Solar Panels and Taxes in Japan – My Personal Experience

In a previous post I talked about the difficulty of getting the regional power company to recognize and honor my ownership of the solar panels that came with the house I bought. The good news finally arrived in the mail – a good 9 months after I submitted the paperwork. They had accepted my request to sell solar power back to the grid.

Residential Solar Roof

Solar Roof

Although they’re just giving me what was mine all along, after waiting so long, I somehow feel accomplished. I had honestly given up on it, writing it off as either corporate red tape designed to tie up folks in my situation and keep from having to pay out, or because the small volume wasn’t worth their trouble.

Apparently, there was a “problem with their systems”, and had just recently gotten them in order. This isn’t exactly surprising as we’re talking about TEPCO (Tokyo Electric Power Company) here, 6 years and trillions of yen in state support later, still struggling to get back on their feet after one of the world’s most serious (and avoidable) nuclear disasters.

Well, whatever the case was, I suppose it was worth it. And it helps that they were kind enough to keep records of the feed-in volume from the date I became the new owner, and will be paying me for the combined period – from May to February – as a lump sum. From now it will be monthly.

And now that I’m getting paid (however meagerly), the question of taxes and what percentage they’ll fleece you for comes up. However, upon some research, I was pleasantly surprised to learn that taxes is only an issue for certain, larger solar panel systems.

There are 2 kinds of taxes you have to consider:

  • Fixed Asset Tax (固定資産税)
  • Income Tax (所得税)

Fixed Asset Tax for Solar Panels

In Japan we have a fixed asset tax that’s levied on stationary assets such as houses and land. And for those who own solar panels, this tax may also apply to you as well. However, before you freak out and yell “I told you we should have never gotten those damn things!”, you should know it only applies in the following cases:

  • rated capacity of 10 kW and over, where the owner is not operating it as a business (lives on the property in question), and selling power back to grid via the government sponsored feed-in tariff, until the rated value of the solar panels falls below the 1.5 million yen mark due to depreciation
  • rated capacity of 10 kW and over, where the owner is operating it as a business
  • cases where the panels in question are a solar roof, or a roof integrated PV system (see image above)

For those to whom this tax applies the official depreciation period for solar panels is 17 years, during which time you’re eligible for tax deductions from your income tax, but also required to pay the fixed asset tax, and in most cases, an income tax on the income generated from the grid buy-back.

The depreciation is set at 6.4% for the first year, and 12.7% for the following 16 years. You subtract this depreciation rate from the purchase cost of the solar panels at the end of every year, and pay a 1.4% fixed asset tax on the remainder.

As mentioned above, once the value of privately owned and operated panels falls below 1.5 million yen due to the set yearly depreciation, you’re no longer required to pay fixed asset tax.

Income Tax for Solar Panels

This one is simple. You only pay an income tax (on this income) if you generate over 200,000 yen after expenses. Expenses would be the yearly amount of depreciation from the initial cost. An example would be the following:

  • 3,500,000 yen solar panel system (8kW system)
  • depreciation period – 17 years (1/17=0.058 per year)
  • annual power generation estimate – 8,000 kWh
  • personal usage – 20%
  • buy-back price – 31 yen/kWh

your estimated income would be calculated as:

8,000 × 0.8 × 31 = 198,400

your expenses would be:

3,500,000 × 0.058 × 0.8 = 162,400.

This leaves you with a net income of 36,000 yen – nowhere near the 200,000 yen threshold. In short, you’d have to be generating a gross income of at least 362,400 yen to be taxed. The above equation can be reversed to solve for the required electric generation:

362,400 ÷ 0.8 ÷ 0.058 = 14,613

so in terms of electrical volume, you’d have to be generating at least 14,613 kWh per year to be taxed on this income. – Which is all but impossible for an 8kW solar panel system, save the highest quality systems in the most optimum conditions.

I would add here that such systems would naturally have a higher purchase price, bringing the expense value up as well. In conclusion, the taxes associated with solar panels appear to be quite reasonable, and are in line with the various incentives promoting solar power we see today.

Reference (Japanese):

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