As of 01/01/2021, the state feed-in tariffs under the EEG (German Renewable Energy Sources Act) have expired for the first photovoltaic systems. The subsidy amount was set upon commissioning of the photovoltaic system and then paid out for a period of 20 years. The aim was to promote the generation of solar energy by private households in Germany on a long-term basis. The subsidy amount was determined based on the type of system, its size and the quantity produced per kilowatt-hour. However, the subsidy amount has decreased significantly since 2001. While it was 50.62 cents for the first 30 kW back then, as of 01/01/21 it now stands at 8.16 cents for the first 10 kW. For owners of a photovoltaic system for whom the state subsidy has now ceased as of this year, the question arises as to how to proceed.
Taxation of the Photovoltaic System
First, the taxation of a photovoltaic system should be clarified. This can be influenced by the purchaser, as the owner has several options available. First, the owner can use the solar electricity produced solely for personal consumption; in this case, it is not subject to tax at all. The reason for this is that the owner does not generate any income from the sale of the solar electricity. However, this also eliminates the possibility of claiming input VAT for acquisition, maintenance and repair from the tax office.
Second, the owner can sell their solar electricity to the public power grid. In this case, they generate income from a commercial business pursuant to § 15 EStG. They then also have the options of depreciating their photovoltaic system over its useful life (20 years) and receiving the state feed-in tariff. Furthermore, the owner can claim input VAT on the acquisition, maintenance and repair of the photovoltaic system. Conversely, however, they must also offset the profits earned against VAT, and submitting a preliminary VAT return to the responsible tax office becomes necessary. An exemption from taxation of revenue and from submitting a preliminary VAT return applies if the owner falls under the small business regulation pursuant to § 19 UStG. The prerequisite for this is:
- that the owner does not generate more than €22,000 in revenue in the year of acquisition and not more than €50,000 in revenue in all subsequent years.
It is important to note that in the case of a shortened fiscal year, the months without business activity are deducted on a pro-rata basis from the revenue limit.
In addition, owners of a photovoltaic system can now (resolution dated 02/06/21) also be released from the obligation to tax the profits with personal income tax. The requirements for this are:
- Photovoltaic system with no more than 10 kW capacity
- Photovoltaic system commissioned after 2003
- Located on a single- or two-family house or land-related buildings
- The property with the photovoltaic system belongs to the owner
- In the case of partial rental, income not exceeding €520 per year
Future Planning After Expiry of the Feed-in Tariff
After the 20-year state feed-in tariff expires, owners of a photovoltaic system must now make new plans. The fixed compensation based on the year of acquisition represented the largest source of income for owners from the sale of solar electricity. However, even owners with an ongoing feed-in tariff should plan new approaches in advance. As a general rule, the income generated from the photovoltaic system will continue to decline in the future. Owners have several options for proceeding with their installed solar modules:
- Sale of the solar energy to electricity providers. These act as intermediaries between the owner of the photovoltaic system and the electricity market (anticipated proceeds between 4 and 5 cents per kW).
- Owners of a photovoltaic system can also sell the electricity directly to private buyers (e.g. neighbours, local businesses, municipalities) and frequently achieve greater profits than with conventional electricity providers.
- Acquisition of a battery storage unit, as many older photovoltaic systems were installed without storage. It is important to note that depreciation and input VAT deduction for the new battery storage unit are only possible if more than 10% of the solar electricity is used for business purposes. This means that the use of the solar electricity generated can be divided, with up to 90% also being used privately.
- Renewal of the solar modules with more efficient models. A distinction must be made between the replacement of individual components and essential components. Individual components can be claimed immediately as maintenance expenses. In the case of the replacement of essential components, a new business asset is created. This can then in turn be claimed as a profit-reducing expense over its useful life.
- Removal of the photovoltaic system due to economic unprofitability. The removal from the roof can be claimed as a business expense. It is particularly important to note that a roof renovation due to the removal of solar modules can only be claimed if there is a temporal connection between dismantling and renovation and a performance connection. Pursuant to the German Electrical and Electronic Equipment Act, the manufacturer assumes the costs of compliant disposal.
Frequently asked questions
Frequently asked questions
When is electricity from a photovoltaic system tax-free?
If the generated solar power is used exclusively for personal consumption and not sold, no taxable income arises. However, in this case the option to reclaim input VAT on acquisition, maintenance, and repairs from the tax office is also forfeited.
What are the tax implications of feeding solar power into the public grid?
When selling the electricity, the operator generates business income under § 15 EStG. The system can be depreciated over 20 years, and input VAT on acquisition, maintenance, and repairs is recoverable; however, sales must be subjected to VAT and preliminary VAT returns must be filed. Under the small business rule pursuant to § 19 UStG, the VAT obligation does not apply.
When does the small business regulation apply to PV system operators?
The small business regulation under § 19 UStG applies if turnover does not exceed €22,000 in the year of acquisition and €50,000 in subsequent years. For a short fiscal year, the turnover threshold must be reduced pro rata for the months without business activity.
Under what conditions is income tax on PV profits waived?
Under the ruling of 02 June 2021, operators may be exempt from income tax if the system has a capacity of no more than 10 kW, was commissioned after 2003, is located on a single- or two-family home or on a property building owned by the operator, and any rental income from partial leasing does not exceed €520 per year.
What options exist after the 20-year EEG feed-in tariff expires?
Operators can continue selling electricity through power providers (approx. 4-5 cents/kWh) or directly to private buyers such as neighbours or municipalities, retrofit a battery storage system, replace the modules with more efficient technology, or dismantle the installation. The choice significantly affects depreciation and input VAT deduction options.
What tax treatment applies when retrofitting a battery storage system?
Depreciation and an input VAT deduction for the battery storage system are only possible if more than 10% of the generated solar power is used for business purposes. Up to 90% of the electricity may be consumed privately without forfeiting the input VAT deduction.