The tax consequences will depend on the form of investment ie whether you invest in a structured fund, in shares in a qualifying company or whether you establish your own energy business either through a German company or as an individual. It is important that independant tax advice is sought before you finalise your investment.

Where electricity generated from one of the above energy sources is sold to a third party / Utility company or to the National Grid, such an activity is treated as a trade and the following taxes can apply:

Income Tax / Business tax

Income tax is levied on German income earned after costs at progressive rates ranging from 15% - 42%, however non-residents are subject to a minimum rate of 25%. Solidarity Tax also applies.

As the activity is deemed a trade rather than an investment, A Trade tax is also levied at varying rates depending on the region but average about 12-14%. The rates are set by each Local Authority.

Tax Allowances—accelerated tax allowances (ie. where you can write off the cost of purchasing or manufacturing approved energy plant over a shorter period) are available to reduce your German income tax liability. The annual rate of depreciation / allowance depends on a number of factors including the type of costs & the region in which you operate.

German Corporate Tax

German Corporate Tax is payable if the energy business is conducted through a company and is calculated @ 25% of company profits after costs. A Solidarity tax of circ. 1.375% also applies.

Similar to an individual, as the activity is deemed a trade rather than an investment, A Trade tax is also levied within a company structure at varying rates depending on the region but average about 12-14%. The rates are set by each Local Authority.

German VAT is charged on the sale of electricity in Germany at the standard rate of 19% (16% pre 2007). If turnover /income levels are below the annual income threshold (€50,000 in current year, €17,500 in prior year) the taxpayer has an option to register or not for VAT. If the taxpayer registers, he/she can claim back the VAT incurred on equipment & operating costs but must pay over VAT on trade income. Businesses with turnover /revenue in excess of the threshold limits are obliged to register for VAT.

Transfer Tax & Capital Gains generally does not apply to energy plant purchased for trading purposes. However in certain circumstances eg where solar panels are treated as part of a commercial or residential building and electricity is supplied on a self supply only basis, the costs are taxed according to Real Estate Law. Please contact us at info@dgitax.com for further details.

Grants / Subsidies and ‘soft loans’ are also available to help fund the establishment of sustainable energy businesses. Cash incentives vary but can be as much as 50% of costs in certain regions.

Worldwide Income
If you are resident in Ireland or the UK, you will be taxed on your worldwide income in Ireland/UK also. There is a double taxation agreement between Germany & Ireland/UK, therefore relief for double taxation will apply in your resident tax country for certain German taxes paid.

For further details please contact DG International Tax at info@dgitax.com or at ++ 353 56 7780852