Background
The 2022 Annual Tax Act provides for extensive tax breaks for small photovoltaic systems in order to accelerate the further expansion of this renewable energy source.
Previous Taxation
Operators of photovoltaic systems have generally generated income from business operations. This involves determining profits using the income-surplus method, which typically entails a significant administrative burden for what is often a relatively small income surplus from smaller photovoltaic systems.
This likely prompted the tax authorities in 2021 to create an option to waive this requirement, thereby reducing the administrative burden somewhat: Operators of smaller photovoltaic systems (< 10 kWp) may submit a written application stating that the system is operated without the intent to make a profit. In this case, the tax authorities will assume, without further review, that the system constitutes a so-called “hobby” that is not subject to taxation.
From a sales tax perspective, most operators of small photovoltaic systems are considered “small businesses” because their revenue falls below the thresholds specified in the Sales Tax Act (§19 UStG). However, in many cases, it is advantageous to opt out of this status and switch to standard taxation. In this case, electricity sales and even the electricity consumed by the business owner are subject to sales tax. On the other hand, this makes it possible to claim input tax credits on the comparatively high investment costs, thereby partially financing the photovoltaic system. After 5 years, it is then possible to switch back to the small business exemption.
Planned Taxation Starting in 2023
Effective January 1, 2023, the following tax provisions are planned for small photovoltaic systems:
A complete exemption from income tax shall apply to the following photovoltaic systems or when the following conditions are met:
- This applies to photovoltaic systems with a total gross installed capacity on, attached to, or within single-family homes (including the roofs of garages, carports, and other outbuildings) or non-residential buildings (e.g., commercial properties, garage complexes) with a total gross installed capacity of up to 30 kWp.
- The tax exemption applies to the operation multiple systems up to a maximum of 100 kWp . The 100-kW (peak) limit must be assessed per taxpayer (individual or corporation) or per partnership.
- The tax exemption applies regardless of how the generated electricity is used. It also applies even if the apartment itself is not used for residential purposes. Income from photovoltaic systems is also tax-exempt if the electricity generated is fed entirely into the public power grid, used to charge a private or business-use electric vehicle, or used by tenants.
- In addition, the tax exemption also applies to photovoltaic systems installed on apartment buildings and mixed-use buildings containing both residential and commercial units, provided the building is used primarily for residential purposes, up to a capacity of 15 kWp per residential and commercial unit.
For all photovoltaic systems that were commissioned before January 1, 2023 (“existing systems”), the previous income tax rules will continue to apply for all years through 2022. Existing systems will not be exempt from income tax until 2023. Prerequisite: The Annual Tax Act must successfully pass through the parliamentary legislative process as planned.
[The existing regulations and options regarding sales tax continue to apply to existing facilities.]
From a sales tax perspective, the following changes will take effect on January 1, 2023, for newly purchased photovoltaic systems:
- A new 0% sales tax rate will apply to the delivery, import, and intra-Community acquisition, as well as the installation, of a photovoltaic system—including an electricity storage unit. Previously, the general sales tax rate of 19% applied to these transactions. As a result, starting in 2023, the net amount on the invoice will equal the gross amount. This is intended to apply to the following systems:
- Small photovoltaic systems (≤ 30 kWp) installed on and near private homes and apartments
- Small photovoltaic systems (≤ 30 kWp) installed on or attached to public or other buildings used for activities that serve the public good
- With the aforementioned new 0% sales tax rate, photovoltaic system operators can apply the small business sales tax exemption without financial disadvantages, since the previously available input tax credit—which had been a reason to opt out of the small business exemption—is no longer applicable.The change applies to the supply of solar modules, including all components essential for the operation of a photovoltaic system, as well as battery storage systems.
If you have any questions, the schütze & wirtz tax consulting team will be happy to assist you.
Source: Haufe
Photo: Nuno Marques, Unsplash
Disclaimer: We assume no liability for the accuracy and completeness of the information. The information provided here does not constitute recommendations for action.
