Investing in clean, sustainable energy is a commitment to the future.
However, the installation of solar panels still often raises many questions regarding the legalisation of the system and the taxes applicable to their purchase and use.
What VAT is applicable to self-consumption installations?
You may have heard about companies that apply a reduced VAT rate to self-consumption installations, and multinationals that sell solar kits (solar panels, inverters, batteries, etc.) applying a 10% VAT rate.
In principle, photovoltaic self-consumption installations and their components are subject to a 21% VAT rate, although, having said that, there are two exceptions provided for in the VAT Law 37/1992:
- If the photovoltaic installation is part of a building refurbishment and adaptation project.
- If it’s a first-time delivery. In other words, the installation must be inside a newly-built home purchased directly from the developer or constructed by the person themselves.
In both cases, a reduced VAT rate of 10% applies.
VAT reduction on solar panels in renovations and refurbishments
The Tax Agency allows a reduced VAT rate to be applied to all work that can be classed as “rehabilitation – both analogous and related – on buildings“.
The work shall be considered to be rehabilitation if it fulfils these characteristics, and, in addition:
- It’s carried out in homes
- It’s carried out with agreed contracts signed by the developer and the contractor.
50% of the project cost is for works on structural elements, facades, roofs, etc. - The project budget exceeds 25% of the property’s purchase price (if purchased within the two previous years) or market value (if purchased more than two years after the house was purchased), excluding the price of the land.
Photovoltaic installations are not considered to be renovation works as such, and are not analogous or related to such renovation works. However, a VAT reduction can be applied to them if:
1. The name on the invoice is of a private person/individual.
2. Two years have passed since the house’s construction or last renovation.
3. A complete renovation is carried out, including the photovoltaic installation.
4. The materials provided by the company installing the solar panels don’t exceed 40% of the renovation’s taxable value.
VAT reduction on solar panels in first homes
In first homes, the VAT on the PV installation is 10%, which is the rate applicable to this type of property.
If the developer decides to rent the property and sell it after a few years, it will no longer be considered a first home, and the PV installation will be subject to 21% VAT.
However, if the first tenants are the ones who actually buy the property, then it can be considered a first home, and in these cases the solar panels will be subject to a reduced VAT rate.
What happens if reduced VAT is applied to solar panels when it doesn’t qualify?
Both supplier and customer could receive a warning from the tax authorities demanding the remaining 11% VAT and a possible financial penalty if fraud is detected.
Practical examples:
Here at My Green House we’re going to show you a couple of examples where you can apply the 10% VAT rate:
- Example 1:
If you’re building your home as a self-developer including a self-consumption photovoltaic installation – this counts as a “first home” - Example 2:
Imagine you own a house you bought 5 years ago with a market value of €150,000.
You’re going to carry out an extensive renovation budgeted at €70,000, which includes the renovation of structural parts (such as the replacement of interior stairs and windows) and part of the roof, including the installation of solar panels for self-consumption on the roof.
Let’s imagine that the renovation of the structural parts is budgeted at €60,000 (more than 25% of the value of the house and more than 50% of the value of the whole renovation), and the cost of the materials for the photovoltaic installation is €6,500 (the materials for the photovoltaic installation don’t exceed 40%). In this case, the 10% VAT can be applied to the PV installation.
If you have any further questions or if you would like to know if your installation is eligible for a VAT reduction or other tax benefits, then please contact us.
