The zero tax rate on the supply of photovoltaic systems - further clarifications in the newly published BMF circular

Zero tax rate on the supply of photovoltaic systems

Section 12 (3) of the German Value Added Tax Act (UstG) was newly introduced on 1 January 2023. This new paragraph in the VAT Act essentially stipulates that the VAT rate for the supply and installation of certain photovoltaic systems will be reduced to 0%. No VAT will be charged for sales subject to this zero rate. Nevertheless, input tax deduction by the supplier of the photovoltaic system is not excluded. This means that the supplier can claim VAT that has been paid on the input services. The concept of zero-rating is completely new for Germany and therefore initially caused a lot of confusion and uncertainty. In its letter dated 27 February 2023, the German Federal Ministry of Finance (BMF) cleared up some of the uncertainties. You can find more information on this in our monthly VAT newsletter for April. With the newly published BMF letter dated 30 November 2023, the BMF is now providing further clarity.

 

The practical information contained in the BMF letter dated 30 November 2023 in detail:

One of the main concerns of the new BMF circular is to clarify and supplement the regulations already introduced in the BMF circular of 27 February 2023.

Withdrawal

A withdrawal is particularly interesting for system operators who installed their photovoltaic systems before 31 December 2022 ("old systems") and had waived the application of the small business regulation at this time in order to benefit from the input tax deduction. A withdrawal based on the simplification rules introduced by the previous BMF circular (more than 90% private use; indicator: presence of an electricity storage system) establishes a right of choice for the business. The tax office must be notified as to whether the business exercises this option. In principle, a withdrawal is only possible at the current time and cannot be made retroactively. However, the current BMF letter clarifies that, as an exception and due to the protection of legitimate expectations, such a withdrawal can still be made retroactively to 1 January 2023 until 11 January 2024.

Combination of photovoltaic system and storage system: application of the zero tax rate

In principle, each item represents a separate delivery item, which is why the number of items supplied also represents the number of supplies subject to VAT. However, the new BMF circular clarifies that the simultaneous purchase of a photovoltaic system and an electricity storage system in a single contract constitutes a single supply of goods. The zero tax rate is then to be applied to this overall system.

Amendments to the VAT application decree

In addition, the VAT application decree is amended by the BMF letter. It is clarified that solar carports and solar patio roofs as well as their direct mounts also belong to the favoured photovoltaic systems. However, this preferential treatment does not cover the entire substructure of the structure to which the solar panels are attached.

In addition, a new regulation for electricity storage systems has been added for reasons of simplification. Their preferential treatment is deemed to apply if they have a capacity of at least 5 kWh. Furthermore, storage systems that use hydrogen as a storage medium are also subject to the zero tax rate if the hydrogen can only be used to convert energy back into electricity for consumption.

If the extension or renewal of the meter box is necessary due to the purchase of the photovoltaic system, this measure is subject to the zero rate.

However, the preferential VAT treatment does not extend to other electricity-consuming systems that are fed by the photovoltaic system, such as a heat pump or the charging infrastructure.

Furthermore, it is clarified that companies that limit their activities exclusively to the operation of a photovoltaic system and tax-free letting and leasing and are categorised as small businesses can also use the market master data register number issued to them in their invoices instead of the VAT identification number.

 

Key Takeaways

The BMF letter dated 30 November 2023 can be seen as a supplement to the previous BMF letter dated 27 February 2023. In practice, it provides more clarity for companies with regard to the application of the new zero tax rate area for Germany. In particular, the withdrawal rule and the now clarified retroactive effect ensure that operators of old systems acquired before 1 January 2023 and those of newer systems are on an equal footing. Furthermore, the time of supply is clarified by the clarification that the supply of a photovoltaic system and a storage system constitutes a single supply of goods. The individual amendments to the VAT application decree also ultimately lead to greater legal clarity in practice.

DLA Piper's tax law team will be happy to answer any further questions you may have in this context.