As from 1 January 2023, under changes introduced by the Annual Tax Act 2022, certain supplies, imports, and intra-Community acquisitions relating to photovoltaic systems are subject to the zero VAT rate, which provides the right to deduct input tax. The provision is intended to reduce the administrative burden on taxpayers, especially for small taxable persons (within the meaning of section 19(1) of the German VAT Act) who previously had to opt for VAT to be entitled to input tax deductions; with the new zero-rating provisions, it is no longer necessary for small taxable persons to waive the small business scheme.

Section 12(3) of the VAT Act provides that the zero VAT rate applies to supplies of solar modules supplied to the operator of a photovoltaic system, including essential components and electricity storage devices, on or adjacent to private dwellings, housing, public and other buildings used for activities in the public interest. Intra-Community acquisitions, imports, and the installation of the photovoltaic systems and electricity storage devices are also zero-rated. The requirements for zero-rating are deemed to be met if the installed gross capacity of the photovoltaic system does not or will not exceed 30 kW (peak) according to the market master data register (MMDR). If there is no entry in the MMDR, this rule is not applicable.

In its guidance, the MOF has confirmed that the zero VAT rate additionally applies to grid-connected and stand-alone stationary photovoltaics, as well as the supply of essential components, including spare parts, and their installation. As a simplification, solar modules with an output of at least 300 watts are assumed to be used for grid-connected or stand-alone systems. Installation works may only be zero-rated when they are provided directly to the system operator. The rental of photovoltaic systems is subject to the standard VAT rate, and for leasing or hire purchase agreements, the decisive factor in determining the VAT rate applicable is whether a supply of goods or services is carried out.

The MOF has clarified that operators of photovoltaic systems are natural or legal persons, or associations of persons, that are required to be registered as operators in the MMDR at the time of supply. If no registration obligation exists, it is assumed that the service recipient is the operator. Upstream supplies in the supply chain, such as to intermediaries, are subject to the standard VAT rate.

To be eligible for zero-rating, installation of the modules, storage units, or essential components must be on, or adjacent to, private dwellings, apartments, or public and other buildings used for activities in the public interest; however, it is sufficient that a spatial or functional connection exists between the property and the installation, for example installations within a building complex are eligible. The MOF interprets the characteristic of a dwelling broadly as any enclosed space used for living or sleeping, and therefore certain garden structures also are covered. Buildings are treated as used for activities in the public interest if they are utilized for certain activities that are exempt from VAT or subject to the reduced VAT rate for charitable or religious purposes. For mixed-used buildings, the supply is subject to the standard VAT rate if the building is predominantly used for nonresidential purposes by area.

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Generally, the burden of proof rests with the supplier to prove that the requirements of the zero VAT rate provisions have been met; but it is sufficient for the purchaser to make a declaration to the tax authorities that they are an operator and have received services for an eligible building, or that the 30 kW limit has not been exceeded.

Before 1 January 2023, where a taxpayer had allocated a photovoltaic system to their taxable activities and reclaimed input VAT, a taxable benefit in kind arose from any nonbusiness or private-use electricity generated. This benefit in kind does not arise when the photovoltaic system is acquired under the zero-rating provisions by a taxable person on or after 1 January 2023.

The removal of a photovoltaic system from a business is subject to VAT if the system was acquired before 1 January 2023 and full or partial input tax deduction was available on the acquisition. Removal is only possible if at least 90% of the generated electricity is used for nonbusiness purposes. In this case, the removal is treated as a benefit in kind and subject to the zero VAT rate.