On August 18, 2025, the President of the Republic submitted to the National Congress the
This initiative is part of Chile’s 2020 National Green Hydrogen Strategy, the 2023–2030 Green Hydrogen Action Plan, the work of the Strategic Committee for the Action Plan, and the goals of the Framework Law on Climate Change. It reflects the State’s commitment to consolidating Chile’s regional and global leadership in the green hydrogen industry.
The bill aims to give a decisive boost to the production and consumption of green hydrogen by introducing tax instruments to reduce current competitiveness gaps and encourage investment during a critical phase for the industry’s development.
- Government Rationale for the Bill
Despite Chile’s competitive advantages in renewable energy, the presidential message highlights that high production costs and the limited willingness of buyers to pay premium prices have delayed the development and complicated the financial viability of green hydrogen projects.
To address this challenge, the bill proposes a temporary tax incentive to offset initial higher costs, promote local demand, and provide certainty for investors and financiers. The measure focuses on the 2025–2030 period, which is considered crucial for Chile’s international positioning in this sector, anticipating cost reductions toward 2030.
The bill also emphasizes the strategic role of the Magallanes and Chilean Antarctic Region as a hub for green hydrogen development due to its favorable climatic conditions. According to the government’s analysis, differentiated tax regimes in the region have created territorial inequities and distorted project location decisions. This motivates the proposal of a homogeneous tax framework for the region, combining significant tax exemptions (first category tax) with the obligation to make early regional contributions under Law No. 21,210, ensuring that part of the benefits translates into increased resources for local development.
- Contents of the Bill
- Temporary Tax Benefit
The bill proposes the creation of a credit against the first category income tax for purchasers of green hydrogen or its derivatives produced in Chile, provided these are used in local productive processes.
The benefit would be granted through annual bidding processes between 2025 and 2030, administered by the H2V Benefit Allocation and Compliance Committee under a competitive mechanism.
Key features of the proposed benefit include:
- • Bidding and Allocation: Producers would submit bids in USD per kilogram of green hydrogen, subject to statutory maximum limits. Awards would prioritize applicants requiring the lowest credit per kilo. In the event of a tie, preference would be given first to projects allocating a higher production volume to local consumption, and second, to those assigning a higher relative share to the domestic market.
- • Credit Use and Assignment: Awarded producers must transfer the benefit to Chile-domiciled purchasers, who can apply it against their first category tax for the year of acquisition or subsequent years until fully used. Invoices must expressly indicate the credit applied, which will remain valid for ten years from the start of production, provided this begins within five years of the award. No credits will be recognized for sales made after January 1, 2041.
- • Governance and Oversight: The H2V Benefit Allocation and Compliance Committee—composed of representatives from the Ministries of Finance, Economy, and Energy—will manage bidding and monitor compliance. Members will serve without additional compensation.
- • Limits and Flexibility: The bill sets an annual maximum amount of credits, allowing unused amounts to roll over to the following year. Exceptionally, if annual credits are exhausted and bids below USD 1/kg remain, these may be awarded using credits allocated for the final year of the benefit period.
- Special Tax Framework for the Magallanes and Chilean Antarctic Region
Under the bill, producers physically located in this region would be subject to a special regime that supersedes other existing tax exemption regimes (e.g., the Austral Law, Navarino Law), except for customs benefits under the Free Trade Zone.
Notable aspects include:
- • Benefits and Limitations: Producers in the region would be exempt from the first category tax, eligible for VAT exemption on capital goods imports, and allowed to apply for the temporary tax benefit under the bill. However, they would be excluded from any additional production- or sale-related bonuses.
- Special Obligations: Projects would be subject to the regional contribution set forth in Law No. 21,210, which must be paid in advance within one month following the issuance of their environmental qualification resolution, ensuring early contributions to regional development.
- Effective Date: The law would take effect on the first day of the second month following its publication in the Official Gazette, with special rules for the first credit allocation process.
In conclusion, the bill introduces temporary tax incentives to promote green hydrogen production and consumption in Chile, along with a special regime for the Magallanes and Chilean Antarctic Region. Its discussion in Congress will allow for an assessment of whether the proposed measures balance industry competitiveness goals with fiscal and regional development considerations, requiring detailed economic analysis and a review of compliance with Chile’s economic-constitutional principles governing the energy sector.
For further information on this matter, please contact Rafael Valdivieso (rvaldivieso@jdf.cl) or Francisco López (flopez@jdf.cl).
