Initial insights into the draft Annual Tax Act 2022 suggest further tax relief for operators of PV systems:
For income tax purposes, operators of small PV systems up to 10 kW have so far been able to exercise the option to treat the activity as a hobby (Liebhaberei), with the result that profits from such systems are exempt from tax. Given this advantage for small PV systems, an expansion of the threshold has long been demanded, and the preliminary Annual Tax Act 2022 is intended to meet this demand. A further point of criticism was that the income tax relief for all small PV systems did not eliminate the entire bureaucratic burden. The simplification rule does not apply equally to VAT, meaning that operators must still prepare an overview of income and expenses at year-end and file a tax return. If the Bundestag and Bundesrat approve the draft bill, the following changes could result:
To promote the expansion of photovoltaic systems in the Federal Republic of Germany, the Annual Tax Act 2022 is to provide the following relief:
- Under the EStG, income from photovoltaic systems with a gross nominal output (according to the Marktstammdatenregister) of up to 30 kW installed on, at or in single-family houses (including ancillary buildings) and commercial properties, and 15 kW per residential or commercial unit in other buildings used predominantly for residential purposes (e.g. multi-family houses, mixed-use properties), is to be tax-exempt. Overall, a limit of 100 kW (peak) applies per taxpayer or co-entrepreneurship. If, when operating a PV system, the aforementioned limits are not exceeded, no profit needs to be determined. According to the current view in the literature, this tax exemption is mandatory and does not represent an option. In addition, general partnerships, limited partnerships and other partnerships are also to benefit if they operate a commercial business within the meaning of § 15 Abs. 3 Nr. 1 EStG by virtue of operating a PV system and must therefore prepare a profit calculation. Pursuant to the Annual Tax Act 2022, these are also to be tax-exempt if the operation of a PV system is the reason for classification as a commercial business (§ 15 Abs. 3 Nr. 1 EStG) and the limits stated at the outset are not exceeded.
- The relief planned in the German VAT Act concerns the applicable tax rate under § 12 UStG. In future, a VAT zero rate (0%) is to apply to the supply, intra-Community acquisition, importation and installation of PV systems and related components. However, the VAT zero rate only applies to PV systems installed on or near private dwellings, residential buildings, and public and other buildings used for activities serving the common good. The conditions for the VAT zero rate are also deemed to be met if the installed gross output of the photovoltaic system according to the Marktstammdatenregister does not exceed 30 kW (peak). Up to now, purchasers of PV systems have often waived the application of the VAT small business rule (Kleinunternehmerregelung) in order to obtain a refund of the input VAT paid. In future, the input VAT deduction on the acquisition of a PV system should no longer be a reason to waive the small business rule, as the supply and installation of PV systems and related components (e.g. storage units) will no longer be subject to VAT in any case.
We will, of course, keep you informed on our website regarding the further legislative process and any changes that may be made.
Frequently asked questions
Frequently asked questions
Which photovoltaic systems are to become exempt from income tax under the JStG 2022?
An exemption is planned for income from photovoltaic systems of up to 30 kW (gross nominal capacity per the Market Master Data Register) installed on, at or in single-family homes (including ancillary buildings) and commercial properties. For buildings used predominantly for residential purposes, such as multi-family homes, a limit of 15 kW per residential or commercial unit applies. An overall cap of 100 kW (peak) applies per taxpayer or co-entrepreneurship.
Is the planned income tax exemption for photovoltaic systems an election?
According to the current view in the literature, the tax exemption is to be mandatory and therefore does not constitute an election. If the relevant capacity thresholds are not exceeded, no profit needs to be determined.
Do partnerships also benefit from the planned PV tax exemption?
Yes, general partnerships, limited partnerships and other partnerships are also to be exempted from tax if the operation of a PV system alone leads to classification as a commercial enterprise under § 15 Abs. 3 Nr. 1 EStG. The above-mentioned capacity thresholds must be observed.
What does the planned zero VAT rate for PV systems mean?
A VAT rate of 0% is to apply to the supply, intra-Community acquisition, import and installation of PV systems and their components (e.g. storage units). This applies to systems on or near private dwellings, apartments, and public or community-serving buildings. For an installed gross capacity of up to 30 kW (peak), the requirements are automatically deemed to be met.
Will waiving the small business regulation still be worthwhile when purchasing a PV system in the future?
Most likely not. Since the supply and installation of PV systems and related components will be subject to a zero VAT rate, no VAT will be charged on the purchase. This eliminates the main reason for waiving the small business regulation, which was to reclaim input VAT.