1 million) applied to investments in real estate.


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Belgium

Real estate in Belgium is subject to a tax known as the "immovable withholding tax". Owners of real estate pay the tax at a rate of 1.25-2.5 percent of its deemed rental value depending on the location, although municipal surcharges can increase that to an effective rate of 50 percent of rental value or more. A reduction of this real estate tax is provided if the building meets certain green criteria based on the building’s level of insulation.


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China

In China, a VAT exemption applies for enterprises that produce building materials that contain at least 30 percent recycled industrial waste such as coal refuse or fly ash.


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France

France provides an exemption for up to 5 years from local property tax (either 50 percent or 100 percent) for buildings which qualify as low energy consumption. Application of this exemption is subject to a prior adoption by the local municipality.


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Other green building tax incentives

The UK, although it does not have a specific tax provision for green buildings, does offer enhanced capital allowances on equipment that improves the energy performance of buildings. The allowance provides a 100 percent deduction for approved energy efficient equipment including heating, lighting and ventilation systems. For loss-making companies, a 19 percent tax cash credit is available up to GBP250,000 (USD380,000).


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Non-tax incentives

Many governments are providing grants and subsidies to encourage more efficient buildings.


China, for example, brought in subsidies for both the construction of new energy efficient buildings and the retrofitting of existing buildings in 2012. Subsidies are calculated according to the square meter floor area of the building and can be as much as CNY80 (USD13) per square meter. Grants of up to CNY50 million (USD8million) are available for the construction of green buildings in designated green ecological city zones.


Germany, by contrast, offers low-interest loan programs for energy efficient construction and retrofitting, and these are widely available to corporations and institutions as well as private individuals.


Singapore has a variety of non-tax incentives in place. These include the Green Mark Incentive Scheme for Existing Buildings which provides cash incentives to encourage energy efficient retrofits. In July 2012, the scheme was enhanced to provide up to 50 percent of retrofit costs, capped at SGD3 million (USD2.5 million). A similar Green Mark scheme provides funding for developers to engage environmental design consultants in the planning phase for new buildings. Singapore’s Building & Construction Authority (BCA) has also set up a SGD15 million (USD12 million) Sustainable Construction Capability Development Fund to boost Singapore's resource efficiency through waste minimization and recycling. The fund provides up to 50 percent of qualifying costs to companies to develop capabilities in the recycling of waste from demolition and in the use of recycled materials for construction.



1 http://www.ipcc.ch/pdf/presentations/poznan-COP-14/diane-urge-vorsatz.pdf. (PDF 1.3 MB) Accessed 19 April 2013.

2 http://www.ipcc.ch/pdf/presentations/poznan-COP-14/diane-urge-vorsatz.pdf. (PDF 1.3 MB) Accessed 19 April 2013.

 

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More information on the KPMG Green Tax Index