Germany has introduced a zero VAT rate for the first time. To meet its ambitious environmental protection goals (i.e., reduction of greenhouse gases) and to ensure a reliable, independent and sustainable energy supply, the supply and installation of smaller photovoltaic (PV) systems is zero-rated for VAT purposes as from 1 January 2023. (PV systems are electric power systems used to supply solar power.)
The zero rating provides VAT and administrative relief to private operators of PV systems who no longer have to waive the special scheme for small businesses in order to benefit from an input tax deduction. The benefit of zero rating is that the supply is not taxed but the supplier can deduct the VAT incurred; by contrast, if the supply was VAT-exempt, no input VAT deduction would be available.
The German tax authorities have released guidance that contains detailed information on the zero-rating rules and how the tax authorities will interpret them. The guidance addresses, inter alia, what should be regarded as a purchase of a PV system or an essential component thereof, where a PV system has to be installed and who is responsible for demonstrating that the zero rate applies.
To apply the zero-rate on PV systems, the system must be installed on private residences or buildings used to generate revenue for the public benefit. Notably, the supply and installation of components that are essential for the operation of a PV system, as well as the power storage devices used to store the electricity generated by solar modules, also qualify for the zero rating. However, the rental or leasing of a PV system will not benefit from the zero-rating unless the lease qualifies as a supply of goods.
Affected taxpayers should determine whether their supplies of PV fall within the scope of the zero-rate VAT.