Solar panels from the perspective of the Czech tax system

It is quite the opposite, and it is necessary to be more careful from the point of view of Czech tax law because, for example, photovoltaic panels are far from being a completely standard item. Given the fact that this is an increasingly popular and accessible thing, which is also in many cases supported by state subsidy programs, we decided to briefly summarize the tax aspects of the photovoltaic panels.

Photovoltaic panels from the corporate income tax point of view

According to the Income Tax Act, photovoltaic panels are a specific type of tangible fixed assets, and it is necessary to apply a special depreciation plan for photovoltaic panels included in the Classification of Product by Activity (also known as “CZ-CPA”) 27.11., 27.12 and in subcategory CZ-CPA 26.11.22. According to the law, if the photovoltaic panel falls into one of the above-mentioned groups, it is necessary to apply the so-called time depreciation and depreciate for a period of 240 months.

Usually, photovoltaic panels also include batteries, cables, and other necessary accessories. In most cases, these accessories cannot be used in any other way, and at the same time, photovoltaic panels cannot be used without this accessory (or at least not fully). In case it is possible to include this accessory into the same CZ-CPA group as the panels themselves, the accessory is part of the property and therefore, it is calculated into its acquisition price. These items are subsequently depreciated along with and in the same way as the photovoltaic panels.

As the period of depreciation is fixed, the so-called time depreciation is applied. The rules for this type of depreciation are quite specific and thus, we would like to include also quick note in this respect. First of all, the entire depreciation process begins starting in the month following the month in which the conditions for putting the asses into use were met. Depreciation is calculated monthly and rounded up to whole Czech crowns. Further, since the depreciation period is firmly set, it is not possible to interrupt them.

Furthermore, it is necessary to also take the location of the photovoltaic panels into account. In general, if the panels are placed on the building, it is necessary to divide the pales and the accessories into the so-called functional and construction part. The regime for the functional part (which basically includes the panels, power supply, battery, etc.) is the same as described above. However, the construction part (cables built in the building, structures connected to the building, etc.) must be considered as an extension of the technical parameters of the building. In other words, it is required to consider them as the technical appreciation of the building. The main reason is that the installation of the construction enhances the functions of the building, namely it is possible to place the photovoltaic panels on the building after this change which was impossible before.

Photovoltaic panels from the point of view of personal income tax

During consideration of the tax implications of acquisition of photovoltaic panels for an individual, the form of usage of the photovoltaic panels is decisive. If they will be used for the purpose of the economic activity of the individual (i.e., within the business activities of the individual), there is the possibility of application of tax depreciation while it is possible to use the same rules as described above.

Nevertheless, the situation is completely different when the individual buys the photovoltaic panels for his family house and these panels are not used for his economic activity.

In most cases, the photovoltaic panels are intended for e.g., domestic water heating, etc. However, there might be situations where the photovoltaic panels produce more energy than the household is able to consume and therefore the spare energy created this way might be sold. Such sales are considered as income which must be of course taken into account during the preparation of the personal income tax return, while the decisive factor in this respect is license granted by the Energy Regulator Office. This license is required for the sale of electricity in most situations and if individual has this license, the income is considered as an independent activity and taxed accordingly. On the other hand, if this activity is not covered by the license, the relevant income is considered as so-called other income.

Photovoltaic panels and real estate tax

As mentioned above, structures carrying photovoltaic panels are being commonly placed on the roof of a building. Alternatively, the special structure of photovoltaic panel (in the form of plastic strips, etc.) might be applied as well. Nevertheless, in all these cases the panels may not be considered as a separate building and the building on where the panels are located is taxed in the standard way in accordance with its type and use.

For the sake of completeness, it may be mentioned that taxable buildings and units may be exempted from real estate tax for up to five years after the heating system is changed from solid fuels to a renewable energy system (including solar energy). However, there is a second condition for this exemption as well which is that the building was originally heated only with solid fuels. In other words, the exemption cannot be applied for a building or unit that was heated centrally or connected to the distribution of the heating systems before the change.  

Furthermore, photovoltaic panels do not have to be placed only on the building. If they are placed separately in the open space, the most common constructions are the one with galvanized frames. This structure is usually connected to the ground by special screws and galvanized frames which are pushed into the ground. Alternatively, heavy concrete prefabricated blocks are used as anchor as well.

These types of fastening of the panels to the ground usually allow relatively easy removal or relocation (if required). Therefore, the conditions for real estate based on the Czech Real Estate Tax Act are not fulfilled and thus, such constructions are not subject to the real estate tax. The Czech tax authority also agrees with this conclusion based on the information published in 2010.

Nevertheless, the Czech tax authority also admits that there might exist additional technologies in the future, where a concrete structure firmly connected with the ground would be necessary. In such case, it would be required to consider case by case whether such construction is subject to the real estate tax.

In this respect, it should be also mentioned that if the definition of the so-called paved area is fulfilled as a result of the installation of panels (e.g., by pouring the area with concrete), it is, of course, necessary to take this fact into account and apply a higher tax rate.

In conclusion, green energy is more and more actual topic and if you are thinking about the possibilities in this direction, there are also several subsidy programs from the Czech tax government to support this trend and to make photovoltaics more accessible. We are obviously not experts on technical issues of photovoltaic panels, however, we will gladly assist you in tax issues related to them.