Tax relief for solar systems – tax hammer tax exemption for solar expansion now approved by the Bundestag!

The first steps to massively promote the expansion of renewable energies have been taken: On Wednesday (November 30, 2022), the Finance Committee decided on the controversial tax exemption for the construction of “smaller” solar systems in private households (2nd stage in the federal legislative process). On December 2nd, the Bundestag finally discussed the Annual Tax Act 2022 and only needs to receive approval from the Bundesrat on December 16th, which is considered certain.

The funding is intended to enable the expansion of solar power in the coming years and thus make an important contribution to the energy transition.

The new regulation from the traffic light coalition is a very good and long-overdue incentive for many homeowners to invest in solar energy. Until now, it has been difficult for private system operators to invest in a photovoltaic system because the purchase costs are high and the return is often not sufficient to justify the investment. The new tax exemption now changes this. Private photovoltaic systems are now tax-exempt, making the investment much more attractive.

The North Rhine-Westphalia Renewable Energy Association states in its latest press release:

• tax on income from solar power remuneration in the future, but also retroactively to January 1, 2022

• At the beginning of next year, the 19 percent VAT for the purchase and installation of photovoltaic systems (PV), including battery storage .

• The VAT exemption already applies to orders this year, provided the system goes into operation next year .

Top selling point for solar installers: No more tax on solar systems

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Solar: Photovoltaics will be cheaper in 2023 - no more tax when buying and operating smaller solar systems

The federal legislative process is a three-stage process in which the draft law is discussed in the Bundestag and then either accepted or rejected.

The first stage, the so-called first reading, serves to debate the political significance of the proposed law and its goals.

➡️ Debate in the Bundestag about the federal government's draft for an annual tax law 2022 (JstG 2022; 20/3879) - October 14, 2022 (Friday)

In the second stage, the second reading, the bill is referred to the committees for discussion. An intensive discussion of the draft law is taking place here. The lead committee then presents a version of the bill, which is discussed in the plenary session in the third and final stage, the third reading. Any MP can table further amendments at this stage.

➡️ The Finance Committee passed the Annual Tax Act 2022 at its meeting on Wednesday (November 30th, 2022).

Third reading is the last chance for amendments to bills. Only political groups or at least five percent of MPs can submit an application. The amendments may only concern provisions that were changed or added in the second reading. After the third reading, the Bundestag votes on the bill.

➡️ In its third reading on December 2nd, 2022 (Friday), the German Bundestag finally discussed the annual tax law.

If a law has been approved in the Bundestag, it must be sent to the Bundesrat immediately.

In the Basic Law, consent laws and objection laws differ fundamentally from one another. If the Federal Council refuses to give its consent to approval laws, the legislative project has failed. Under certain conditions, the Bundestag can also overrule an objection from the Bundesrat in the case of objection laws.

➡️ The approval of the Federal Council on December 16th (Friday) is considered certain. Especially when it comes to income tax, the federal government took up the state's appeal to legally exempt the operation of small PV systems from tax.

Once the final stage of the legislative process has been successfully completed, the federal government only needs to countersign it and have it confirmed again by the Federal President. It will then be “announced” in the Federal Law Gazette.

The planned zero tax rate is something completely new in German sales tax law. This means that deliveries and installations of these systems will be taxed at a 0% tax rate from next year. So there is no sales tax here anymore or the sales tax is 0%. We know something similar (but something completely different) from the reduced tax rate of 7% in the area of ​​food and books such as newspapers.

Background knowledge:

The normal tax rate is 19 percent. Certain services are taxed at a reduced tax rate of 7 percent in accordance with Section 12 (2) UStG or are tax-exempt in accordance with Section 4 UStG. The standard rate of 19 percent has been in effect since January 1, 2007, the reduced tax rate of 7 percent since July 1, 1983. In addition, Section 24 UStG contains average rates for agricultural and forestry businesses, whose tax rate is 5.5% or can be 10.7%. In addition, according to Section 23 UStG, there are average tax rates from the two tax rates for agricultural and forestry businesses as well as certain companies and corporations.

The zero tax rate will now apply from 2023 to installations and deliveries of solar modules, including electricity storage, to operators if the PV system is installed on or near private homes, public and other buildings.

In the future, it will be the responsibility of the solar installer or seller to determine whether the 0% or 19% sales tax regulation will be used. Either via a written advance confirmation from the customer not to operate a system larger than 30 kWp and/or proof must be provided via the market master register:

• More about the market master data register (MaStR)
• Registration in the market master data register

⚠️ A solar system, an electricity storage system or a completed installation that has already been purchased can no longer be subsequently billed using the zero tax rate of sales tax. Logically, with the zero tax rate there is no longer any possibility or need to have VAT refunded.

⚠️ If the purchase and commissioning via a specialist company for 2022 has not yet been completed and advance payments have already been made, the commissioned company can correct the 19% VAT calculated from 2022 accordingly in the final invoice for 2023.

⚠️ In addition to the confirmation from the solar installer, the fixed time for commissioning is the note in the market master data register.

For the market master data register, there is an obligation to report both solar systems and electricity storage systems - each separately

Every new system must be entered into the market master data register within one month of commissioning.

You must register each electricity-generating system individually. This also includes battery storage . If you operate a photovoltaic system with battery storage, then you must enter both the solar system and the battery storage individually in the register .

More about this here:

• Consumer advice center: Market master data register: This is what you need to know about solar systems and the like
• PV Magazine: Zero percent sales tax for photovoltaic systems from 2023
• Tax relief for smaller photovoltaic systems from 2023

At its meeting on Wednesday, the Finance Committee passed a host of tax improvements and changes as well as an excess profits tax for energy companies with the annual tax law. The coalition factions SPD, Alliance 90/The Greens and FDP approved the draft (20/3879, 20/4229) submitted to the federal government. The CDU/CSU faction rejected it, the AfD faction and the Die Linke faction abstained. The coalition factions had previously made changes to the draft law with 39 proposals. The coalition's submission of amendments, some of which were very late, was heavily criticized by the opposition factions.

One of the key points of the law is the creation of a direct payment route for public services using the tax identification number. This is intended to make it easier to pay out certain future federal benefits such as emergency aid or climate funds.

The draft law also stipulates that small photovoltaic systems can be operated tax-free. The regulation applies from this year. It was originally supposed to apply from 2023.

…

The draft also contains regulations on the taxability of the energy price flat rate for pensioners and pension recipients. As a result, additional income of 520 million euros is expected this year. The gas/heat price brake (December aid) should also be subject to tax. A social compensation is envisaged here, so that only for taxpayers who have to pay the solidarity surcharge will their taxable income increase by the relief provided by the gas price brake.

The EU regulation introducing an energy crisis contribution is also implemented with the annual tax law. It is envisaged that in the financial years 2022 and 2023 (in the case of different financial years in the years 2022/23 and 2023/24) profits of companies in the oil, gas, coal and refinery industries that are in comparison to the previous years (2018 to 2021) that exceed the average profit by 20 percent will be taxed. The tax rate should be 33 percent. The additional tax revenue should amount to between one and three billion euros and help finance the electricity price cap.

…

The CDU/CSU parliamentary group described some of the provisions as rather half-baked. This concerns the EU energy crisis contribution and the taxation of December aid. In the case of December aid, it must be checked in 20 million cases whether there is an obligation to pay the solidarity surcharge and whether the aid must therefore be taxed. In the case of shared apartments, it becomes extremely difficult to determine tax liability. However, the tax exemption for small photovoltaic systems, the higher employee allowance and depreciation for housing construction are important and to be welcomed.

The Alliance 90/The Greens faction said that a good law had become even better as a result of the changes. ... There are also “great approaches” for photovoltaics. The FDP parliamentary group also stated that a good law had been improved. The tax exemption for small photovoltaic systems is a huge step towards less bureaucracy.

The AfD parliamentary group saw many good sides such as the regulations on photovoltaics and home offices. However, the tax exemption for photovoltaics also means that losses are no longer deductible. They do not agree with the actual increase in inheritance tax due to a different valuation of real estate.

A motion for a resolution from the CDU/CSU parliamentary group was rejected. The parliamentary group had criticized the fact that numerous of the coalition's tax policy projects, such as super depreciation for climate protection and digitalization as well as an allowance for property transfer tax, were not included in the annual tax law. There were also calls to postpone the start of full pension taxation until 2060 and to increase inheritance tax allowances.

Press release - German Bundestag - Finance/Committee - November 30, 2022 (hib 706/2022)

PDF German Bundestag – printed matter 20/3879

PDF German Bundestag – printed matter 20/4229

The state association for renewable energies in North Rhine-Westphalia is betting that the tax relief for smaller photovoltaic systems approved by the Bundestag will trigger a boost for the nationwide solar expansion.

With the Annual Tax Act 2022, the Bundestag today passed a series of tax reliefs for smaller solar power systems with a peak output of up to 30 kilowatts. According to this, the operators of these small solar power plants will not only have to pay income and trade tax on the income from solar power remuneration in the future, but also retroactively to January 1, 2022. In addition, at the beginning of next year, the 19 percent VAT for the purchase and installation of photovoltaic systems (PV), including battery storage, will no longer apply. The VAT exemption already applies to orders this year, provided the system goes into operation next year. As a rule, potential “solarists” save a four-digit amount on their purchase.

“With the tax exemption for private photovoltaic systems, the traffic light government is giving many homeowners a very good and long-overdue incentive to invest in solar energy,” says Reiner Priggen, Chairman of the State Association of Renewable Energies NRW (LEE NRW), commenting on the innovations. “The enormous bureaucratic effort associated with the regular sales tax declarations for the manageable solar income has certainly deterred far too many homeowners from installing their own solar power system.”

The new regulations offer owners of single and two-family homes in particular the opportunity to generate up to 30,000 kilowatt hours of clean electricity per year. Combined with switching your heating system to a heat pump and possibly purchasing an electric vehicle, you have the opportunity to produce most of the energy you need for electricity, heating and driving yourself. In view of rising electricity prices, which will soon reach an average of 50 cents per kWh across the country, as well as the price increases for oil and gas, this is a good opportunity to reduce your personal energy costs after investments have been made.

When it comes to climate protection, every solar system means actively combating global warming. And given that the solar modules have a guarantee of more than 30 years, investing in solar technology also offers good long-term prospects.

LEE NRW expects the tax relief to provide a “strong boost,” according to chairman Priggen, for future solar expansion in the state. Which is also necessary.

According to an analysis by the Solarbranche.de portal, almost 765 MW of solar power capacity was newly installed across the country in the first ten months of this year. This means that by the turn of the year the expansion level of previous years will be topped (total expansion in 2021: around 656 MW gross, total expansion in 2020: around 605 MW gross). “That is encouraging, but still far too little,” says LEE NRW Chairman Priggen, assessing this development. “Nationwide, we need an annual increase of over 2,000 megawatts so that the state government can achieve its own goals.”

Press release from December 2nd, 2022

State Association for Renewable Energies NRW eV

As the umbrella organization for the renewable energy industry in North Rhine-Westphalia, LEE NRW brings together interests from all areas of the energy transition. The association includes medium-sized companies, associations and citizens. The common goal: 100% renewable energies by 2045 – in the areas of electricity, heat and transport. Five LEE regional associations are also committed to this as competent local contacts. In the No. 1 energy country, the industry is an important employer for 46,000 employees, who generated a sales volume of 10 billion euros in 2017.

Instead of just watching, as before, everyone can now actively contribute to the energy transition and environmental protection. This is not only energy efficient, but in addition to expanding your own private energy independence, it is another important component: the financial incentive, where everyone can only win. The environment, nature, people and animals:

• A solar system is more than just a power generator. It is an important part of climate protection. Because every solar system contributes to stopping global warming and limiting global warming.
• A solar system works emission-free and is based on solar energy. This renewable energy source is not only environmentally friendly, but also climate-friendly.
• A solar system has a lifespan of more than 30 years and guarantees a constant flow of electricity for your electronics. It also saves CO2 emissions and thus protects our atmosphere from climate change.
• Solar systems are a very sustainable way of generating electricity because they use a renewable energy source: the sun. By installing a solar system, you can make a long-term contribution to climate protection.
• But solar systems have other advantages. They are very energy efficient because the solar panels convert the sun's energy directly into electricity. On the other hand, solar energy is also very environmentally friendly because there are no emissions during production. Solar systems can help slow global warming and protect the environment.

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