Solar Power and Taxes: When a Solar System Is Tax-Exempt

When is income from a photovoltaic system tax-exempt?

Income and withdrawals from the operation of photovoltaic systems are exempt from income tax under Section 3, No. 72 of the Income Tax Act (EStG) if the system is installed on, attached to, or inside a building (including outbuildings) and the power output limits are met. The exemption has been in effect since the 2022 tax year. You do not have to be the owner of the building to operate an exempt system.

Income includes, for example, the feed-in tariff, fees for electricity you supply to others—such as tenants—payments for charging electric or hybrid vehicles, and subsidies; in the net income method, it also includes collected and refunded VAT. Withdrawals consist of the electricity you consume yourself or use for personal purposes. Both are covered by the exemption, regardless of how the electricity is used. However, the date of commissioning determines which capacity limits apply. The exemption is not optional; it does not require an application, and you cannot waive it.

What income limits apply to the tax exemption?

As of 2025, a uniform limit applies: 30 kilowatts (peak) per residential or commercial unit, with a maximum total of 100 kilowatts (peak) per taxpayer or partnership. The Annual Tax Act of 2024 replaced the previous tiered system based on building type. The new version applies to systems acquired, commissioned, or expanded after December 31, 2024.

For older facilities, the current limits remain in effect as long as they are not expanded.

Here is an example from the tax authorities: Two single-family homes each have a 30-kW (peak) system, and there is also a 50-kW (peak) ground-mounted system. The ground-mounted system is not included; the two rooftop systems qualify for the tax benefit.

What are the VAT rules: 0% on purchases?

A 0% VAT rate applies to the delivery of solar modules to the operator of a photovoltaic system. The law explicitly includes essential components and storage systems in this category and also specifies installation (Section 12(3) of the UStG, effective January 1, 2023). Requirement: The system must be located on or near private residences, apartments, or public and other buildings that serve the public good. The requirements are deemed to be met if the installed gross capacity, according to the Market Master Data Register, does not exceed or will not exceed 30 kilowatts (peak).

Since no VAT is due, there is no need to opt for standard taxation. A wallbox is a separate item and is not subject to the zero VAT rate.

Does a small business have to pay business tax?

There is a specific exemption for business tax: Section 3, No. 32 of the Business Tax Act (GewStG) exempts permanent commercial operations of facility operators whose activities are limited exclusively to the generation and sale of electricity from a solar system installed on, attached to, or within a building. The installed capacity may not exceed 30 kilowatts.

Registration with the municipality (Business Licensing Office), on the other hand, is not a matter of tax law. This article does not address that issue.

What do you need to report to the tax office?

The rule: Operators must report the commencement of operations and submit the tax registration questionnaire as well as the questionnaire regarding the installation and operation of a photovoltaic system via ELSTER (Section 138 of the German Fiscal Code (AO)). The Bavarian State Tax Office specifies an exception: If operations begin on or after January 1, 2023, the system is exempt under Section 3(72) of the Income Tax Act (EStG), and the small business exemption under Section 19 of the Value-Added Tax Act (UStG) applies; in this case, neither questionnaire is required. Instead, the number from the market master data register provided to the grid operator is sufficient.

On the income tax return, if the income is entirely tax-exempt, there is no need to calculate profit and, therefore, no need to report a profit. If the income is not exempt, Schedule G and Schedule EÜR must be filed electronically. If an exempt business is subsequently expanded beyond its original scope, the tax office must be notified immediately.

What are the rules for larger systems?

The limits are thresholds, not tax-exempt amounts. If the income exceeds these limits, the exemption under § 3 No. 72 of the Income Tax Act (EStG) is forfeited in its entirety, not just for the portion above the limit. The tax authorities explicitly state this regarding the 100-kW limit: If the total exceeds 100 kW (peak), the tax exemption does not apply at all. In that case, the profit must be calculated, and Schedule G and Schedule EÜR come into play.

The same applies to the limit per building, and outbuildings are included. Here is an example from the tax authorities, calculated using the previous limits: A house with two residential units has a system with 15.10 kW (peak), and the attached garage has a second system with 15.10 kW (peak). Together, that totals 30.20 kW (peak), while the allowable limit is 30.00 kW (peak). As a result, neither system qualifies for the exemption. Even one module too many can therefore cost the entire exemption.