The German Ministry of Finance (BMF) has issued updated guidance on the VAT treatment of self-consumption, subsidies, and input tax deduction. Operators of energy generation plants will now face new clarifications—and specific action points.

In its letter dated March 31, 2025, the BMF updated the VAT treatment of self-consumed electricity from power generation plants. The update is based on recent judgments by the German Federal Fiscal Court (BFH), particularly regarding the classification of self-generated electricity as a supply, the treatment of Combined Heat and Power (CHP) surcharges, and the input VAT deduction for photovoltaic (PV) systems.

1. Self-Consumption and CHP Surcharges: No Supply, No Remuneration

The BFH has clarified that if electricity from a plant is consumed by the operator itself, it does not qualify as a supply for VAT purposes, even if a CHP surcharge is granted under § 4 (3a) of the 2009 Combined Heat and Power Act (KWKG).

A ‘fictional’ supply to the grid operator followed by a deemed resale to the plant operator is explicitly ruled out. The CHP surcharge must be treated as a non-taxable genuine subsidy.

2. Free Electricity Consumption: Fictional Purchase Price as Basis

The decentralized consumption of self-generated electricity may lead to a deemed taxable supply under § 3 (1b) sentence 1 no. 1 of the German Value Added Tax Act (UStG). The basis for assessment is the fictional purchase price at the time of consumption (§ 10 (4) sentence 1 no. 1 of the UStG).

If additional electricity is purchased from an energy supplier, their price must be used; in case of complete self-consumption, the basic utility rate applies. The burden of proof for determining the purchase price lies with the operator.

3. Update to the German VAT Application Decree (UStAE)—Transitional Arrangements Until End of 2025

The VAT Application Decree, Section 2.5, has been revised to reflect the BFH case law. However, for transactions before January 1, 2026, no objections will be raised if the previous interpretation is still applied—provided this is agreed between the parties concerned.

4. Photovoltaic Systems, Battery Storage Units, and Wallboxes: What Counts as a Supply?

For PV systems, the taxable supply includes both the electricity that is physically fed into the grid and electricity that is contractually transferred for accounting purposes. Electricity that is not fed into the grid but self-consumed is not part of the supply and is not remunerated.

For input VAT deduction related to battery storage units and wallboxes, at least 10 percent of the electricity stored or transferred must be used for business purposes.

5. Entrepreneur Status in Power Generation

The UStAE has already confirmed: If electricity from EEG (renewable energy) or CHP plants is regularly fed into the grid for a fee, this constitutes sustainable revenue generation. This qualifies the operator as a taxable person for VAT purposes—regardless of the revenue volume or system size—unless already classified as an entrepreneur.

If the facility is connected to the public grid, entrepreneurial activity is generally assumed.

Action Points at a Glance:

1.    Reassess VAT treatment of self-consumption
→ No fictional supply to the grid operator—no resale—no VAT obligation.

2.    Properly classify CHP surcharges
→ Treat them as genuine, non-taxable subsidies—not subject to VAT.

3.    Ensure input VAT deduction
→ At least 10 percent of the stored or transferred electricity from storage units or wallboxes must be used for business purposes.