Accounting for VAT and excise duty by prosumers in connection with the sale of electricity

What is the problem?

Thanks to the growing popularity of renewable energy sources, particularly photovoltaic installations, an increasing number of households and small businesses are opting to generate their own energy. Such entities have gained the status of prosumers – that is, natural and legal persons who both generate and consume electricity – a phenomenon that is becoming increasingly common in the energy market. One of the key aspects of being a prosumer is the settlement of VAT. This article outlines the rules and procedures for the settlement of VAT and excise duty by electricity prosumers.

Who is a prosumer?

The legal definition of a prosumer is set out in the Act of 20 February 2015 on Renewable Energy Sources (i.e. Journal of Laws of 2023, item 1436, as amended; hereinafter: the Act on Renewable Energy Sources). Pursuant to Article 2(27a) of that Act, a renewable energy prosumer is an end user who generates electricity exclusively from renewable energy sources for their own use in a micro-installation, provided that that, in the case of an end user who is not a domestic electricity consumer, this does not constitute the main economic activity as defined in accordance with the provisions issued pursuant to Article 40(2) of the Act of 29 June 1995 on Public Statistics.

A prosumer generates electricity for their own consumption and sells the surplus to the electricity supplier. In light of the case law of Polish administrative courts and the Court of Justice of the European Union, as well as the interpretative practice of national tax authorities, a prosumer who sells the surplus energy they have produced to the grid becomes a VAT taxpayer and should fulfil specific tax obligations (this was, inter alia, the ruling of the Court of Justice of the European Union in Case C-219/12 concerning the Austrian citizen Thomas Fuchs).

Net-billing is a cost-based settlement method based on the value of energy purchased and supplied. This means that prosumers sell surplus energy fed into the grid at a specified price, and pay for the energy they consume like other customers (most often taking into account the so-called net metering, as discussed below).

Net metering assumes the occurrence of a so-called positive balance, i.e. a situation where the prosumer has generated and fed more energy into the distribution system operator’s grid than they have consumed, and a so-called negative balance, i.e. a situation where energy consumption from the grid exceeds production. Settlement surpluses from a positive balance form a so-called deposit used to settle energy in subsequent billing periods. The actual settlement of electricity then takes place through offsetting.

VAT on electricity fed into the distribution system operator’s grid

Pursuant to Article 5(1)(1) of the Act of 11 March 2004 on the tax on goods and services (i.e. Journal of Laws of 2024, item 361; hereinafter: the VAT Act), the supply of goods and the provision of services for consideration within the territory of the country are subject to VAT. Pursuant to Article 2(6), ‘goods’ means items and their parts, as well as all forms of energy.

It follows from the above, therefore, that since the prosumer feeds surplus electricity into the distribution system operator’s grid and does so for consideration (the aforementioned settlement of balances), they are making a supply of goods subject to VAT within the meaning of this Act.

The taxable amount for the prosumer in a given billing period will be the product of the quantity of electricity fed into the grid by the prosumer, following hourly balancing, and the price applicable for that billing period, less the amount of VAT due. What does this mean? For the prosumer, the VAT taxable amount is the total value of the electricity fed into the grid, converted into PLN (in accordance with the above comments), rather than the value in PLN of the surplus energy fed into the distribution operator’s grid constituting a deposit (i.e. a positive balance). Similarly, in the case of an energy company, the VAT taxable amount will not be the value of the negative balance, i.e. the surplus of the value in PLN of the energy consumed over that fed into the grid by the prosumer, but the value in PLN of all the electricity consumed by the prosumer during the relevant billing period. Compensation therefore constitutes solely an economic settlement of the transaction; it does not, however, affect the determination of the VAT taxable amount or the settlement of this tax.

This position is endorsed by the Director of the National Tax Information Service in an individual interpretation dated 15 December 2023, ref. no.: 0111-KDIB3-1.4012.650.2023.2.KO, in which the tax authority stated that:

“Where a renewable energy prosumer or a collective renewable energy prosumer has generated electricity from a renewable energy source and fed it into the electricity distribution network during the period from 1 July 2022 to 30 June 2024, the value of the electricity referred to in Article 4(1a)(2) is determined for each calendar month and is calculated as the product of:

• the sum of the quantities of electricity fed into the electricity distribution network by a renewable energy prosumer or a collective renewable energy prosumer during the individual imbalance settlement periods (t) comprising the given calendar month, designated in Article 4(2b) by the symbol Eb(t), which may take negative values;
• the monthly market price of electricity referred to in paragraph 5, determined for the given calendar month.”

In principle, therefore, a prosumer in the net-billing system who feeds surplus electricity into the distribution operator’s grid would be obliged to issue an invoice documenting the supply of electricity in a given settlement period and to account for the VAT due that arises as a result.

Will every prosumer therefore be obliged to account for VAT in connection with feeding surplus energy into the grid as part of net-billing?

No, prosumers who generate electricity may benefit from a VAT exemption, provided that their turnover (excluding VAT) does not exceed PLN 200,000 in the tax year. However, applying this exemption may be difficult for those who already utilise this exemption in relation to turnover from other activities (i.e. conducting business activities).

Prosumers exempt from VAT on the above basis will not be obliged to issue an invoice, unless requested to do so by the energy supplier.

At the same time, prosumers who are active VAT taxpayers should issue an invoice. In this context, one may consider applying the self-invoicing arrangement provided for in Article 106d(1) of the VAT Act (i.e. the issuance of invoices on behalf of and for the benefit of the taxpayer by the purchaser, i.e. the energy supplier).

It should be noted in passing that where energy generated by a prosumer and fed into the grid is subsequently ‘utilised’, i.e. forms the subject of a further supply of energy for consideration to other customers, i.e. a taxable supply of goods, there will be a right to deduct input VAT arising from invoices issued by/on behalf of the prosumer in respect of the settlement of electricity generated in the renewable energy installation. This was also confirmed by the Director of the National Tax Information Service in an interpretation dated 12 January 2023, ref. no.: 0114-KDIP4-1.4012.417.2022.1.APR.

Excise duty on the sale of electricity by prosumers

Prosumers are exempt from excise duty on the electricity they generate in respect of the energy they consume. This is because, pursuant to §5(1) of the Regulation of the Minister of Finance, Funds and Regional Policy of 28 June 2021 on exemptions from excise duty (i.e. Journal of Laws of 2023, item 1891) the consumption of electricity by an entity that has generated it from generators with a total capacity not exceeding 1 MW is exempt from excise duty. This means that if a prosumer generates energy from an installation with a capacity not exceeding 1 MW, they will not be liable to pay excise duty on the consumption of that energy.

At the same time, in individual interpretations, the tax authorities emphasise that the sale of electricity generated by the installation (i.e. its feed-in to the distribution operator’s grid) will also not be subject to excise duty, as excise duty applies to the sale of energy to the end consumer, and in this case the purchaser of the energy is a licensed entity, i.e. an energy supplier, which resells this energy – for example, the Director of the National Tax Information Service in an individual interpretation dated 19 January 2023, ref. no.: 0111-KDIB3-3.4013.278.2022.2.MS:

“(…) you do not and will not carry out activities subject to excise duty in relation to electricity. This is because the electricity generated, both in the currently owned installation (farm) and following the commissioning of (…) further farms, is/will be sold in its entirety to a licensed entity. This sale is not subject to excise duty and will not be subject to excise duty after the commissioning of (…) further farms. However, electricity purchased for own use is, given your status and the status of the entity from which you purchase electricity, in principle subject to taxation by that seller (a taxpayer in respect of the transaction referred to in Article 9(1)(2) of the Act

Pursuant to the Regulation of the Minister of Finance, Funds and Regional Policy of 28 June 2021 on exemptions from excise duty (i.e. Journal of Laws of 2023, item 1891) prosumers who meet the condition of owning generators with a capacity not exceeding 1 MW are exempt from excise duty on the consumption of electricity.

Author

Mateusz Sołkowicz

Associate

He specializes in tax law, focusing on the liability of taxpayers, payers and collectors, as well as issues related to income taxes and fiscal criminal law. Her master's thesis, defended at the Department of Financial Law at the University of Warsaw, dealt with tax and criminal liability for tax fraud in income taxes.

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