Effects of the zero tax rate for solar systems on withdrawals or transfers of value

The introduction of the zero tax rate for the supply of certain photovoltaic systems also has an impact on old systems, particularly when it comes to the removal of such systems or free transfers of value.

The introduction of a zero tax rate for many smaller photovoltaic systems does not only affect new systems. Anyone who already has a solar system in use is also affected by the change if the system is classified as a business asset, which is usually the case if at least part of the electricity generated is fed into the public grid.

There are consequences if - as is usually the case - the electricity generated is also used for private households or other non-business purposes, as well as in the event that the system is sold or removed from the business assets. The Federal Ministry of Finance has also commented on these cases in an amendment to the VAT application decree and explained what consequences this has for VAT.

• New plants: If an entrepreneur acquires a photovoltaic system from January 1, 2023 using the zero tax rate, there is no need to tax a free transfer of value due to the lack of input tax deduction. The withdrawal or gratuitous donation of such a photovoltaic system is also not a gratuitous transfer of value. However, if goods and services are supplied in connection with the system for which no zero tax rate applies, only a pro rata input tax deduction is possible for the part used for business purposes, as otherwise a pro rata value added tax would again be necessary for the privately used part.

• Value transfer: Anyone who waives the small business regulation for a photovoltaic system purchased before 2023 and has claimed the full input tax deduction must subject the privately consumed electricity to VAT. Unpaid supplies are subject to VAT if the goods used in the process were entitled to a full or partial input tax deduction. This obligation will continue to apply to old systems after December 31, 2022 as before.

  

• Alternatives: There are several options to avoid the value added tax for old systems in the future, which are associated with different advantages and disadvantages. If the system has been part of the business assets for at least five years, it is generally possible to switch to the small business regulation without any significant disadvantages. Alternatively, the system can be removed from the business assets or sold or donated to a relative.

• Withdrawal: The withdrawal or donation of a photovoltaic system acquired before 2023, which entitled at least a partial input tax deduction, is subject to VAT as a free transfer of value. However, the zero tax rate applies if the other requirements are met (the new owner must be the operator of the system!). However, the tax authorities point out that it is not possible to withdraw only part of an item originally allocated to the company, i.e. in particular only the privately used part. In turn, the entire system can only be withdrawn if more than 90 % of the electricity generated is expected to be used for non-business purposes in the future. For simplification purposes, the tax authorities assume this to be the case if part of the electricity generated is stored in a battery. It is also sufficient if a profitability calculation suggests a use for non-business purposes of more than 90 %.

• Asset sales: If an item that was eligible for input tax deduction when purchased is resold at a zero rate, this alone does not constitute a change in circumstances that would trigger an input tax adjustment, i.e. a partial reversal of the original input tax deduction. The sale of an old system is therefore not associated with any disadvantages for the seller in terms of VAT. However, the buyer may be obliged to make an input tax adjustment if he makes use of the small business regulation.

• Sale of business: If a system owner who is not a small business owner sells or transfers the photovoltaic system to a third party, this may constitute a non-taxable sale of the business as a whole. In this case, the purchaser takes the place of the previous owner, which in itself does not trigger an obligation to adjust input tax. However, if the purchaser makes use of the small business regulation and the original purchase of the photovoltaic system was less than five years ago, the change in the type of taxation leads to a change in the circumstances, which results in an obligation to make an input tax adjustment, i.e. a partial reversal of the original input tax deduction.