Income Tax Relief
Through the Annual Tax Act 2022, income and withdrawals in connection with photovoltaic systems (PV systems) were exempted from tax under certain conditions. The exemption applies on the one hand to systems up to a gross nominal capacity of 30 kilowatt-peak (kWp) for single-family houses and commercial properties, and on the other hand to up to 15 kWp per residential and commercial unit for multi-family houses and mixed-use buildings.
In total, up to 100 kWp per taxpayer or co-entrepreneurship (i.e., partnerships such as GbR, KG) are tax-exempt. The calculation of the system capacity is based on the data recorded in the Market Master Data Register (Marktstammdatenregister).
The tax exemption applies regardless of the use of the electricity generated (including own use or sale, for example to tenants). The regulation was introduced with retroactive effect for income and withdrawals generated or made after 31 December 2021. However, neither the wording of the law nor the explanatory memorandum could clarify many questions of doubt about the new regulation, or even raised such questions in the first place. With a new circular from the Federal Ministry of Finance (BMF) dated July 2023, many questions have now been answered.
Building-Related Exemption Threshold: 30 kWp or 15 kWp
The BMF clarifies that the maximum limits for the system capacity of 30 kWp or 15 kWp are to be understood as exemption thresholds (Freigrenzen). If these capacities are exceeded by an operator at a property, the entire income and withdrawals are subject to tax (so-called cliff-edge effect). In addition, the PV system must be connected to a building. Thus, ground-mounted installations, regardless of size, are not eligible.
Example 1
A taxpayer has installed a system with a relevant capacity of 34 kWp on his single-family house.
Result: The system as a whole is not eligible, as the exemption threshold of 30 kWp is exceeded.
Example 2
Both the wife and the husband operate, on their single-family house used for their own residential purposes, a system each with a relevant capacity of 16 kWp.
Result: Both systems are eligible. Although the capacity totals 32 kWp and thus exceeds the permitted 30 kWp, only 16 kWp are attributable to each individual taxpayer.
Example 3
A taxpayer has installed a system with a relevant capacity of 25 kWp on a two-family house and additionally, on a commercial property with three commercial units, a system with a relevant capacity of 45 kWp.
Result: Both systems are eligible. On the two-family house, a total of 30 kWp (15 kWp per residential unit) is possible. For the commercial property, 15 kWp per commercial unit applies. With three times 15 kWp, the capacity is fully utilised there.
Note
In the course of the legislative process for the Growth Opportunities Act (Wachstumschancengesetz), the Bundesrat issued a request for review. The intention of the federal states' representatives is to redesign the aforementioned exemption thresholds as tax-free allowances (Freibeträge), so that the cliff-edge effect would be avoided. It should be noted that this is merely a suggestion that would first have to initiate a legislative amendment process.
Person-Related Exemption Threshold of 100 kWp
For the person-related exemption threshold, too, the following currently applies: If the maximum capacity of 100 kWh per person or partnership is exceeded, all systems are subject to tax. However, only those systems that would in principle be eligible at all are to be included in the assessment.
If a taxpayer operates a tax-exempt system and is additionally a partner in a partnership that likewise operates eligible systems, the participation in the co-entrepreneurship is not to be included in determining the 100 kWp threshold. To this extent, the taxpayer and the co-entrepreneurship are considered separately.
Example
A taxpayer operates two systems with a relevant capacity of 30 kWp each, on one single-family house each, and one ground-mounted photovoltaic system with a relevant capacity of 50 kWp.
Result: The ground-mounted photovoltaic system is not to be included in the assessment of the 100 kWp threshold in the first place, since it cannot be eligible in principle. Since the two systems on the single-family houses do not exceed the 100 kWp threshold in total, both are eligible.
Note
Since partnerships each have their own 100 kWp exemption threshold, this opens up certain structuring opportunities and possible business models. Economically, a multiplication of the 100 kWp exemption threshold would be conceivable, for example via GmbH & Co. KGs with a GmbH holding 0% as general partner.
Is the Sale of the PV System Also Eligible?
This question was unclear until the BMF circular was issued. According to the BMF, the gain or loss from the sale or withdrawal of a PV system from the assets of a business that generates only tax-exempt income and withdrawals from it is tax-exempt. However, the situation is different if a PV system is part of the business assets of a business whose purpose is not exclusively the operation of tax-exempt PV systems. In this case, the sale may at least be taxable. Unfortunately, the statements in the BMF circular are not unambiguous here either.
Elimination of the "Commercial Infection"
If the system was previously operated by a partnership (e.g. a property-holding company) and the company was commercial only because of the operation of the PV system, this commercial character ceases to apply as of 2022. If commercial status ceases to apply, properties, for example, must be withdrawn from the company into private assets. Due to the compulsory disclosure of hidden reserves, this can lead to considerable withdrawal gains. However, under a transitional protection rule, commercial status may still be established through structuring measures until 31 December 2023. Due to the tax sensitivity, these cases should definitely be reviewed and supported by professionals.
Notification of Business Activity
Previously, every PV system operated with the intention of generating a profit had to be registered with the tax office via the electronic questionnaire for tax registration. If an income-tax-exempt system is operated and the VAT small business regulation is used, this registration is no longer required.