Zero VAT rate for photovoltaic systems

Since 1 January 2023, a zero VAT rate has been in effect for, among other things, the supply of solar modules. This rate also applies to the essential components and storage of operators of photovoltaic systems (PV systems) - just as it does for certain installation work. A summary of the new legal regulations can be foundhere. The newly introduced § 12 (3) UStG has raised many questions, which the BMF (the German Federal Ministry of Finance) has now addressed. We have summarised the most important regulations of the BMF.

Operatorship

Only supplies to the operator are VAT exempt, whereas preceding supplies are not. An operator is someone who is – or is likely to be – subject to registration in the official Core Energy Market Data Register (MaStR). Having a connection to the electricity grid is sufficient; an actual feed-in is not required. Nor is the operator's status as a VAT-taxable person a prerequisite for the application of the zero VAT rate.

Special rules apply to stand-alone systems and balcony PV systems.

Ancillary services

The zero VAT rate also applies to supplies ancillary to the supply of the photovoltaic system. The BMF provides examples of this in section 12.18 (1), sentence 4. The supply of a rooftop PV system by a property developer is an independent supply separate from the supply of the building and can therefore also be subject to the zero VAT rate.

Leasing/hire-purchase

In the case of leasing and hire-purchase agreements, the zero VAT rate can be applied if they are deemed a supply of goods rather than a rental. Whether this is the case, of course, depends on the terms of the contract.

Independent services such as maintenance, obtaining permits, etc. are subject to the standard VAT rate. If hire-purchase and leasing contracts do not provide a breakdown of the remuneration, there will be no objection if a flat rate of 10% of the remuneration for the independent services is applied.

Location requirements

A home or private residence is any enclosed space used for living or sleeping. Section 12.18 (3) UStAE (VAT Application Decree, which serves as an administrative guideline to the German VAT Code) also deals with special forms such as gazebos, etc. A public building or a building serving the public good is defined by legal references. The PV system is located in the vicinity of such a dwelling/building if there is a spatial or functional connection. If a building is used for both tax-privileged and non-tax-privileged purposes, a beneficiary building is to be assumed overall, unless the beneficiary use is marginal (the UStAE defines this in more detail).

Old PV systems

If the PV system was purchased before 1 January 2023 and the purchaser waived the small enterprises regulation, the purchaser was able to claim the input VAT deduction. Decentralised (private) consumption will continue to be subject to VAT as a free transfer of value after 31 December 2022. If the entrepreneur withdraws the PV system from their business, it is also taxable as a free transfer of value. The Federal Ministry of Finance stipulates that a withdrawal is only possible if it is expected that over 90% of the electricity generated will be used for non-business purposes in the future. There are simplification rules in this respect.

Proof

Suppliers wanting to claim the zero VAT rate must prove that the requirements have been met. It is hereby sufficient if the acquirer declares that they operate the PV system and that it is either a tax-privileged building or that the installed gross capacity does not exceed or will not exceed 30 kW (peak) according to the MaStR. The declaration can also be confirmed by a contract or the general terms and conditions.

The BMF letter also defines in detail what is meant by solar modules, storage systems, essential components, and installation work and gives examples that help one differentiate these.

Sale of business

If an entrepreneur who is not a small enterprise and whose business (also) consists of operating a PV system sells this PV system, this is a non-taxable sale of a totality of assets.

Dated: 17 March 2023