Regulatory updates - Germany

After the amendments published in the Fourth Bureaucracy Reduction Act (Viertes Bürokratieentlastungsgesetz) gazetted on October 29, 2024, and the approval of the Annual Tax Act 2024 (Jahressteuergesetz 2024) on November 22, 2024, there will be several important updates, as of January 1, 2025.

Some of the most essential changes, among others, are listed below.

Retention times

Starting 1 January 2025, the required archiving retention time for invoices will decrease from ten to eight years, while the retention period for other documents, such as commercial books, inventories, and annual financial statements, will remain ten years.

This new regulation applies to invoices whose retention period has not expired by 31 December 2024 under the amendments in the Fourth Bureaucracy Reduction Act.

Updates for small businesses

Businesses under the Small business scheme (Kleinunternehmerregelung) are exempt from VAT. The new threshold to be eligible as a VAT-exempt small business is increased from a total annual turnover of no more than 22,000 EUR to 25,000 EUR for the previous fiscal year and from 50,000 EUR to 100,000 EUR for the current fiscal year. The changes follow the adoption of the Annual Tax Act and harmonization with EU legislation.

Small businesses below the threshold will also be excluded from the requirements to issue EN-compliant e-invoices. They can continue issuing other invoices, e.g., pdf via email or even paper. It’s important to note that these businesses remain in scope to receive EN-compliant e-invoices.

Earlier this year, the German Ministry of Finance (BMF) released a draft version of a letter detailing regulatory guidance on the upcoming e-invoicing mandate. The purpose of the early release was to increase public awareness about the mandate and offer guidance to taxpayers on what would be expected of them.

On 15 October 2024, the BMF officially published the final version of the letter. The content remains mostly the same as the draft version, with some rewordings, paragraph changes, and additional clarifications.

Some of the changes include:

• The new version of the letter clarifies that the storage of the image part of a hybrid invoice in its original form is mandatory if it contains relevant records for taxation, e.g., booking notes;
• The previous draft mentioned that providing an e-mail address was sufficient to comply with the requirement to receive e-invoices from 1 January 2025. The final version clarifies that it is not mandatory to have a separate electronic mailbox for receiving e-invoices;
• The electronic invoice format Peppol BIS is now mentioned as an example of other permittable European invoice formats, replacing the Italian format FatturaPA in the letter.

On 18 September 2024, ZUGFeRD version 2.3 was released. The ZUGFeRD format is a hybrid e-invoice format developed by FeRD (the German Electronic Invoice Forum) with FNFE-MPE's (the French Electronic Invoice Forum) cooperation.

The release of version 2.3 enables interoperability with the French B2B e-invoicing mandate by adding elements to the EXTENDED profile.

It is important that users of ZUGFeRD EXTENDED update to the new version, as rounding inaccuracies are now permitted, which has not been allowed in previous versions.

The new ZUGFeRD version can be downloaded here.

According to the announcement from the German Ministry of Finance (BMF), businesses must report cash register systems, including their TSEs, to the authorities beginning July 2025.

The implementation timelines are as follows:

• Electronic cash register systems acquired before 1 July 2025 must be reported to the tax authorities by 31 July 2025, and
• Systems purchased after 1 July 2025 must be reported within one month of purchase.

The option for businesses to register their cash register system via the My ELSTER platform and the ERiC interface from January 2025.

With six months to go, there are still many questions on the practicalities of the mandate. To prepare the taxpayers' readiness and increase public awareness, the German Ministry of Finance (BMF) published a regulatory draft letter on 13 June 2024.

In the letter, the BMF goes through the regulatory changes introduced by the Growth Opportunities Act (Wachstumschancengesetz) and offers more practical guidance on what this means for businesses in Germany.

The draft letter contains guidance on the following topics:

• Regulations introduced by the Growth Opportunities Act
• Invoice formats (electronic/hybrid/other)
• Issuance/reception of e-invoices
• Storage of e-invoices
• Input VAT deductions
• Transitional provisions

Some main takeaways from the draft letter concern what is expected of German businesses with the introduction of the mandate. The German mandate starts 1 January 2025 with a requirement on having the capabilities of receiving e-invoices that are compliant or interoperable with EN 16931, while the requirement of mandatory issuance will introduced in phases during 2027/2028. The letter states that initially, it will be sufficient to just provide an e-mail address to meet the requirement of receiving capabilities. Parties may outside of that decide other methods of distributing the e-invoice.

BMF also gives some additional clarifications on what counts as a compliant distribution of an e-invoice under the mandate. The e-invoice must be distributed electronically (e.g. e-mail/electronic interface/downloadable), meaning you may not put the e-invoice on a USB stick and send it by carrier pigeon, as was previously theorized to be a compliant solution under the current legislation.

There is also some information on cases where the customer refuses to accept an e-invoice or lacks the capability to receive an e-invoice. The draft letter states that in such cases the customer has no right to an alternative invoice and the supplier's VAT obligations are considered fulfilled. This does however open the question if the initial carrots and sticks of the German mandate will be sufficient to drive change.

The draft letter is expected to be published in its final state in the fourth quarter of 2024.

Stay tuned with Pagero for the latest e-invoicing news in Germany.

Today, the Bundesrat, Germany`s legislative body representing the Federal States, approved the Growth Opportunities Act (Wachstumschancengesetz) mandating B2B e-invoicing.

The German Parliament (Bundestag) had already voted in favour of the changes in the Act as suggested by the German Mediation Committee on 23 February. Therefore, the Growth Opportunities Act has now been passed, and e-invoicing in the business sector will become obligatory in Germany as of 1 January 2025.

The mandatory use of electronic invoices will be a prerequisite for the obligation to report transaction-related data of B2B sales to a standardized national electronic administrative system (reporting system) at a later date.

Below are the implementation timelines.

1 January 2025 - EN-compliant e-invoice becomes the default in Germany.

• Businesses must be prepared to receive structured electronic invoices compliant with EN 16931 standards;
• The supplier is still allowed to issue (1) paper invoices. For (2) invoices in unstructured formats (e.g. PDF) and (3) non-EN-compliant EDI invoices, buyer's consent is necessary. However, all of these alternative formats are subject to gradual phasing out (as listed below).

1 January 2027 - Phase 1 of a gradual phasing out of non-EN-compliant invoices

• Businesses with turnover > EUR 800 000 in the previous year are no longer allowed to issue invoices (1) on paper or (2) in unstructured electronic formats. Not even with the buyer’s consent.

1 January 2028 - Phase 2 in gradual phasing out of non-EN-compliant invoices

• All remaining businesses can no longer issue invoices (1) on paper or (2) in unstructured electronic formats. Not even with the buyer’s consent;
• EDI e-invoices not compliant with EN16931 will no longer be allowed.

In Germany, the implementation of mandatory B2B e-invoicing legislation has been included in the Growth Opportunities Act (Wachstumschancengesetz). This law was initially passed in the German Parliament (Bundestag) on 17 November 2023. The second legislative body representing the Federal States (Bundesrat) did not pass the law and instead appealed to the German Mediation Committee, which mediates between the two governing bodies.  

The Bundestag has now accepted the committees’ suggestions which come with no essential changes to the already proposed timeline of the mandatory B2B e-invoicing implementation in Germany.

Below are the implementation timelines.

1 January 2025: EN-compliant e-invoice becomes the default (but not yet mandated) in Germany.

• Businesses must be prepared to receive structured electronic invoices compliant with EN 16931 standards;
• The supplier is still allowed to issue (1) paper invoices, (2) invoices in unstructured formats (e.g. PDF), and (3) non-EN-compliant EDI invoices with the buyer's consent. These are, however, subject to gradual phasing out (as listed below).

1 January 2027: Phase 1 in gradual phasing out of non-EN-compliant invoices

• Businesses with turnover > EUR 800 000 in the previous year are no longer allowed to issue invoices (1) on paper or (2) in unstructured electronic formats. Not even with the buyer’s consent.

1 January 2028: Phase 2 in gradual phasing out of non-EN-compliant invoices

• All remaining businesses can no longer issue invoices (1) on paper or (2) in unstructured electronic formats. Not even with the buyer’s consent.

The Bundesrat will now vote on the act once more during the meeting scheduled for 22 March 2024. While uncertainty remains regarding the votes on the Growth Opportunities Act, e-invoicing legislation is still likely to come, as it is expected to generate significant tax revenue, close tax gaps, and bolster automation countrywide.

Germany has for a long time been the subject of speculation on the topic of how they will implement mandatory B2B e-invoicing. With the cabinet version of the draft legislation being published on 29 August 2023 and with the Federal Ministry of Finance giving guidance on the topic during the Exchange Summit in Dublin from 2-4 October 2023, we now have a better understanding of what lies in store.

Unlike some of its neighbors, Germany has not yet decided on what type of CTC model it wishes to implement for Digital Reporting Requirements (DRR) but is currently awaiting more clarity from the VAT in the Digital Age (ViDA) proposal. Instead, the German mandate is initially going to focus on changing the e-invoicing landscape by regulating the allowed e-invoice formats on the market as well as the rules regarding buyer’s consent to receive e-invoices.

Timeline

From 1 January 2025: EN-compliant e-invoice becomes the default (but not yet mandated) in Germany

• All businesses are required to accept an e-invoice compliant with the EN16931 (e.g. XRechnung); in other words, a supplier may issue an EN-compliant e-invoice (incl. EN-compliant EDI) and send it to any buyer without asking for their prior consent.
  • The supplier is still allowed to issue (1) paper invoices, (2) invoices in unstructured formats (e.g. PDF), and (3) non-EN-compliant EDI invoices. These are, however, subject to gradual phasing out (see below).
  • The use (issuance and exchange) of invoices in unstructured formats and non-EN-compliant EDI e-invoices is allowed only subject to buyer’s prior consent.

From 1 January 2026: Phase 1 in gradual phasing out of non-EN-compliant invoices

• Businesses with turnover >800T€ in the previous year are no longer allowed to issue invoices (1) on paper or (2) in unstructured electronic formats. Not even with buyer’s consent.

From 1 January 2027: Phase 2 in gradual phasing out of non-EN-compliant invoices

• All remaining businesses are no longer allowed to issue invoices (1) on paper or (2) in unstructured electronic formats. Not even with buyer’s consent.

From 1 January 2028: Phase 3 in gradual phasing out of non-EN-compliant invoices

• Only e-invoices compliant with EN16931 are allowed to be issued, exchanged and received. Meaning that (3) EDI e-invoices not compliant with EN16931 will no longer be allowed, not even with buyer’s consent.

Additional comments from Pagero

The Federal Ministry of Finance has flagged that the gradual phasing out might get extended, depending on the developments and feedback from the market.

At the moment, the German regulator has left open the question about the transportation or exchange mechanism for e-invoices. Meaning that in theory, even e-mail can be used for this (however, insecure and manual this option is). At the same time, as we see that the Peppol Network is gaining momentum in Germany on both B2G and B2B sides, our recommendation to businesses would be to consider Peppol Network as the e-invoice issuance, exchange and reception framework for their operations in Germany.

On 10 November 2022, Germany sent a formal request to the Commission, which if approved would allow Germany to implement e-invoicing in the private sector. After careful evaluation, the Council of the European Union announced its decision to allow Germany to derogate from articles 218 and 232 of Directive 2006/112/EC.

Starting 1 January 2025, this mandate would affect established taxpayers with fixed establishments in Germany operating and transacting in the B2B sector. With these new regulations, taxpayers would be responsible for both the issuance and reception of electronic invoices for domestic transactions.

Germany would promote electronic invoices as the standard as far as invoicing would be concerned in the jurisdiction, but still allowing for “other EDI invoices” to be shared with the consent of buyers. By 1 January 2028, however, Germany’s intention is to require that EN-compliant electronic invoices be issued and received exclusively.

The steps Germany is taking towards automation in the space of invoicing points in the direction of future conformance with the ViDA initiative.

More details can be found in Pagero's publication on 27 July 2023 and the Council Implementing Decision (EU) 2023/1551 released by the Official Journal of the European Union on 25 July 2023.

As the market is expecting the most recent draft legislation on mandatory e-invoicing to be presented for the German Parliament during August-September 2023, let's review the key highlights of the proposal.

Timelines e-Invoice introduction

• Starting 1 January 2026, EN-compliant e-invoices become the default, or primary type, of e-invoice in Germany
  • EDI-invoices will be allowed exclusively upon buyer’s consent
• Starting 1 January 2028, only EN-invoices will be allowed
  • Meaning that EDI-invoices will no longer be allowed even with buyer’s consent
• These timelines will be applicable to all affected businesses, meaning the draft legislation does not provision for a phased introduction

Scope of affected taxpayers

• All businesses established, inc. fixed establishments, in Germany and required to issue invoice for their sales

Types of invoices

• The draft legislation applies to issuance and exchange of domestic complete invoices
• Meaning that both cross-border, incl. intra-Community, and simplified invoices (<250EUR) are excluded from the scope of this legislation

e-Invoice transmission

• Not regulated, meaning that even e-mail exchange should be allowed

e-Invoice Integrity & Authenticity:

has been confirmed unchanged, meaning that the businesses can still chose among 3 options:

• Business controls
• EDI, or
• E-Signature

Digital Reporting Requirement (DRR)

• The presented draft legislation is silent on DRR, however, it is expected that Germany will largely follow what will be set under the ViDA framework