In this age of sustainability, investing in solar panels is becoming more and more common. The solar panels will be more powerful and the price lower, so the payback time will be shorter and shorter. There may even be a zero rate of VAT in the near future instead of the revenue-related exemption (OVOB) or the new small business scheme.
A private individual who has solar panels installed in his home, uses the energy produced for his own home and then supplies the remaining energy to an energy company, is a VAT entrepreneur. VAT must be paid on the energy supplied to the energy company and on private use. In return, the VAT on the investment in solar panels can be deducted.
Because in practice it is not always easy to determine how much electricity is supplied in connection with netting, it is possible to choose to determine the VAT due according to a standard rate scheme. When using the standard rate scheme, VAT may not be charged on the energy supplied. The size of the VAT due depends on the capacity (watt peak per year) of the solar panels.
By choosing OVOB after the investment year in the solar panels – formerly Small Business Scheme (KOR) – there is a right to a refund of VAT in the investment year, so the owner of solar panels is not confronted with administrative burdens afterwards and does not need a VAT return to be made. The OVOB applies if no more than 20,000 euros of VAT-taxed turnover is achieved on an annual basis.
A point of attention here is that by applying OVOB after the investment year, the owner of the solar panels may face an annual mandatory partial refund of VAT due to the application of the audit scheme. This means that in the case of non-integrated solar panels, one-fifth of the VAT refund must always be refunded to the tax authorities for a period of four years. With integrated solar panels, one tenth of the refunded VAT must be refunded annually for a period of nine years.
No audit will take place for an investment amount of less than 14,404 euros (including VAT) for non-integrated solar panels. For integrated solar panels, a maximum investment amount of EUR 86,428 (including VAT) applies, below which an audit is not required.
The above means that no audit is required if the VAT on the investment in non-integrated solar panels is less than 2,500 euros or if the VAT on the investment in integrated solar panels is less than 5,000 euros.
NB: If a private individual who qualifies as a VAT entrepreneur buys additional solar panels at a later date, starts renting out real estate for investment or starts a business, and the total turnover, including the turnover of the solar panels, exceeds 20,000 euros, then the private person is must unsubscribe from OVOB. If he does not do this, the right to VAT deduction for the new purchases or activities lapses.
VAT return entrepreneurs
Tax has made the form ‘Declaration of solar cell owners’ available to private individuals who qualify as VAT entrepreneurs who have not previously submitted a VAT return. To be entitled to a VAT refund on solar panels, this form must be received by the Tax Administration no later than 31 December in the year in which the solar panels were purchased and where the VAT was invoiced.
VAT entrepreneurs who have already submitted VAT returns must return the VAT in the VAT return for the period in which the VAT is collected from the VAT entrepreneur.
VAT relief for private owners
To reduce the administrative obligations for private solar panel holders, a number of reductions have recently been introduced for them.
- Relieved registration obligation. Until recently, private solar panel owners who did not want to claim VAT on the purchased solar panels still had to report to the tax authorities. Due to the approval of the decision of 10. June 2021 (Government Gazette 2021-20899) owners of solar panels are no longer required to register if the annual turnover of the solar panels through supply of energy to the grid is 1,800 euros (voluntary registration threshold) or less (according to the fixed rate or the actual compensation). They can then apply OVOB immediately and do not have to comply with administrative obligations.
- House with solar panels. According to the old rules, private individuals who buy a house with solar panels on it must also report to the tax authorities. They then had to sign up for OVOB. Due to the decision of 10. June 2021, this is no longer necessary; they can use OVOB directly.
- Application KOR without registration. Individuals who use OVOB without notifying the IRS due to the voluntary registration limit are not required to use OVOB for at least three years. This applies to ordinary VAT entrepreneurs. Solar panel holders who have already signed up with the Tax Authorities as VAT entrepreneurs cannot appeal the decision and must still sign up for OVOB.
- Declaration solar panel holders online. For private solar panel owners who want to refund VAT, it has also recently become possible to register online with Skat. Previously, the solar collector holder had to print the form and send it by post. It is still possible, but the opportunity to register as a VAT entrepreneur with Skat online has been added. To be able to register online, the private solar panel holder must have a DigiD.
The European Commission has decided to allow 0 percent VAT on the supply and installation of solar panels. In the Netherlands, the supply and installation of solar panels is taxed at 21 percent VAT. Because a private individual who regularly supplies energy back to the energy supplier for remuneration is a VAT entrepreneur, he can refund the VAT charged on the installation and delivery of solar panels via the VAT return, if the private individual has registered with the Tax Authorities as a VAT entrepreneur.
In the year after the investment, many private individuals use OVOB, so they no longer have to pay VAT. This scheme must be requested in good time from the Tax Authorities. By using the OVOB, private individuals are exempted from administrative obligations and do not have to pay VAT when returning energy to the energy supplier.
With the proposal from the European Commission, which makes it possible to charge 0 percent VAT on the installation and delivery of solar panels, the current administrative burden for solar cell owners and the tax authorities would be abolished. The decision may also open up for a VAT reduction of, among other things, sustainable heat sources, which are now also taxed at 21 percent VAT.
The Cabinet is currently investigating whether it is desirable to introduce a zero rate for VAT on solar panels in the Netherlands. The purpose of this is to reduce the administrative burden for both private solar panel holders and the tax authorities. The study will, among other things, examine budgetary consequences, efficiency and effectiveness.
In recent months, the government has examined the function of OVOB, which has been in force since 1 January 2020. Particularly private solar panel holders require continued attention, because it is not clear to many solar panel holders participating in the OVOB that the use of OVOB ‘one means that they can not refund VAT when they start another (zzp) business or make a new investment in solar panels unsubscribe OVOB.
As Skat has received complaints about this from private individuals, work has been done to improve the information about the OVOB on the website and on the Tax Telephone line. Resources are also being developed to make relevant information available through third parties. For example, Skat is developing a solar VAT checker (an IT calculation tool) that will also be made available to suppliers and industry and interest organizations.
Applying VAT rules to operating solar panels and refunding VAT on solar panels is not always an easy task for private solar panel holders. In addition, the cost of hiring a professional to recover the VAT on the purchased solar panels for a private solar cell holder may be higher than the VAT refund. If a private individual does not want to refund the VAT on the purchased solar panels, he no longer has to register with the tax authorities as a VAT entrepreneur on the basis of an approval in the decision of 10. June 2021. The condition is that the annual turnover of the solar panels by supplying energy to the grid is 1,800 euros or less.
The application of 0 percent VAT on solar panels can significantly simplify the current Dutch administrative burden process, where the solar panel holder first pays the VAT to the supplier and then has to claim it back from the tax authorities. Not all EU Member States have this administrative burden, as they often use OVOB without the right to deduct. Additional VAT obligations with regard to the return of electricity to the energy company are prevented by a registration limit.
In fact, all administrative burdens will then disappear and everyone can buy solar panels, without additional VAT burden or obligations. The Netherlands is in favor of creating the possibility of a zero rate for solar panels and has the opportunity to do so if the European Parliament agrees in March this year. Once formally adopted by the EU Member States, the legislation will enter into force 20 days after its publication in the Official Journal of the European Union; EU Member States can then apply the new scheme from that date.
Author: mr. CW (Carola) van Vilsteren
This article appeared in F&A Actueel 2022, Edition 3.