The production of electricity from photovoltaic systems is an essential part of the envisioned energy turnaround. The Annual Tax Act 2022 of December 16, 2022 introduced an income tax exemption applicable from January 1, 2022 (cf. § 3 No. 72 in conjunction with § 52 Para. 4 Sentence 27 of the German Income Tax Act (EStG)) for income from the operation of certain photovoltaic systems and a zero VAT rate applicable from January 1, 2023 for the supply and installation of certain photovoltaic systems (cf. § 12 Para. 3 of the German Value Added Tax Act (UStG)).
In the meantime, the German Federal Ministry of Finance has issued corresponding application regulations for both regulations in its circulars dated February 27, 2023 and July 17, 2023; the circular from the German Federal Ministry of Finance dated June 12, 2023 also provides for further formalistic simplifications. We summarize the new legal regulations that apply to both individuals and companies (co-partnerships and corporations).
Income Tax Treatment
For income tax purposes, the operating of a photovoltaic system (consisting mainly of solar modules, inverters, and feed-in meters) with regard to the income from the grid feed-in against payment (including any withdrawals for own consumption) basically generates commercial income within the scope of a commercial enterprise. This is associated with a determination of profit by means of a cash-based accounting.
Due to the tax exemption according to § 3 No. 72 EStG, which is to be applied retroactively as of January 1, 2022, such a profit determination is no longer required for the income from the feed-in as well as for the own consumption withdrawals from the operation of certain photovoltaic systems (and thus also the submission of a so-called Annex G for commercial income).
As a result, the examination of the intention to make a profit, which was often carried out by the tax authorities in the past, is obsolete. Cases in which the electricity produced is consumed entirely by the company itself and is not fed into the grid in return for payment are not classified as commercial operations due to the fact that the company consumes all of the electricity itself; these cases are irrelevant for tax purposes.