Tax treatment of a natural person operating a photovoltaic system

08/05/22 - News

1. Context

The tax treatment of the operation of a photovoltaic system differs according to the individual's choice, and one must distinguish between 3 cases:

  1. the operator sells the total production to the grid operator
  2. the operator consumes the generated electricity himself
  3. the operator consumes the amount of electricity needed for private or professional use, and only sells any surplus

Imposition du bénéfice photovoltaïque

In case 1, the operator of a photovoltaic system with an operated capacity > 10 kWp and ≤ 30 kWp, sells the total electricity output produced to the grid operator. This is considered a business activity and the remuneration received from the sale of electricity constitutes taxable income.

 

In the case of a natural person who operates a small photovoltaic system (power: 1 kWp to 10 kWp) the Administration des Contributions Directes accepts, for the sake of simplification and as a matter of administrative tolerance, that the production of electricity is, generally speaking, a hobby that is not taken into account when determining taxable income.

 

In the case of self-consumption (case 2), the operation of the photovoltaic system is not considered a commercial activity and does not fall within one of the other categories of income listed in article 10 of the amended law on income tax (L.I.R.). There is therefore no taxable benefit but, depending on the use of the produced electricity, the expenses related to the photovoltaic system can be fully deductible as operating expenses. These different cases are described in Circular L.I.R. no. 14/2[1] and deal with the coverage of energy needs:

  • of the taxpayer's household,
  • of a commercial enterprise,
  • a farm or forestry operation,
  • the exercise of a liberal profession,
  • of a combination of the above,
  • of a tenant in the context of a building lease.

 

Where the production is partially used to cover the energy needs of the operator’s private household and the surplus is sold to a third party (either to the network operator or to another private or legal person), this amounts to a special case of self-consumption if the operation is used for a commercial activity. In the case of a natural person and an installation with a power less than or equal to 10 kWp, the installation is considered as a hobby, as described above.

 

 

[1] Circular of the Directorate of Taxes L.I.R. no. 14/2 of 22 September 2021 replacing circular L.I.R. no. 14/2 of 23 May 2003 with effect from the tax year 2021

https://impotsdirects.public.lu/dam-assets/fr/legislation/legi21/2021-09-22-LIR-14-2-du-2292021.pdf

 

2. Definitions and terminology

  • Purchase price

The purchase price of the photovoltaic system is considered separately, even if the photovoltaic system is integrated into the roof of the building. The following are eligible: all necessary elements for the photovoltaic system, including the supplier's invoice(s) for the installation, the grid operator's invoice for the installation of the meter etc.

  • State subsidies

The purchase price is reduced by the amount of the state subsidy granted by the Ministry of the Environment, Climate and Sustainable Development. We distinguish between 2 subsidy options:

Option 1: 20 % of the effective costs excluding VAT, limited to 500 € / kWp

Condition: with supply to the grid (100 % or less) and a fixed feed-in tariff for 15 years

Option 2: 50 % of the effective costs excluding VAT, limited to 1,250 € / kWp

Condition: Self-consumption and waiver of a fix feed-in tariff

  • Business profit

The commercial profit is calculated from the revenue and operating expenses of the photovoltaic system. Revenue includes the sale of electricity production (at the subsidised price) to the electricity grid operator, directly related to the reporting year, included in the advance payments and the statement (if applicable). In the case of first-time declarations, only advance payments may be available.

  • Operating expenses

Expenses related to the photovoltaic system, such as meter costs and interest related to the financing of the system, are fully deductible as operating expenses. If the financing of the installation is covered by a global construction mortgage, the interests are deductible in proportion to the amount of the installation compared to the global amount. The amount of depreciation is also an operating expense deductible from the realised business profit (see Form 121).

  • Depreciation

According to Circular L.I.R. no. 14/2 of 22 September 2021 (Direction des Contributions Directes), the usual duration of use of a photovoltaic system is at least 20 years and the possible depreciation rate is fixed at 5% per year.

3. Forms

The tax return for a natural person operating a photovoltaic system consists of several forms, described below. The first declaration should be made for the year in which the investment was made, even if the taxpayer has not yet received any revenue. All supporting documents must be attached to the various forms (copies of invoices, copies of advances, etc.).

 

Income Tax Return (Form 100)

The realized business profit is entered in box 501 of the Income Tax Return (Déclaration pour l’impôt sur le revenu Form 100) under the heading "business profit" (page 5).

Capture d'écran de la déclaration pour l’impôt sur le revenu (Formulaire 100)

The following annexes must be added:

  • Photovoltaic system (Form 121)
  • Acquisitions of depreciable capital assets (Form 113)

 

Photovoltaic system (Form 121)

This annex is used to determine the commercial benefit to entered in box 501 of the income tax return.

Capture d'écran du formulaire 121 avec annotations

 

Acquisitions of depreciable capital assets (Form 113)

This annex is used to determine the depreciation to be deducted from the commercial benefit.

Capture d'écran du formulaire 113
Capture d'écran du formulaire 113 avec annotations

4. Value Added Tax – VAT

Each operator of a photovoltaic system has the choice of becoming a VAT taxable person or not. This choice depends on several factors, including:

  • the price of the purchase and the VAT to be paid
  • revenues which depend on the production of electricity as well as the injection price
  • other operating expenses for which VAT would be deductible

VAT registration entails the obligation to submit an annual VAT declaration (via MyGuichet or via forms to be downloaded from the AED website). In this case, the VAT on the investment (a priori 17 % in the case of a supplier from the Grand Duchy of Luxembourg) is deductible and the amount is taken into consideration when calculating the depreciation is the amount excluding VAT of the investment (reduced by the subsidies obtained). As for revenue, the VAT collected on the sale of electricity (8%) must be declared annually using the form that can be downloaded from the Administration de l'Enregistrement et des Domaines.

5. Example 1 (not subject to VAT)

Assumptions

  • Purchase price of a photovoltaic system of 11 kWp as of 01/01/2021:
    • 16,500 € excl. VAT
    • 2,805 € VAT (17 %)
    • 19,305 €, incl. VAT
  • State subsidy (20 %):
    • 3,300 € excl. VAT
  • Taxpayer not subject to VAT
  • Purchase price after deduction of the subsidy:
    • 16,005 € (19,305 € – 3,300 €)
  • Depreciation (5 %):
    • 825 € per year (5 % of 16,500 €)

 

Form 113 (depreciation)

Capture d'écran du formulaire 113
Capture d'écran du formulaire 113 avec annotations

 

Form 121 (Photovoltaic system)

Capture d'écran du formulaire 121 (Installation photovoltaïque) avec annotations

6. Example 2 (subject to VAT)

Assumptions

  • Purchase price of a photovoltaic system of 11 kWp as of 01/01/2021:
    • 16,500 € excl. VAT
    • 2,805 € VAT (17 %)
    • 19,305 €, incl. VAT
  • State subsidy (20 %):
    • 3,300 € excl. VAT
  • Taxpayer not subject to VAT (registration optional)
  • Purchase price after deduction of the subsidy:
    • 13,200 € (16,500 € – 3,300 €)
  • Depreciation (5 %):
    • 660 € per year (5 % of 13,200 €)

 

Form 113 (depreciation)

Capture d'écran du formulaire 113 (amortissement)

 

Capture d'écran du formulaire 113 (amortissement) avec annotations

 

Form 121 (Photovoltaic system)

Capture d'écran du formulaire 121 (installation photovoltaïque) avec annotations

 

Annual declaration of Value Added Tax

Capture d'écran de déclaration annuelle de la taxe sur la valeur ajoutée avec annotations

 

Capture d'écran de déclaration annuelle de la taxe sur la valeur ajoutée avec annotations

 

Capture d'écran de déclaration annuelle de la taxe sur la valeur ajoutée avec annotations

 

Capture d'écran de déclaration annuelle de la taxe sur la valeur ajoutée

 

Capture d'écran de déclaration annuelle de la taxe sur la valeur ajoutée avec annotations