PV & tax: what you need to know
Taxing tenant electricity? What you need to know as a landlord!
Photovoltaic systems (PV systems) on rental properties are booming, and for good reason: the self-generated electricity from the roof can often be sold to tenants at a better price than if it is fed into the public grid. But many landlords underestimate this: As soon as electricity is sold to tenants, the tax office also gets involved in the form of VAT.
On 17.07.2024 (case no. XI R 8/21), the Federal Fiscal Court (BFH) clarified that these electricity supplies are subject to VAT, even if the actual rental of the accommodation itself remains tax-free. This decision affects many who invest or want to invest in tenant electricity models.
An example from practice:
A landlord operates two residential buildings, rents them out tax-free and installs PV systems including battery storage on both roofs. The electricity generated is sold directly to the tenants and fed into the public grid when there is a surplus. If the self-generated electricity is not sufficient, the landlord buys additional electricity and sells it on at a mark-up. Important: The electricity supply contract with the tenants is regulated separately from the rental contract and can be terminated independently of it. The tenant bears the costs of dismantling the meter system.
The landlord claimed the input tax deduction for the PV system, but the tax office refused to grant it on the grounds that the electricity supply was merely an ancillary service to the tax-free rental of residential space. This meant that the input tax deduction could not be granted.
However, the BFH took a different view: the decisive factor was that the electricity supply was independent and could be terminated separately and that tenants were generally free to choose their electricity provider. According to the Energy Industry Act (Section 42a (2) EnWG), rental contracts may not be linked to energy supply contracts, another important point emphasized by the BFH. The court therefore came to the conclusion that the supply of electricity is subject to VAT and the input tax deduction for the PV system is permissible.
Why this is important:
This decision differs significantly from the tax treatment of other operating costs, such as heating systems. A heating system that is an integral part of the building is directly related to the rental and is part of the “basic rent”. This is not the case with tenant electricity, which is a separate economic activity that is taxed separately.
Special case: zero percent VAT on PV systems
Since 2023, there has been some relief: the purchase and installation of PV systems on residential buildings are generally subject to 0% VAT. However, this only applies to the purchase itself; the sale of electricity to tenants remains subject to VAT. However, anyone whose turnover remains below the small business threshold of €22,000 could benefit from the small business regulation and avoid the VAT liability on electricity sales.
And what about income tax?
There is a further relief in terms of income tax: income from the sale of electricity is often exempt from income tax for smaller systems (up to 30 kW peak per unit). However, this tax exemption also comes with a restriction: costs from the purchase and maintenance of the PV system cannot be claimed for tax purposes in this case.
Conclusion for landlords:
- If you, as a landlord, sell electricity from a PV system to your tenants, you must treat this separately for VAT purposes – regardless of whether you rent out the living space tax-free.
- At the same time, you benefit from input tax deduction for the PV system, which makes the investment more attractive.
- However, check carefully whether you can operate as a small business, as this can give you a further advantage.
Do you have questions about your PV system or are you planning tenant electricity?
Get your first aid advice from PepperPapers now – and bring light into the tax darkness!
