New Zero VAT Rate for Photovoltaic Systems
Since January 1, 2023, Germany has applied a new zero VAT rate to the supply and installation of certain photovoltaic systems. The measure was introduced through Section 12(3) of the German VAT Act.
Unlike a VAT exemption, a zero rate means that no VAT is charged to the customer, but the supplier can still deduct input VAT on related costs. This makes the rule especially attractive for installers and suppliers, while also reducing the administrative burden for private operators of small solar systems.
The zero rate applies to the supply of solar modules, essential components, battery storage systems, intra-Community acquisitions, imports and installation services, provided the legal conditions are met.
Who Can Benefit?
The zero rate applies only to supplies made directly to the operator of the photovoltaic system. Supplies made earlier in the commercial chain, such as sales by manufacturers or wholesalers to retailers, remain subject to the regular VAT rate.
The system must generally be installed on or near private homes, apartments, public buildings or buildings used for activities serving the public interest.
However, the law includes an important simplification: if the installed gross capacity of the system does not exceed 30 kW peak according to the Market Master Data Register, the location requirement is deemed to be fulfilled.
This means that many smaller systems automatically qualify for the zero rate without detailed examination of the building on which they are installed.
Main Purpose of the Reform
The main purpose of the reform is administrative simplification.
Before 2023, many private operators of photovoltaic systems waived the small-business VAT scheme in order to recover input VAT on the purchase and installation of their systems. This created registration, filing and reporting obligations even for very small operators.
Because new qualifying systems are now supplied at a zero VAT rate, there is usually no input VAT to recover. As a result, many private operators can use the small-business scheme without losing a tax advantage.
Private Use of Electricity
The BMF guidance also clarifies the VAT treatment of privately consumed electricity.
For photovoltaic systems acquired from January 1, 2023, private use of self-generated electricity is generally not subject to VAT. Since no input VAT was deducted on the acquisition of the system, there is no need to tax private consumption as a deemed supply.
The situation is different for older systems acquired before January 1, 2023. If the operator deducted input VAT when purchasing the system, private consumption of electricity remains subject to VAT under the rules on deemed supplies.
This creates a clear distinction between old systems and new systems.
Treatment of Existing Systems
The BMF guidance pays particular attention to systems acquired before 2023.
For older systems, the private use of electricity remains taxable if input VAT was previously deducted. The withdrawal or free transfer of the system may also trigger VAT consequences.
However, if an old system is transferred after January 1, 2023 and the conditions for the zero rate are met, the transfer itself may be subject to the zero VAT rate.
The BMF also states that a full withdrawal of an old system from business assets is only possible if more than 90% of the electricity generated will probably be used for non-business purposes in the future. This position has been criticized because it restricts the ability of operators to remove older systems from their business assets.
Business Transfer Rules
The guidance also addresses cases in which a photovoltaic system is sold or transferred to another person.
If the buyer continues operating the system and feeding electricity into the grid, the transaction may qualify as a non-taxable transfer of a business as a going concern. In that case, the buyer steps into the legal position of the seller.
This is especially important when an old system is transferred to a spouse or another related person. If the new operator applies the small-business VAT scheme, input VAT adjustment rules may apply and could create negative tax consequences.
Supplies and Installation Services Covered
The zero VAT rate applies not only to the solar modules themselves but also to many related supplies and services.
Covered items may include:
Solar modules;
Inverters;
Battery storage systems;
Roof mounting systems;
Energy management systems;
Solar cables;
Feed-in sockets;
Backup boxes;
Emergency power equipment;
Installation work specifically required for the photovoltaic system.
Installation services qualify if they are supplied directly to the operator and are specifically connected to the safe operation of the photovoltaic system.
However, general construction work, roof work or electrical work that also benefits other purposes is not automatically covered unless it forms part of a single overall supply of a qualifying photovoltaic system.
Leasing and Rental Models
The BMF confirms that the rental of a photovoltaic system is generally not a supply of goods and therefore does not automatically qualify for the zero rate.
Leasing and hire-purchase models must be examined carefully. If the arrangement is treated as a supply of the photovoltaic system for VAT purposes, the zero rate may apply. If it is treated as a rental service, the regular VAT rules apply.
Where monthly leasing payments include both the supply of the system and separate services, such as maintenance, insurance or administrative support, the payment must be split.
As a simplification, the BMF allows a 90:10 allocation: 90% of the fee may be treated as relating to the photovoltaic system and 10% as relating to separate services.
Building Developer Cases
The final BMF guidance also includes clarification for building developer cases.
If a developer supplies a rooftop photovoltaic system together with a building, the photovoltaic system is treated as a separate supply. This means the solar system may qualify for the zero rate even if the building itself follows different VAT rules.
This point has been questioned by tax experts because it may not fully align with other VAT guidance on the treatment of photovoltaic systems as part of building acquisition or construction costs.
Small Solar Devices and Storage Systems
The guidance includes simplified rules for smaller solar devices.
For solar modules with a capacity of at least 300 watts, it is generally assumed that they are used for grid-connected or stationary off-grid systems.
For systems up to 600 watts, special proof requirements are relaxed. In these cases, the operator status of the customer and the qualifying nature of the system are generally assumed. This is particularly relevant for plug-in balcony solar systems.
Battery storage systems are also covered by the zero rate if they are intended to store electricity from a qualifying photovoltaic system.
Proof Requirements
Suppliers applying the zero rate must be able to prove that the conditions are met.
In practice, it is sufficient for the customer to declare that they are the operator of the photovoltaic system and that the system is installed on a qualifying building or does not exceed the 30 kW peak threshold.
This declaration can also be included in the contract.
Practical Impact
The BMF guidance gives businesses and system operators a clearer framework for applying the new zero VAT rate. It confirms broad relief for new small photovoltaic systems and reduces the need for private operators to enter the regular VAT system.
However, the rules remain more complicated for older systems acquired before 2023. Operators of those systems may still face VAT on private electricity use and must be careful when transferring or withdrawing the system from business assets.
The BMF’s restrictive view on withdrawing old systems from business assets is likely to remain controversial and may eventually need to be clarified by the courts.
Overall, the new zero VAT rate offers major simplification for new photovoltaic systems, but the treatment of older systems continues to create practical and legal uncertainty
