New e-invoicing requirements are on their way

Worth the wait ... The Growth Opportunities Act passes

Finally, the Growth Opportunities Act passed on March 27, 2024. It has lead to a significant change to the German Value Added Tax Act (UStG), listed in Article 23, pertaining to electronic invoicing (e-invoicing) for services between companies (B2B). An overview of this can be seen in blog posts of April 20, 2023 and July 21, 2023.

All businesses will be required to use e-invoicing for B2B transactions and must comply with the EN16931 European standard. It means an invoice will have to be transmitted and received in a structured electronic format, enabling electronic processing.

The European standard is a semantic (abstract) data model listing the essential elements that an e-invoice needs to have to be legally and tax compliant A semantic data model is technology neutral. It describes the meaning and structure of the information that an e-invoice has to contain. The wording of e-invoices must correspond to predefined XML outlines. The European standard currently specifies UBL and UN/CEFACT CII. An e-invoice can therefore no longer be read without technical support.

Important dates and transition periods

Although the regulation will officially come into force on January 1, 2025, special transitional periods will be granted to ease the change.

These will be staggered: 

1. Until December 31, 2026, an invoice for a transaction carried out after December 31, 2024 and before January 1, 2027 may be sent on paper or – subject to the recipient’s consent – in an electronic format that does not comply with the European standard.

2. Until December 31, 2027, an invoice can be sent on paper or – again subject to the recipient's consent – in an electronic format that does not comply with the European standard for a transaction carried out after December 31, 2026 and before January 1, 2028, provided that the total turnover of the trader issuing the invoice did not exceed EUR 800,000 in the previous year.

3. Until December 31, 2027, an invoice may be issued in an electronic format that does not comply with the European standard for a transaction carried out after December 31, 2025 and before January 1, 2028, subject to the recipient's consent, provided that it is transmitted via the Electronic Data Interchange (EDI) channel.

Using the transitional periods to clarify relevant practical issues

The transitional periods should be used to address important practical issues. These are divided into:

Incoming invoice processing

• How can e-invoices be received and processed in an EN16931 format?
• What procedural and technical adjustments are required for input tax deduction in particular?

Outgoing invoice processing

• Which ‘new’ invoicing standard can also be used for cross-border transactions?
• What can a roadmap for procedural and technical adjustments look like in order to be legally compliant?
• Can an e-invoice be generated directly from the current ERP system?

Tax audits

Which e-invoicing provider fulfils the German Principles for the Proper Management and Storage of Books, Records and Documents in Electronic Form and Data Access (“GoBD”)?

Legal challenges

Just like paper invoices, e-invoices must be recorded, processed and archived as receipts. When introducing e-invoices, the GoBD must be observed.

Section 14b of the German VAT Act (Umsatzsteuergesetz – UStG), according to which invoices must be kept for 10 years, continues to apply. For data protection reasons, some invoices are completely deleted from the platforms after 28 days or 30 days. Beneficiaries must therefore ensure that the e-invoices are downloaded in good time.

In principle, Sec. 14 (2) sentence 2 no. 1 UStG (new version) regulates requirements to issue an e-invoice. The question is, however, what happens if this is not issued or not issued correctly. This does not just have tax consequences. The Federal Court of Justice has stated that the recipient of the service can take legal action for the issue of an invoice before the civil courts.

Outlook

In Germany, e-invoicing is paving the way for e-reporting, which is to apply across the EU from 2028. Almost immediate reporting of transactional data could ensure that the time window for subsequent invoice corrections and adjustments will hardly exist. This makes it all the more important to incorporate invoice processing and ongoing data validation into the tax compliance management system and internal control system from the outset.

Companies would therefore be well advised to start looking closely at the technical and procedural aspects of e-invoicing and e-reporting, and not just the tax issues.