For some time, there has been a question about why not all installers of residential self-consumption photovoltaic systems can invoice with a reduced VAT rate of 10%, rather than the 21% rate for solar panel installations. Given the importance of domestic self-consumption in the fight against climate change, the Spanish Photovoltaic Union (UNEF) considered that VAT should be reduced from 10%.
A binding consultation with the General Directorate of Taxes (DGT) of the Ministry of Finance, which is responsible for the control and implementation of tax policy, led to the decision that all European Union (EU) Member States will make their own decisions regarding the VAT applicable to products that benefit the environment, including solar panels for residential self-consumption and for installations in public buildings. EU Member States may reduce this VAT to 5% if they so choose.
The current EU rules on VAT rates are almost 30 years old and are in desperate need of modernization.
New rules
Furthermore, by 2030, the possibility for EU Member States to apply reduced rates and exemptions to goods and services considered harmful to the environment and to the EU’s climate change objectives will be phased out.
The new rules are supported by a prior agreement to shift the EU VAT system to one in which VAT is paid in the consumer’s Member State rather than in the supplier’s Member State. This ensures that greater rate diversity is less likely to disrupt the functioning of the single market or create distortions of competition. It also prevents the proliferation of reduced rates, which would jeopardize EU Member States’ ability to collect revenue in the post-COVID-19 era.
The updated rules will be sent to the European Parliament for consultation on the final text by March 2022. Once formally adopted by Member States, the legislation will enter into force 20 days after its publication in the Official Journal of the European Union, allowing Member States to implement the new system from that date.
This decision will facilitate the transition to renewable energy sources and enable Member States to provide end-consumers with access to green energy sources.
At MASRED Engineering, we are experts in green energy. If you have any further questions or would like to discuss other topics, please don’t hesitate to contact us.
