VAT on PV and storage direct investments: why 19% is charged here, and how it flows back

Anyone looking at an energy direct investment for the first time soon stumbles over one line in the documents: purchase price plus 19% VAT. That is irritating, because the coverage of private solar installations has left the impression that VAT on photovoltaics is a thing of the past. Both are correct; they simply apply to different installations. This article explains why VAT is charged on a direct investment, how it flows back through the input VAT deduction, and at which two points money can actually be lost along the way.

Why doesn't the 0% VAT rate apply to my solar park direct investment?

Because the zero rate is tailored narrowly to private and public-benefit installations. §12(3) UStG reduces the rate for the supply and installation of photovoltaic systems to 0%, but only for systems on or near private homes, dwellings, and public and other buildings used for activities serving the common good. For systems up to 30 kWp this condition is deemed met by legal fiction; that is where the popular shorthand of “0% up to 30 kWp” comes from. A ground-mounted plant with far greater capacity sits outside this frame, and battery storage is covered only as a component of a privileged installation, not as a stand-alone investment. A direct investment therefore stays at the standard rate: 19% VAT is charged on the purchase price.

The confusion is fed by a second simplification that sounds similar and governs something entirely different: the income tax exemption of §3 no. 72 EStG for small installations. It does not apply to a direct investment either, and here that is actually the precondition for depreciation and the investment deduction amount being available at all. How the two small-scale simplifications and the tax lever for large plants fit together is shown in Deducting photovoltaics from tax: when depreciation and the §7g deduction still work.

Does the direct investment make me an entrepreneur for VAT purposes?

Yes. Anyone who operates a plant and markets the electricity it generates or stores on a sustained basis for consideration is an entrepreneur under §2 UStG, regardless of whether they would use that word for themselves. In practice this means: after subscribing, the questionnaire for tax registration is filed via ELSTER, the tax office issues a tax number, and from then on the VAT obligations run alongside the familiar income tax return. The commercial business also brings trade tax into play; why little of it usually sticks for individuals is shown in Trade tax on PV and storage direct investments: how much of it actually sticks.

The VAT concept of an entrepreneur is broader than the income tax one: it asks only for sustained revenue, not for profit. Whether the investment can be expected to produce a total profit over its life is purely an income tax question; why the tax office asks it, and what hangs on the answer, is covered in Liebhaberei and profit intention: when the tax office cancels the tax lever.

Small-business scheme or standard taxation: which is the right choice?

For a six-figure direct investment the choice almost always comes down to standard taxation, and the reason is the input VAT deduction. Since the reform effective 1 January 2025, the small-business scheme of §19 UStG applies if total turnover did not exceed €25,000 in the previous year and does not exceed €100,000 in the current year; the turnover is then exempt from VAT. An investor in year one, whose electricity revenue is still modest, would therefore fall into the scheme by default. And that is exactly what would be expensive: anyone making only exempt small-business turnover has no input VAT deduction (§15(2) no. 1 UStG). The 19% on the purchase price would be lost for good.

The way out is the waiver under §19(3) UStG: the investor declares to the tax office that they waive the small-business scheme and are taxed like any other entrepreneur. The declaration can be made until the last day of February of the second year following the tax period, is irrevocable, and binds for at least five calendar years. For a direct investment that commitment is no drawback; it matches the investment horizon. It only becomes relevant if, years later, a switch is being considered; more on that below.

How do I get the 19% on the purchase price back?

Through the input VAT deduction under §15 UStG, claimed in the regular VAT advance return. As an entrepreneur under standard taxation, you deduct the VAT invoiced to you for supplies to your business from your own VAT liability; if the input VAT exceeds that liability, the tax office refunds the surplus. The precondition is a proper invoice under §§14, 14a UStG with the tax shown openly; checking this is part of the document review before subscribing. A typical example:

1. Net investment in the plant: €300,000.
2. VAT at 19%: €57,000; so €357,000 gross is payable.
3. Input VAT deduction in the advance return: the €57,000 is set off against the VAT on the first revenues, and the surplus is refunded.
4. Economic result: what is borne is the net investment of €300,000; the €57,000 is a time-limited liquidity item between payment and refund.

That period has to be bridged. A promotional loan such as KfW programme 270 finances the net investment; the VAT is advanced out of liquidity or via a short-term credit line until the refund arrives. How this is planned into the financing structure is described in Financing a direct investment: bank loan, KfW 270 and the pitfalls.

Is VAT charged on my electricity revenue?

Yes, the electricity supplies carry 19% VAT, which the offtaker pays on top of the price. In practice the direct marketer settles the supplies by credit note: you receive a statement with the VAT shown, collect the gross amount and remit the tax with the advance return. Economically it is a pass-through item; VAT does not reduce the investment's earnings. One special case worth placing: the reverse-charge mechanism of §13b UStG applies to electricity only where both supplier and recipient are resellers within the meaning of §3g UStG. A PV operator generates electricity and is therefore no reseller; for a storage system, which buys electricity and sells it on, the classification can differ and belongs in the document review. How the revenue is treated on the income tax side is shown in After the IAB: How the ongoing returns and the sale of a direct investment are taxed.

What ongoing obligations do I take on?

Three things: advance returns, the annual return and orderly records. The standard filing period is the calendar quarter; monthly filing only becomes mandatory once the prior year's VAT exceeds €9,000, and if it was no more than €2,000 the tax office can waive advance returns entirely (§18 UStG). Once a year the annual VAT return follows. In practice the tax adviser handles all of this; the data comes from the direct marketer's credit notes and the project's ongoing reporting. What proper reporting after closing should contain is described in What happens after closing: reporting, asset management and why a partner is not a broker.

What is the input VAT adjustment under §15a UStG, and when does it become a trap?

§15a UStG makes sure the input VAT deduction matches the actual use of the asset, monitored over a multi-year period. If, within that period, the circumstances decisive for the deduction change, the input VAT is adjusted proportionately, in other words repaid. The period is five years; for land including its essential components it is ten. For operating fixtures such as a battery storage system or an elevated ground-mounted plant, the five-year period is normally the relevant one; whether the longer land-related period applies in a specific case is for the tax adviser to determine from the actual construction.

The rule becomes a trap in two constellations. First, switching to the small-business scheme: anyone who moves into exempt small-business turnover after the five-year waiver commitment has run out, while the adjustment period is still running, repays refunded input VAT proportionately. Second, a sale without VAT within the period. The planned course, by contrast, is uncritical: whoever stays under standard taxation and operates the plant accordingly never hears from §15a UStG.

What applies when acquiring an already operating plant?

Then the acquisition can fall outside VAT altogether. Under §1(1a) UStG, transactions forming part of a transfer of a going concern to another entrepreneur are not subject to VAT: there is no 19% in the purchase price, but there is also nothing to refund. In exchange, the acquirer steps into the seller's position, including any §15a adjustment period still running. Whether a specific acquisition is structured as a transfer of a going concern or as a regular, taxable supply is set out in the project documents and belongs clarified before subscribing; the question doubles as a good test of how sure-footed a provider is in their own documents. Where this review sits in the overall process is shown in From first enquiry to closing: how a direct investment works step by step.

Does VAT have anything to do with the investment deduction amount?

No, the two run in separate systems. The investment deduction amount, the special depreciation and the declining-balance depreciation are income tax instruments; VAT follows its own logic and does not change the size of the tax lever. Two points of contact still matter. First: for investors entitled to the input VAT deduction, the assessment base for the IAB and for depreciation is the net price, not the gross amount. Second: the input VAT refund is not a tax saving but the return of money advanced; anyone who books it as a return in a yield calculation is flattering the investment. How the IAB works and who can use it is explained in The Investitionsabzugsbetrag explained simply: how the IAB works and Investitionsabzugsbetrag: all §7g EStG requirements, and who can use it.

In a properly structured direct investment, VAT is therefore not a return factor but a matter of the right sequence: declare the waiver, check the invoice, plan the refund into the liquidity schedule. In a no-obligation initial consultation we walk through how these steps are embedded in the process of a specific project, in coordination with your tax adviser.