Posted by: joachim in Solar on June 16th, 2010

If you have a few solar panels on your roof that start generating electricity, what tax implications are there? If the electricity is not sold back to the grid, and only used at home, there is no tax implications. If, however, if the electricity is fed back to the grid, the recurring reveneus from the feed-in tariffs constitute an enterprise.

Value-Added Tax (VAT)

Feed-in tariffs are usually quoted net of VAT. If the generator is registered as a business, the utility will pay VAT on top of the feed-in tariff. The VAT has to be passed through to the tax office. Conversely, VAT can be claimed back on all capital expenditure. Note that in some countries, VAT on capex is at a lower rate. If the solar operator uses some of the electricity for own use on the premises, the utility may pay for own use at a lower level. However, the utility ought to pay VAT as if all generated electricity had been fed back to the grid. Subsequently, the solar operator will be charged for the ficticious income that is the difference between the two feed-in tariff levels.

VAT cash flows relevant to solar generators

If the solar generator is set up as a business or part of a business, VAT is only passing through, and therefore not relevant for the yield of a the solar generator, though timing of cash flows may have an impact on working capital requirements.

Income / Corporate Tax

Income from solar generators is generally not tax-exempt, but may be offset against the capital costs.

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