Germany: Recently introduced VAT rate of 0% for solar panel systems - New federal instructions

The new VAT provision - section 12 para. 3 German VAT Act - was implemented to encourage the installation of solar panel systems. However, concerns were raised that the administrative burden falling onto the respective taxpayer for determining if the 0% VAT rate applies, might outweigh the intended incentive.

By publishing the circular, the BMF clarified that:

• The 0% VAT rate applies for all installations with a capacity of up to 30 kW (peak) regardless of the installation location provided that the owner must register on the market master data register. Without such obligation, the recipient of the supply is deemed the operator of the solar panel system.
• The renting of solar panel systems is subject to the standard VAT rate of 19%.
• For leasing or hire-purchase agreements of solar panel systems the classification as a supply of goods or as a service depends on the specificities of the contract and general VAT rules, i.e. for the 0% rate to apply the service must be a supply of goods and the customer must be the operator of the system.

Key takeaway

All in all, the circular clarifies many uncertainties and decreases the administrative burden for taxpayers significantly. This simplification is mainly due to the circular adopting a broad scope for the application of the zero VAT rate. Interestingly, the 0% VAT rate also applies to importations of solar panel systems.