What you need to know
The European Union has been working towards implementing obligatory e-invoicing regulations through its VAT in the Digital Age (VIDA) package. However, due to a lack of consensus among member states, the initiative has seen little progress. In a significant move, the German parliament approved a law in March 2024 that mandates the use of electronic invoices for businesses established in Germany. As the deadline approaches, it is crucial for businesses to understand the requirements and implications of this new legislation.
What is a German "E-Invoice"?
An electronic invoice, or e-invoice in Germany, is considered a document that is issued, transmitted, and received in a structured electronic format. This allows for the electronic processing of invoices, streamlining operations and enhancing accuracy and efficiency. The structured electronic format must comply with either the European standard for electronic invoicing, based on the CEN/TS 16931 data model, or it can be a format agreed upon bilaterally between the issuer and the recipient, provided it is interoperable and supports VAT compliance requirements as stated in Section 14 of the German VAT Act.
Several formats meet these requirements, including:
- X-Rechnung: A format established for invoicing in the public sector.
- ZUGFeRD-Rechnung: German abbreviation meaning "Central User Guide of the Forum Electronic Invoice Germany." It was designed to enhance consistency between different invoicing systems.
When is E-Invoicing Obligatory?
When there is a sale between two companies established in Germany.
For transactions that are taxable in Germany and not exempt under specific clauses in the German VAT Act.
There are exceptions to this rule:
Traditional invoices (such as those sent via email, Word, or PDF) can still be used if the supplier or recipient is not established in Germany, if the recipient is a private consumer (B2C), for small invoices not exceeding €250, or for specific passenger transport tickets.
Importantly, certain transactions, even if they do not involve VAT, such as small entrepreneur invoices, travel services, reverse charge transactions, and zero-rated supplies, do not qualify for exceptions.
Transitional Period
For the obligation to issue e-invoices, there is a general transitional period until the end of 2026. Businesses can continue to send traditional invoices through 2025 and 2026. Furthermore, companies with a total turnover not exceeding €800,000 in 2026 will have an extended transition period until the end of 2027.
Action Required in 2024
As businesses prepare for the mandatory e-invoicing requirements, several technical steps must be taken:
Timeline for Implementation
Businesses need to ensure that they are "ready to receive" e-invoices starting January 1, 2025. This means that they must provide an email address or another means for receiving e-invoices from their contractual counterparts. While recipients are not obligated to automatically process e-invoices in their bookkeeping systems, they must archive them in a manner that allows for presentation to tax authorities, particularly during audits.
Software Solutions:
Companies must invest in or upgrade to appropriate software solutions that can handle the creation, transmission, reception, validation, visualization, and automated processing of e-invoices.
Requirement for Receipt:
By January 1, 2025, companies must ensure they are capable of receiving e-invoices and have established proper archiving practices.
While there is no immediate need to transition to e-invoicing for issuing invoices until the end of 2026, businesses should proactively prepare for the receipt and storage of e-invoices to ensure compliance with the new legislation.
