Tax Treatment of Photovoltaic Systems

For photovoltaic systems acquired, commissioned or expanded before January 1, 2025, the tax exemption under Section 3, No. 72 EStG, as previously in force, applies to income derived from their operation installed  on, at or in

• single-family houses (including outbuildings, e.g. garden houses, garages, carports) or non-residential buildings (e.g. commercial property with a commercial unit, garage property) with an installed gross capacity of up to 30 kW (peak) as well as
• other buildings (with several residential and/or commercial units) with an installed gross capacity of up to 15 kW (peak) per residential or commercial unit.

The 2024 Tax Act (JStG 2024) standardized the provisions of Section 3, No. 72 EStG for photovoltaic systems acquired, commissioned or expanded after December 31, 2024, across all types of buildings, and set the maximum gross capacity eligible for the tax exemption at 30 kW (peak).

In each case, the gross capacity according to the market master data register is decisive.

Notice:

The market master data register is the register for the German electricity and gas market. In addition to the master data on electricity and gas generation systems, the master data of market players such as system operators, network operators and energy suppliers have to be registered in this register.

Pursuant to the circular of the German Federal Ministry of Finance of July 17, 2023, it is not required that the operator of the photovoltaic system is also the owner of the building on, at or in which the photovoltaic system is located.

For the tax exemption, the law also allows the operation of several systems of up to a maximum total of 100 kW (peak); the 100 kW (peak) exemption limit is to be verified per taxpayer or per joint venture. For this purpose, the relevant outputs of all photovoltaic systems benefiting under § 3 No. 72 EStG, which are operated by the taxpayer or by the co-entrepreneur on, at or in buildings, are to be added for the determination of the 100 kW (peak) limit. This shall be applicable both to systems located on the same property and to systems located on different properties. It is irrelevant whether the systems are technically separate from each other.

As part of the legislative amendment introduced by the JStG 2024, it is clarified that the tax exemption under § 3 No. 72 EStG constitutes a threshold and not a tax credit.

The tax exemption under § 3 No. 72 EStG covers income generated irrespective of the use of the electricity that is produced by the photovoltaic system. This includes, in particular, the feed-in tariff, payments for other electricity supplies (e.g. to tenants) and payments for charging electric or hybrid electric vehicles. In addition, withdrawals for non-business purposes are to be included. This may include, for example, the use of the electricity generated by the photovoltaic system in the rooms used for own residential purposes or for charging the private electric or hybrid electric vehicle in addition to the partial feed-in to the grid.

Conversely, all operating expenses that are directly and economically related to the operation of photovoltaic systems benefiting under § 3 No. 72 EStG are not deductible in accordance with § 3c Para. 1 EStG.

If a photovoltaic system is sold or withdrawn from a business that only generates tax-exempt income and withdrawals pursuant to § 3 No. 72 EStG, the resulting profit or loss also falls under the tax exemption of § 3 No. 72 EStG. However, if the photovoltaic system is part of another business, the sale or withdrawal of the photovoltaic system is likely to be taxable.

If a photovoltaic system is part of the business assets of a business that does not exclusively maintain photovoltaic systems eligible for tax relief pursuant to § 3 No. 72 EStG, the tax exemption is only applicable pursuant to the circular of the German Federal Ministry of Finance of July 17, 2023 to the extent that income is generated from the electricity produced when it is fed into the grid, withdrawn or sold to third parties.

When the electricity generated by a photovoltaic system is partly consumed in another business of the operator, it is to be assessed according to the overall view of the circumstances in the individual case, taking into account the view of the market, whether two independent businesses or a single business are involved. The clarification of this question is, among other things, significant for the scope of accounting, i.e. whether independent profit calculations have to be carried out for one business or two businesses. In this context, it is likely that a single business is intended in many cases. This can only be assumed if the two operations support and complement each other. An important indication of this is if more than 50 % of the electricity generated by the photovoltaic system is consumed in the other business.

In the event that companies exclusively operate photovoltaic systems exempted under § 3 No. 72 EStG, they are not engaged in a commercial activity with the intention of generating a profit and thus a projected total profit. Therefore, they may not claim an investment deduction amount pursuant to § 7g EStG for fiscal years after January 1, 2022.

Insofar as the photovoltaic system is a business asset of a business whose purpose is not only the generation of electricity from photovoltaic systems, the general regulations on investment deduction amounts pursuant to § 7g EStG apply.

Should an asset-managing partnership also generate commercial income in addition to its actual income, the statutory fiction pursuant to § 15 Para. 3 No. 1 EStG, according to which it must pay tax on income from commercial operations to the full extent (so-called “Abfärbung”), applies in principle. However, according to the third sentence of § 3 No. 72 EStG, this does not apply if such a partnership, in addition to its actual income, generates exclusively tax-exempt income within the meaning of § 3 No. 72 EStG.

This provision could have resulted in a partnership losing its previous commercial status following the legislative amendment in 2022. This was generally associated with the cessation of operations; hidden reserves - particularly those related to buildings on, on top of or within which a photovoltaic system was located - had to be disclosed (see BMF circular dated July 17, 2023). To avoid this adverse legal consequence, for reasons of protection of legitimate expectations, no withdrawal was deemed to have occurred if the commercial character of the hidden reserves was restored by December 31, 2023, for other reasons - whether through renewed commercial infection (cf. § 15 Para. 3 No. 1 EStG) or a commercial character (see § 15 Para 3 No. 2 EStG).

Notice:

A partnership has a commercial character if it does not carry out any original commercial activity pursuant to § 15 Para. 1 Sentence 1 No. 1 EStG, but one or more corporations are exclusively involved as personally liable partners of the partnership and only these corporation(s) or persons outside the corporation are authorized to manage the partnership.

Vice versa, asset-managing partnerships can now acquire a photovoltaic system without a commercial infection of their otherwise only asset-managing income according to § 15 Para. 3 No. 1 EStG (cf. § 3 No. 72 Sentence 3 EStG).

Provided that a commercial enterprise is established: Photovoltaic systems that are set up as so-called rooftop systems with a substructure on the roof are regularly used entirely for the commercial operation of generating electricity and are therefore to be regarded as operating equipment and thus as independent, movable assets. In its circular of the July 17, 2023, the German Federal Ministry of Finance also treats roof-integrated photovoltaic systems, which in terms of valuation law belong to the building components (because they replace the roof), “like” operating equipment for income tax purposes. Thus, both roof-mounted systems and roof-integrated photovoltaic systems can be depreciated on a straight-line basis over 20 years in accordance with their normal useful life according to the official depreciation table, or, under the relevant conditions, on a declining-balance basis in accordance with § 7 Para. 2 EStG.

If no commercial enterprise is established: The labor costs incurred during the installation of a photovoltaic system constitute a craftsman’s service. In accordance with the circular of the German Federal Ministry of Finance dated on July 17, 2023, the tax reduction within the meaning of § 35a Para. 3 EStG is therefore to be granted if the other requirements are met.

 A tax reduction for energy-efficiency measures in buildings used as the owner’s primary residence (see § 35c EStG) does not apply to systems that generate only electricity, such as photovoltaic systems; if a photovoltaic system is installed on the roof of a building used as the owner’s primary residence and the system generates commercial income pursuant to § 15 EStG because the limits set forth in § 3 No. 72 EStG, the building nevertheless remains a qualifying property within the meaning of § 35c EStG (see BMF circular regarding § 35c EStG dated August 21, 2025, para. 17).

The zero tax rate to be applied as of January 1, 2023 in compliance with § 12 Para. 3 UStG applies to

• the supply, intra-Community acquisition and import of solar modules to the operating company of a photovoltaic system,
• including the components essential for the operation of a photovoltaic system, any storage facilities for the electricity generated with solar modules, and any related installations.

In order to be able to apply the zero tax rate accordingly, the photovoltaic system must be installed on or near private residences, apartments, and public and other buildings used for activities serving the public good.

Notice:

A photovoltaic system is located in the vicinity of the aforementioned dwellings/buildings in particular if it is installed on the property on which the relevant dwelling or beneficiary building is also located (e.g. garage, garden shed, fence). Proximity is therefore also to be assumed if there is a spatial or functional connection of use between the property and the photovoltaic system (e.g. uniform building complex or uniform area).

Mere commercial buildings or commercial complexes are not eligible; consequently, the standard tax rate of 19 % is to be applied. If a building is used for both tax-privileged and non-tax-privileged purposes (e.g. partly for residential purposes and partly for commercial purposes), it must generally be assumed to be a tax-privileged building. This shall however not apply if the harmless use is so much less important than the harmful use that it would not be appropriate to apply the preferential treatment.

The above conditions are deemed to be met if the installed gross capacity of the photovoltaic system does not exceed or will not exceed 30 kW (peak) according to the market master data register. Pursuant to the circular of the German Federal Ministry of Finance of February 27, 2023, this regulation represents a simplification pertaining to the examination of the type of building; thus, the providing entrepreneur does not have to ensure that the solar modules, essential components, or storage units are installed on a property benefiting from the tax.

In case of a gross output of more than 30 kW (peak) per unit, an application of the zero tax rate is linked to further verification requirements.

In particular, grid-connected photovoltaic systems and non-grid-connected stationary systems (so-called stand-alone systems) are subject to the zero tax rate. For simplification reasons, the circular of the German Federal Ministry of Finance of February 27, 2023, assumes that solar modules with an output of 300 watts and more are used for grid-connected systems or stationary stand-alone systems.

In addition to the delivery of solar modules, essential components or storage units classified as main service, certain ancillary services such as usually the assumption of the registration in the market master data register or the provision of software for the control and monitoring of the system may be incurred. These and similar ancillary services are also subject to the zero tax rate due to a uniform treatment. Maintenance or repair work without the supply of beneficiary system components, on the other hand, is subject to the standard tax rate of 19 %.

The leasing of photovoltaic systems does not constitute a supply of photovoltaic systems and is therefore also subject to the standard tax rate of 19 %; leasing or hire-purchase agreements may have to be assessed separately.

The entrepreneur supplying the photovoltaic system must prove that the above requirements for the application of the zero tax rate are met. For this purpose, according to the circular of the German Federal Ministry of Finance of February 27, 2023, it is sufficient if the purchaser declares that he or she is the operator of the photovoltaic system and that it is either a subsidized building or that the installed gross capacity of the photovoltaic system does not exceed or will not exceed 30 kW (peak) according to the market master data register. For this purpose, the providing entrepreneur will usually use a declaration form, which the operator has to fill out and sign accordingly.

The German Federal Ministry of Finance, however, provides for a simplification rule in this respect. According to this rule, the obligation to provide proof does not apply if the output of the photovoltaic system does not exceed 600 watts. In practice, any obligation to provide evidence for the sale of solar modules is therefore waived if the individual solar modules have an output of more than 300 watts (see above, since they are used as grid-connected systems or stationary stand-alone systems) and the photovoltaic system has an output of up to 600 watts.

The charge for feeding the electricity generated by the photovoltaic system into the grid (including any withdrawals for own consumption) is subject to VAT. However, if the electricity feed-in is the only entrepreneurial activity, the so-called small business regulation will usually apply.

Notice:

To qualify for the small business exemption, a business owner could not have exceeded a gross revenue of EUR 22,000 in the previous year and EUR 50,000 in the current year through the end of 2024. In such cases, value-added tax was not levied.

Since 2025, the revenue of an entrepreneur has been tax-exempt if his total revenue in the preceding calendar year did not exceed EUR 25,000 and does not exceed EUR 100,000 in the current calendar year (§ 19 Para. 1 UStG). Consequently, consistently falling below a total annual revenue of EUR 25,000 has the effect of establishing a VAT exemption threshold.

Effective January 1, 2024, entrepreneurs are no longer required to file advance sales tax returns, and as of the 2024 tax period, they are no longer required to file sales tax returns. Since then, this obligation applies only if a business opts out of the small business regulation or in the specified exceptional cases (e.g., intra-Community acquisitions, reverse charge).

In order to be able to claim the input tax deduction from the acquisition of the photovoltaic system, an option to the so-called standard taxation was required in the cases of the small business regulation in the years prior to January 1, 2023. Since the supply of solar modules, for example, will be subject to the so-called zero tax rate (cf. § 12 Para. 3 UStG) from January 1, 2023, small entrepreneurs will no longer need to opt for standard taxation in this regard.

For the taxation of value added as benefit in kind in connection with the operation of a photovoltaic system, a distinction must be made depending on when the photovoltaic system was acquired.

An entrepreneur could fully assign a photovoltaic system acquired before January 1, 2023 to his business. If he or she had waived the application of the small business regulation, he or she was entitled to a full input tax deduction from the acquisition. The privately consumed electricity was subject to taxation as a so-called benefit in kind, whereby the legally permissible input tax deduction was offset downstream in accordance with the system. In these cases, a benefit in kind will continue to be taxable after December 31, 2022.

The removal or benefit in kind of a photovoltaic system that was acquired prior to January 1, 2023 and that was entitled to a full or partial input tax deduction will also be subject to VAT as a benefit in kind after December 31, 2022. Nevertheless, it is possible to apply the zero tax rate in this respect. The prerequisite for this is that the system already installed meets the other requirements for the application of the zero tax rate pursuant to § 12 Para. 3 UStG and the entrepreneur intends to use more than 90 % of the electricity generated with the system for non-business purposes in the future. This is assumed for simplification reasons if part of the electricity generated with the photovoltaic system is stored in a battery.

The transaction of withdrawal or gratuitous benefit at zero tax rate does not constitute a change of circumstances pursuant to § 15a UStG and consequently does not trigger an input tax adjustment. An entrepreneur who originally waived the application of the small business regulation for the purpose of claiming the input tax deduction from the acquisition of the photovoltaic system and now withdraws the photovoltaic system at the zero tax rate, however, continues to be bound by the five-year commitment period of the waiver. Accordingly, the supply of the electricity to the grid operator is subject to the standard tax rate of 19 % until the expiry of this commitment period.

If an entrepreneur acquires a photovoltaic system after January 1, 2023 using the zero tax rate, there is no need to deduct input tax due to the lack of tax accrual (tax rate = 0 %). Unlike in the case of an acquisition before January 1, 2023, no downstream compensation of an input tax deduction is therefore required for a system-compatible result. Therefore, in these cases, there is also no taxation of a free transfer of value. The withdrawal or gratuitous donation of a photovoltaic system acquired on or after January 1, 2023 using the zero tax rate also does not constitute a gratuitous transfer of value.

Notice:

Operators of (small) photovoltaic systems will be granted relief in the event of a system acquisition from January 1, 2023 onwards due to the zero tax rate now to be applied. This is because the associated elimination of the input tax deduction from the system acquisition means that there is no longer any need to waive the small business regulation. Consequently, the remuneration from the feed-in of the electricity generated by the photovoltaic system is no longer taxable. Operators of old systems can claim the application of the zero tax rate in the context of a withdrawal of the photovoltaic system from their business.