VAT – compulsory e-invoicing is coming from 2025

Update: Federal Ministry of Finance Circular on e-invoices published

In its Circular of 15 October 2024 (file reference III C 2 - S 7287-a/23/10001 :007), the Federal Ministry of Finance has now provided some clarification on the scope of the invoicing for which an e-invoice will be compulsory. This includes a statement by the tax authorities on invoicing during the transition period, in which invoicing with other types of invoices will still be possible. It explains the proper way to send and store e-invoices. The Circular also includes helpful tips on particular issues, such as having to make corrections to invoicing or invoicing for down-payments and for final invoices extending beyond the payment dates. 

It is crucial that companies use the time till the end of the year to check their processes with regard to e-invoicing. If bookkeeping software has not yet been prepared to receive, read and store e-invoices, businesses can get by using third-party applications developed for this purpose. By the end of the transition period at the latest, the company’s own IT infrastructure and processes should be prepared in such a way that they can at least issue e-invoices for German transactions that are liable to tax under Section 4 nos. 8-28 of the VAT Act (Umsatzsteuergesetz – UStG). Otherwise the recipient will risk paying fines and losing input tax deductions. 

Details all about e-invoices to follow.

On 1 January 2025, e-invoicing in B2B will become compulsory. 

This change in the law with huge practical relevance, which comes as part of the Growth Opportunities Act (Wachstumschancengesetz), is based on the EU Commission’s ViDA Digitalisation Initiative, which is due to radically reform the VAT system in the EU in the next few years, such as by establishing a comprehensive intra-community digital reporting system. A necessary first step for this is the introduction of e-invoicing, which is now being implemented in all EU Member States.

E-invoicing

From 1 January 2025, only “structured” invoices will still count as “e-invoices”. These are those that can be processed automatically and digitally. This affects the XRechnung (based on XML), ZUGFeRD and other formats that are already widespread in Germany and that meet the European standards of the EU Directives (CEN 16931). From 2025, paper invoices and other digitally sent invoices (e.g. PDF documents) will no longer count as “e-invoices” and do not fulfil the above conditions.

Provisional scope

The duty to issue and send an e-invoice will apply to the following type of sales:

• sales from one business to another business (B2B),
• for which both the provider and the recipient of the service are resident in Germany, and
• where it is not an invoice for a small amount or for tickets for transport.

Introduction

Specifically, the following rules have been adopted that will come into force starting from 2025, with a transition period up to 2028:

• From 1 January 2025: All domestic entrepreneurs should be technically and organisationally able to receive and process e-invoices.
• From 1 January 2025 to 31 December 2026: In the tax period 2025/26, outgoing invoices may still be issued as before (e.g. on paper, as a PDF) or as a qualified e-invoice. The parties should clarify whether the recipient is already able to receive and process e-invoices. Otherwise other formats should be used.
• From 1 January 2027 to 31 December 2027: In the tax period 2027, outgoing invoices may still be issued on paper or as a PDF if the provider’s sales did not exceed 800,000 Euros in the previous year.
• From 1 January 2028: Obligation to issue and send e-invoices for all B2B transactions between domestic entrepreneurs.

Technical implementation

Processing and sending qualified e-invoices should be technically implemented in close cooperation with the provider of the bookkeeping software or ERP software the business uses. The conditions for receiving XML invoices (or ZUGFeRD) must be met (if not already in place). Cooperation with the tax department and IT within the business will be particularly important in order to set up the necessary processes and responsibilities. 

Our experts are happy to render competent assistance in implementing the the new invoicing rules. If you would like assistance, just contact us!

Flyer: The introduction of e-invoicing in Germany