By Paper invoice
The global trend to implement mandatory e-invoicing is gaining momentum as governments around the world recognize the transformative potential of digitalization in modernizing tax administration processes. With the growing emphasis on transparency and compliance, mandatory e-invoicing regulations are being introduced to standardize invoicing practices and combat tax evasion.
Germany is actively embracing this global trend. A commitment to make e-invoicing mandatory was initially outlined in the coalition agreement of the current federal government in 2021. Subsequently, on July 25, 2023, Germany received authorization from the EU Council to introduce regulations making the use of electronic invoices obligatory. In October 2023, the federal government proposed the Growth Opportunities Act (Wachstumschancengesetz), aimed at fostering business growth, simplifying taxes, and ensuring tax fairness. This act mandates the implementation of e-invoicing for domestic business-to-business (B2B) sales. The Bundestag, lower chamber of parliament, approved the Act on February 23, 2024, and one month later, the Bundesrat, Germany’s upper chamber of parliament representing the federal states, finalized the parliamentary process. In summary, the new law mandates the issuance of electronic invoices in domestic B2B sales, commencing in January 2027 for companies with a turnover exceeding €800,000, and in January 2028 for companies with turnovers below €800,000. However, all companies must be capable of receiving electronic invoices from January 2025. The German government’s strategy aligns with the EU proposal VAT in the Digital Age (ViDA) as they intend to adopt the European e-invoicing standard EN 16931. However, the new law does not include an obligation to report data to the tax administration.
Current invoicing rules in Germany
Businesses operating in Germany must issue invoices when supplying goods or services to other businesses. However, invoices are not required for the supply of certain exempt services, such as financial and insurance transactions or educational services. Even small businesses (Kleinunternehmer) must issue invoices, although they are not permitted to display or charge VAT. While there is no general obligation to issue invoices to non-business customers, German businesses must provide invoices for goods sold to private individuals in other EU countries if they are not using the Union One Stop Shop (OSS) scheme. The OSS scheme enables businesses to register in one EU member state for all intra-EU sales of goods and services to consumers in other EU countries.
Invoices can be issued electronically, provided that their origin authenticity, content integrity, and legibility are ensured. At present, electronic invoicing is compulsory solely for public contracts. For any other transactions, electronic invoicing is subject to acceptance by the recipient. The current definition of electronic invoices is broad and encompasses unstructured formats like PDF files.
For domestic sales in Germany, businesses are obligated to issue invoices within six months of supplying goods or services to other businesses. For supplies of goods or services to a business in another EU country, invoices must be issued within 15 days of the end of the month in which the supply was made.
German VAT law outlines detailed content requirements for invoices, including seller and buyer information, a unique and sequential invoice number, VAT rate, taxable amount, split according to applicable VAT rates, and total VAT amount payable. Less stringent requirements apply to simplified invoices, which can be issued if the total amount (including VAT) does not exceed €250.
While it’s not mandatory to include a payment due date or bank account details on invoices, it’s a good practice to do so. If no due date is specified, customers must pay within 30 days of the invoice issue date. There is no legal obligation to issue invoices in German, and customers cannot demand invoices in German. However, if invoices are issued in a foreign language, tax authorities may request a translation during a tax audit. In most cases, auditors accept invoices in English.
New e-invoicing mandate
The Growth Opportunities Act doesn’t alter who must issue invoices or when invoices should be issued. It also doesn’t alter the requirements for what information needs to be included in invoices. Instead, it focuses on the format of the invoice. The Act distinguishes between electronic invoices and “other invoices,” with compliance with the EU standard EN 16931 being the main distinguishing factor. This standard was developed and published by the European Committee for Standardization at the request of the European Commission. It consists of a semantic data model and two mandatory syntaxes: UBL (Universal Business Language) and CII (Cross-Industry Invoice).
According to the Growth Opportunities Act, an electronic invoice is one issued either in a structured electronic format according to EN 19631 or in a format agreed upon between the invoice issuer and recipient, as long as it allows for the correct and complete extraction of the required information in accordance with EN 19631 or is interoperable with it. This flexibility ensures that businesses transmitting invoices using electronic data interchange (EDI) procedures can continue doing so. Electronic invoices will become the default invoicing method in Germany from January 1, 2025.
“Other invoices” refer to those transmitted in a different electronic format or on paper. From 2025 onwards, consent from the recipient will be required for the electronic transmission of other invoices. No consent will be needed for paper invoices. The use of “other invoices” will gradually be phased out until 2028.
The e-invoicing obligation will apply to domestic B2B supplies. This means that a business resident in Germany must issue electronic invoices for supplies taxable in Germany if the invoice recipient is also based in Germany. A business is considered resident in Germany if it has its registered office, place of management, domicile, habitual residence or a fixed establishment that is involved in the relevant transaction in Germany. There will be no obligation to issue electronic invoices for business-to-consumer (B2C) sales, certain exempt B2B sales where invoices are generally not required, transactions with amounts below €250 and tickets. Non-resident businesses with VAT registrations in Germany will not be affected by the new rules. The obligation to issue electronic invoices generally will not apply to intra-EU supplies, as these will be covered by the digital reporting and invoicing obligations outlined in the ViDA project.
Implementation timeline
An e-invoicing obligation will roll out gradually from 2025 to 2028. Starting January 1, 2025, businesses involved in domestic B2B transactions must be equipped to receive structured electronic invoices adhering to the EN 16931 standard. The Federal Finance Ministry has confirmed that commonly used e-invoicing formats in Germany, like ZUGFeRD and XRechnung, meet the criteria for compliant structured invoices. ZUGFeRD, standing for “Central User Guide of the Forum for Electronic Invoices Germany” (Zentraler User Guide des Forums elektronische Rechnung Deutschland) is a hybrid format that pairs a human-readable PDF with XML-embedded structured data, ensuring both human and machine readability. ZUGFeRD follows the CII syntax. In contrast, X-Rechnung is an XML data format available in both CII and UBL syntaxes.
As of January 1, 2025, all businesses must be capable of receiving invoices in the ZUGFeRD and X-Rechnung formats. However, the obligation to issue electronic invoices will not come into effect until 2027. During 2025 and 2026, businesses may choose to issue paper invoices or invoices in other electronic formats, but transmitting the latter will necessitate the recipient’s consent. Therefore, businesses reluctant to adopt e-invoicing must establish a process for securing buyer consent. In 2027, businesses with a turnover exceeding €800,000 in the previous year must issue electronic invoices. However, those surpassing this limit can still use EDI procedures, even if they can’t fully comply with EN 19631 standards, as long as the recipient agrees. Then, from 2028, all businesses will need to issue electronic invoices.
Concluding remarks
The move to make e-invoicing mandatory in Germany reflects a global trend towards digitalizing tax processes and tax administration systems. While Germany is embracing this trend, it’s doing so in its own unique manner. Unlike certain other European countries, such as Poland or Italy, Germany isn’t specifying exactly how invoices should be exchanged and reported (this means that, in theory, businesses could even resort to using email for sending electronic invoices, though this isn’t the most secure or efficient option). Instead, German regulations focus solely on the formats allowed for electronic invoices and the conditions for issuing and receiving them. The obligation to transmit invoice data to tax authorities will be introduced later, after the mandatory e-invoicing is in place. This phased approach aims to make the transition smoother and ensure that businesses can adapt and comply with the new rules more easily.
The opinions expressed in this article are those of the author and do not necessarily reflect the views of any organizations with which the author is affiliated.
