Germany's e-Invoicing Evolution: Latest Updates & Insights

The electronic invoice (e-invoice) is coming to Germany - albeit in a different way than many people, myself included, had hoped it would. It is, as most things in Germany are these days, rather complicated. But the good news, however, is that you can get started with these requirements today! There is no need to wait and the sooner your project commences, the better it is for your company.

Background on the situation

Under the ViDA initiative by the EU Commission, the introduction of an electronic reporting system is aiming to replace existing Recapitulative Statements (Zusammenfassende Meldung). Initially scheduled for implementation in 2028, discussions are underway to potentially postpone it to 2030 or 2032. As part of preparation, a modified definition of "Electronic Invoice" (Art. 217 VAT Directive) is being considered. Since mid-April 2023, a discussion draft on mandatory electronic invoicing has circulated in Germany, eventually included in the draft bill of the Growth Opportunities Act (Wachstumschancengesetz). The Federal Council approved the mediation result on March 22, 2024, enabling the implementation of e-invoicing obligation. Approval by the EU Council was granted on July 25, 2023. The Federal Ministry of Finance (BMF) had already addressed some questions related to the planned introduction of mandatory electronic invoicing in a letter to the respective associations (Verbände) on October 2, 2023. However, this letter represents only a first step.

The tax authorities (BMF and highest tax authorities of the 16 federal states) intend to continue supporting the introduction of mandatory e-invoicing and to clarify application and questions as soon as possible.

What changes in Germany?

Last year, the German Bundestag passed the Growth Opportunities Act, with subsequent interpretations culminating in its approval by the Federal Council. Regarding electronic invoicing regulations, it remains consistent with the version initially adopted by the Bundestag. New definitions will require businesses to adapt, notably distinguishing e-invoices from other formats starting January 1, 2025. An e-invoice is defined as one issued, transmitted, and received in a structured electronic format, complying with European standards. However, agreed alternative formats must allow extraction of required information per UStG. While non-compliant formats like EDI procedures remain permissible, the structured electronic part should prevail. Paper invoices and other electronic formats are categorized as "other invoices".

This is the end of digital paper! As of 2025, a PDF invoice sent by email will no longer be considered an electronic invoice! The new definitions already apply from January 1, 2025, even though the obligation to issue electronic invoices de facto only takes effect later.

Obligation to issue electronic invoices

Businesses are generally allowed to issue an invoice when they provide goods or other services. If they provide this service to another business (B2B), they are obligated to issue an invoice if the turnover is not exempt from tax according to § 4 No. 8 – 29 UStG. Businesses currently have 6 months (from the delivery of the service) to issue the invoice. These basic regulations remain unchanged within the framework of the Growth Opportunities Act, even though the wording of the law is being adjusted. What is new, however, is the obligation to issue electronic invoices (§ 14 para. 2 sentence 2 no. 1 UStG new version). Surely, the obligation to issue invoices faster upon shipment of goods or rendering of services will change with the arrival of real-time reporting obligations later on.

Who is affected by the new obligations?

The obligation applies to B2B transactions between businesses residing in Germany, where both the supplier and the recipient of the service must be residents of Germany. Residency in Germany requires a registered office, place of management, or establishment in Germany. If there is no registered office, a residence or habitual residence in Germany is also sufficient. Therefore, a VAT registration in Germany without simultaneous residency would not trigger an obligation to issue electronic invoices. This is an important aspect to be double checked with your official tax advisor.

In the wider context, businesses should not rely on such niche scenarios. Considering the spreading of e-invoicing obligations globally, it is prudent not to prolong or delay the implementation of such obligations, as loopholes will inevitably be closed.

When does the obligation to issue e-invoices apply?

The requirement for electronic invoices begins on January 1, 2025. However, there are transition periods until 2027, allowing some flexibility. Until 2026, businesses can still use paper invoices for B2B transactions. Even electronic invoices that don't meet the new standards are acceptable during this time, but only with the recipient's consent. In 2027, paper invoices are still allowed for B2B sales, and non-compliant electronic invoices are permissible with both recipient consent and a turnover limit for the issuer.

From 2028 onwards, strict adherence to e-invoice requirements is necessary. This sets the stage for future reporting systems. The use of EDI (Electronic Data Interchange) is permitted if it aligns with European standards. For example, the German Chamber of Commerce feared far-reaching consequences for companies if e-invoicing systems that do not fully meet the new requirements were no longer allowed to be operated. With the adopted regulation, the demands of the economy have been met. However, it cannot be ruled out that technical adjustments may be necessary with a view to the later introduction of a transaction-based reporting system.

What about invoice recipients?

The new e-invoicing obligation generally applies from January 1, 2025. If a domestic company, as the invoice issuer, does not want to make use of the above transitional provisions, domestic entrepreneurial invoice recipients must already be able to receive and process electronic invoices according to the new requirements from January 1, 2025. Consent is no longer needed for compliant electronic invoices, except in specific cases. Which means that if a supplier wants to send the XRechnung from January 1, then receivers need to be able to process those.

Like other foreign tax administrations, the BMF intends to assist companies by offering a free solution for creating and visualizing electronic invoices. This solution is currently under examination and may potentially be accessible to all companies before January 1, 2025. Such an initiative could be especially beneficial for companies that do not use e-invoicing-capable software.

The new legal regulation does not contain any specifications regarding the transmission method of electronic invoices.

Self-billing? Still possible!

Self-billing (i.e., invoicing by the service recipient) will continue to be permissible, provided that this has been agreed upon beforehand (as before). Invoicing by third parties on behalf and for the account of the supplier is also still possible.

Are there exceptions? Of course.

Not every invoice must be electronic. Small invoices and certain documents can still be transmitted as ”other invoices”, allowing other formats such as paper.

Additional developments on the horizon

The Bundesrat has advocated for a postponement of the implementation date for the introduction of mandatory electronic invoicing by two years. The receipt of electronic invoices should only be mandatory from January 1, 2027. Doubts were expressed in the committee discussions as to whether the necessary technical and organizational measures could be implemented by the affected companies in time. However, the Growth Opportunities Act in its final version, which the Bundesrat also approved on March 22, 2024, does not include an adjustment of the above transitional provisions.

On the European level, there is also discussion about a postponement of the ViDA measures. According to reports, the introduction of a mandatory e-invoicing obligation originally scheduled for 2028 could be delayed by 2 - 4 years.

Embracing the future of e-invoicing

All in all, it remains an interesting field of study, as governments often delay important decisions. Despite potential postponements and ongoing discussions, e-invoicing is inevitable. The transition entails significant time and resources, emphasizing the importance of proactive project planning.

At Basware, we remain vigilant, keeping our customers informed of critical changes through our platform to ensure stable business operations. With our 40+ years of experience in electronic invoice compliance, you as our customer will be ready, prepared and always up to date.

Ready to take your business to the next level of e-invoicing compliance? Check out our Germany country page on our Global compliance map to stay ahead of the curve! And remember, we're here to discuss how Basware can empower your journey. Reach out to us today!

Disclaimer:

The information provided in this article is sourced from publicly available materials and is not intended as legal or tax advice. It serves purely informational purposes and should be treated as such. Businesses should consult with their official tax advisors to fully understand the implications of the described decisions and information on their operations as taxpayers.