The introduction of mandatory e-invoicing in Germany is getting closer

The European Commission's "VAT in the digital age" initiative (hereinafter referred to as ViDA) also includes the obligation to issue e-invoices. At a later date, e-invoices are to be used to simultaneously feed an electronic reporting system, which is to contribute to the prevention of VAT fraud via this real-time reporting. The introduction of ViDA has been repeatedly postponed. Recently, the Council agreed on the implementation and 1 July 2030 as the start date for the ViDA initiative. Nevertheless, Germany, like other member states, has set itself the goal of introducing mandatory e-invoicing earlier. A draft from the German Federal Ministry of Finance (BMF) on this topic was first circulated in April 2023. As part of the adoption of the Growth Opportunities Act, the regulations on the e-invoicing obligation were finally codified. We have commented on the status of the discussions and the legislative process in previous articles (Mandatory e-invoicing for domestic B2B transactions in Germany as of 1 January 2025, The upcoming Growth Opportunities Act and VAT, Update: The Growth Opportunities Act and VAT).

The Federal Ministry of Finance has recently published a new circular which is intended to clarify the last open questions regarding the upcoming e-invoicing obligation.

 

Key Takeaways

• On 1 January 2025, Germany will introduce an obligation to receive e-invoices for B2B transactions between companies resident in Germany.
• In Germany, the XRechnung and ZUGFerD (from version 2.0.1) formats in particular can be used .
• Various transitional regulations apply with regard to the obligation to issue e-invoices. However, all domestic companies must be able to receive e-invoices by 1 January.
• Other invoices can cause problems in the area of input tax deduction, which is why internal regulations for issuing e-invoices should already be in place from 2025.
• Companies should act immediately to enable e-invoicing and integrate it into their current systems or update them.

 

The concept of the electronic invoice

On 1 January 2025, the term electronic invoice will be redefined in the German Value Added Tax Act (UStG). According to the revised Section 14 paragraph 1 sentence 3 UStG, an electronic invoice exists if the invoice is issued, transmitted and received in a structured format and enables electronic processing. The format of the e-invoice can generally be agreed between the invoice issuer and the invoice recipient. However, the format must either comply with the European standard for electronic invoicing and the list of corresponding syntaxes in accordance with Directive 2014/55/EU (EN 16931 standards) or the format used must enable the correct and complete extraction of the information required by the UStG from the e-invoice into a format that complies with the EN 16931 standards or is interoperable with it. Interoperable means that the information required according to the UStG can be further processed from the originally used e-invoice format without loss of information.

In Germany, such formats would be the XRechnung or the ZUGFerD format from version 2.0.1. However, the BMF has also clarified that invoice formats from other countries that fulfil the requirements of the EN 16931 standard are also permitted. It cites the French Factur-X format as an example.

E-invoices can also be issued in a hybrid format. In addition to the structured data part, such a hybrid format also consists of a data part that can be read by the human eye. Both data parts must be summarised in one file. One example of this is the ZUGFerD format mentioned above.

In future, a distinction will be made between e-invoices and other invoices. ‘Other invoices’ are invoices in paper form or in other electronic formats that do not fulfil the above requirements. Other invoices are, for example, all non-structured electronic files, such as PDF files without integrated data records, but could also be image files or e-mails.

 

Obligation to issue electronic invoices

Taxable supplies between entrepreneurs are subject to the e-invoicing obligation if these supplies are taxable in Germany and both businesses are resident in Germany. Residency is to be established by the registered office, the location of the management or a permanent establishment involved in the relevant transaction. Alternatively, a domicile or habitual residence can be used as a basis.  However, the mere VAT registration of a business in Germany without residency should not lead to an e-invoicing obligation.

If taxability according to section 4 no. 1 to 7 UStG is not applicable, but the other requirements are met, an e-invoice must also be issued.

There is an exception to the obligation to issue e-invoices for small-value invoices (total amount EUR250 or less), public transport tickets and transactions in accordance with section 4 No. 8 to 29 UStG.

 If a transaction is carried out for both the business and the non-business area, e.g. the non-business area of a legal entity, the obligation to issue an e-invoice takes precedence.

Consequently, sales to private end consumers (B2C) are not affected by the e-invoice obligation. If there is no e-invoicing obligation, the issuing of the invoice in the format ‘other invoice’ is permitted.

 

Timetable for the introduction of mandatory e-invoicing

The basic obligation for companies resident in Germany to receive e-invoices will apply from 1 January 2025.

The legislator has provided for several transitional regulations for issuing e-invoices for the years 2025 to 2027:

• Until the end of 2026: Issue of an invoice as "other invoice"possible
• Until the end of 2027: Issue as "other invoice" possible if previous year's total turnover is EUR 800,000 or less
  • If the supply in question is carried out after 31 December 2026 and until the end of 2027
  • In the case of a VAT group: the criterion is the turnover of the VAT group
• By the end of 2027: Transmission by means of electronic data exchange with the consent of the recipient

 

This means that an invoice can generally still be issued in the ‘other invoice’ format until the end of 2026.

Until the end of 2027, businesses whose total turnover in the previous year was EUR800,000 or less can also issue an invoice in the "other invoice" format . If the recipient agrees, invoices can also be sent via electronic data interchange (EDI) until the end of 2027.

From 2028, e-invoices must be issued for all domestic B2B transactions described above.

Irrespective of the above transitional regulations, companies will be obliged to receive e-invoices from 1 January 2025. This also applies to companies that only sell to private customers or, as small businesses, issue invoices without VAT. The background to this is that suppliers of such companies should be enabled to issue e-invoices.

 

Transmission and storage of electronic invoices

The law does not contain any regulations on the type of transmission. However, the latest BMF circular sets out various options. For example, e-invoices can be transmitted by email, via an electronic interface or by accessing a central storage location or by downloading via the internet. In order to receive e-invoices, it is considered sufficient for the business to provide an e-mail inbox. This does not have to be a separate email inbox just for receiving invoices, but it is possible to use an existing email inbox. The transmission channel, as well as the specific format of the e-invoice, can be agreed between the contracting parties under civil law.

The structured part of an e-invoice must be stored in such a way that it is available in its original form and fulfils the requirements for immutability. Machine analysability by the tax authorities must be ensured.

 

E-invoice and input tax deduction

A proper invoice is required to exercise the input VAT deduction. If, despite the existing obligation to issue an e-invoice, only an invoice in the "other invoice" format is issued, this does not constitute a proper invoice. In principle, such an invoice does not authorise input VAT deduction. However, a correction by subsequently issuing an e-invoice is possible. The e-invoice must make a specific and clear reference to the original invoice to indicate that it is a corrected invoice.

If the invoice incorrectly issued in the ‘other invoice’ format is not corrected, the miscellaneous invoice can serve as objective proof of the input VAT deduction. In the most recently published circular, the BMF states that the material requirements for input VAT deduction can regularly be proven with the help of a substantively correct and complete inovice in the ‘other invoice’ format. Furthermore, the issue of such an invoice should not be detrimental in this context if the invoice recipient could assume that the invoice issuer was authorised to make use of the transitional provisions described above.

In order to avoid uncertainties in the area of input tax deduction, it is advisable for invoice recipients to agree on the delivery of an e-invoice.

DLA Piper's tax law team will be happy to answer any further questions you may have in this context.