Germany's transition to electronic invoicing: Anticipated developments in 2025 and beyond
Germany's planned implementation of a mandatory e-invoice system will commence in stages, with Phase One commencing on January 1, 2025. During this initial phase, businesses engaging in domestic B2B transactions must be able to receive e-invoices that conform to the EU e-invoicing standard EN 16931. While this may seem straightforward, it's essential to appreciate the intricacies involved. Germany's e-invoicing strategy differs considerably from existing mandates in other EU countries, such as Romania and Italy, as well as from those planned in neighboring nations like France and Poland (scheduled for 2026).
Several less known aspects of Germany's e-invoicing mandate often perplex businesses, including:
- An EN 16931-compliant invoice might still not satisfy German VAT regulations.
- Small businesses exempt from VAT are also subject to the e-invoicing mandate, even with their tax-exempt status.
- A simple email address suffices to meet the obligation of receiving structured e-invoices; specialized software isn't required.
- Despite an agreement with your supplier to use XML invoices, you might still receive a PDF document.
These discrepancies emphasize the importance of comprehending the precise requirements of Germany's e-invoicing mandate and preparing accordingly to ensure compliance. This article delves into the intricacies of Germany's e-invoicing regulations.
Scope of Germany's e-invoicing mandate
The e-invoicing mandate in Germany applies to invoices for taxable supplies of goods and services presented by a German business to another German business. The mandate does not encompass transactions involving tax-exempt supplies (financial services, healthcare, education, social services), invoices for sums below €250, or tickets.
An e-invoice is also necessary for the dispatch of goods outside the EU or to another EU Member State, provided the recipient is a German business. The obligation to issue e-invoices applies even to businesses eligible for the small business exemption (Kleinunternehmerregelung). Despite being exempt from collecting VAT and filing monthly or quarterly VAT returns, these businesses must still adhere to the e-invoicing mandate for relevant transactions.
Businesses based outside Germany are subject to the e-invoicing mandate if they have a permanent establishment in Germany participating in the transaction. A permanent establishment is characterized as a fixed place of business, other than the main place of business, equipped with the necessary human and technical resources to conduct business on a continuous basis. Examples of a permanent establishment include warehouses for storing and distributing goods, reinforced by local personnel, or branch offices performing operational functions and equipped with employees and resources to provide services locally.
E-invoice formats
In 2025 and 2026, German businesses will be authorized to issue invoices in one of three formats:
- Paper format.
- Structured electronic format adhering to or interoperable with the EN 16931 standard.
- Alternative electronic formats, primarily including graphic formats such as JPG, PDF, or TIFF, as well as structured data formats not meeting the EU e-invoicing standard or not interoperable with it. Nonetheless, the application of these alternative formats is contingent upon the recipient's consent.
The recipient's consent for using alternative formats does not need a specific form and can even be granted retroactively. Consent is deemed valid if both parties tacitly approve the invoicing method by consistently employing it in practice. For example, settling an invoice issued in an alternative electronic format can be considered implicit approval of the use of that format.
The Finance Ministry emphasizes that the selection of format is a civil matter and must be agreed upon by the contracting parties. Merely agreeing that an invoice must be EN 16931-compliant is not sufficient, as structured electronic invoices compatible with EN 16931 can exist in various formats. The most commonly used EN 16931-compatible e-invoice formats in Germany include ZUGFeRD and XRechnung. However, the range of EN 16931-compatible electronic invoices under the German e-invoicing mandate is not limited to formats utilized in Germany. It also permits the utilization of foreign e-invoicing formats, such as the French Factur-X and Peppol-BIS Billing.
XRechnung is an XML-exclusive invoice format cultivated by the German Coordination Office for IT Standards. It was specifically designed for transactions involving German public authorities and government agencies. XRechnung invoices can utilize one of two XML syntaxes: Universal Business Language (UBL) or UN/CEFACT Cross Industry Invoice (CII). Parties who opt to employ XRechnung should specify which XML syntax they will employ.
ZUGFeRD is a hybrid invoicing format that combines a human-readable PDF/A-3 document with an embedded XML file. Developed by the German Forum for Electronic Invoicing, ZUGFeRD allows businesses to transmit invoices that are visually readable and effortlessly processed by software systems. This is particularly beneficial for businesses progressing from paper-based invoicing to entirely digital processes, supporting both automated invoice processing and easy manual verification.
It's worth mentioning that adhering to the EN 16931 standard doesn't guarantee compliance with German VAT laws. Under EN 16931, there's only a compulsory country code for both the seller and buyer's addresses, with the city and postal code being optional. This setup contrasts with German VAT laws, which prefer a more extensive address specification.
E-invoice transmission
Germany doesn't impose a particular method for e-invoice transmission, allowing parties to select the most suitable option. Acceptable transmission methods include email, electronic interfaces, shared drives, and download portals.
The Finance Ministry has emphatically stated that meeting the requirement for electronic invoice reception can be fulfilled using an email inbox; a dedicated one isn't necessarily required. Although an email inbox might seem like an easy solution for fulfilling the e-invoicing requirement, it has its limitations. Emails are susceptible to phishing, spam, and other security vulnerabilities.
Currently, Germany doesn't mandate the direct reporting of invoice data to the tax authorities. However, such a reporting obligation is anticipated to emerge in the future. The German Finance Ministry's communique suggests that the possible and legally permissible transmission channels will be reevaluated within the framework of the future reporting system. This implies that the current flexibility in transmission methods for domestic invoices may be limited with the introduction of a national invoice reporting system.
Outlook
A comprehensive countrywide shift to electronic invoicing will commence in 2027, with companies exceeding €800,000 in annual turnover in the previous year required to issue electronic invoices. From 2028 onwards, all German businesses will be obligated to issue electronic invoices. This schedule might offer an advantage to companies that haven't yet adapted their processes to meet e-invoicing requirements. Since the European Committee for Standardization plans to launch a revised version of the EN 16931 standard in the first half of 2025, focusing on invoicing in the B2B sector, it might be prudent for companies to delay e-invoicing system implementation until this update is released.
The viewpoints expressed in this article are those of the author and may not reflect the perspectives of any organizations with which the author is affiliated.
- Under the German e-invoicing mandate, even businesses exempt from VAT due to their small size (Kleinunternehmerregelung) are required to comply with the e-invoicing regulations for relevant transactions, using a simple email address to receive structured e-invoices in formats such as XRechnung or ZUGFeRD.
- Although the European Union e-invoicing standard EN 16931 requires a country code for both seller and buyer's addresses, the more extensive address specification preferred by German VAT laws might not be satisfied with this setup, necessitating further consideration to guarantee compliance.
- In preparation for the future reporting obligation of invoice data to the tax authorities in Germany, businesses should stay informed about the possible transmission channels reevaluation within the framework of the upcoming national invoice reporting system, potentially limiting the current flexibility in transmission methods for domestic invoices.
