Input tax deduction for the supply of tenant electricity from a PV system

Oct 30, 2025

The Federal Finance Court had to deal with the question of whether the supply of electricity from a PV system located on the roof of the rented house is subject to sales tax and, conversely, whether the landlord is entitled to claim input tax deduction in this context.

In principle, the letting of residential space is exempt from sales tax. The same applies to dependent ancillary services in this context. Thus, no input tax deduction is possible in this case.

In the case in question, the landlord had installed a PV system on the roof of the rental property and concluded a supplementary agreement to the rental contract with the tenants regarding the supply of electricity, with the option of termination with four weeks' notice. The usual electricity price was charged with separate billing via a separate meter. The tenant would have had to bear the conversion costs in the event of a change of electricity provider.

The system itself was installed in the year in question. The landlord wanted to claim input tax from the invoices
for the installation costs of the PV system. The tax office rejected this, as it was of the opinion that the supply of electricity was a dependent ancillary service from the VAT-exempt rental of residential property.

However, both the Lower Saxony Finance Court (FG) and the Federal Fiscal Court (BFH) agreed with the landlord's view and allowed the input tax deduction. The FG saw no link between the rental agreement and the electricity supply agreement, as the tenant could have terminated the electricity supply agreement and freely chosen another provider.

Source: BFH, judgment of July 17, 2024 - Ref. XI R 8/21