Regulatory updates - Germany

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

As previously reported by Pagero, Germany obtained EU derogation to implement mandatory e-invoicing within the private sector by 2025. However, after a public consultation on 8 May 2023, BMF is considering moving the timeline to 2026.

Despite the postponement, the new timeline still aligns with the VAT in the Digital Age (ViDA) initiative. As of 2025, only structured invoices will be defined as electronic invoices. Furthermore, in 2025 taxpayers will be able to exchange e-invoices voluntarily.

It is expected that formats compliant with the EN 16931 standard will be mandatory by 2028, in accordance with ViDA.

No information on the planned CTC model has been provided yet. Pagero is closely monitoring the developments in Germany and will inform the stakeholders about important changes in due time.

As previously reported, the German Federal Ministry of Finance intends to adopt an e-invoicing mandate in 2025 to combat VAT fraud. Following the EU Council decision proposal, the obligation would be able to start as of January 2025.

According to the proposal, Germany would receive a Derogation imposing e-invoicing on the business sector, which should be valid from January 2025 to December 2027 (or when the ViDA proposal is valid.) Taxpayers established in Germany will be required to issue e-invoices and report them to the tax authorities. At the same time, e-invoicing in the public sector has been mandatory since November 2020.

The implementation will be introduced gradually by first mandating the issuance of e-invoices and later their submission to the government through the national reporting system. The Federal Government aims to ensure the national reporting system is in line with the ViDA reform and to synchronize the structures of both systems to avoid duplication of efforts.

Who will be in the scope?

Businesses established in Germany will be obliged to issue e-invoices.

The demands of small businesses will be considered in the design of national provisions: for instance, by setting company size thresholds or invoice amounts in which e-invoice usage may be optional for a certain period.

The outline of the e-invoicing system and format

The model envisaged by Germany is considered to be largely compliant with the VAT in the Digital Age proposal.

Invoice issuers will not need to send an invoice to the tax authorities for validation prior to delivery. The trading parties will manage the invoice exchange and distribution. Taxable persons must report necessary data (an invoice subset) to the tax administration in a structured manner. The German government will accept a format that complies with EN 16931. 

After collecting the data, tax authorities can cross-check with the information in VAT returns to combat tax fraud.

Germany follows Italy, France, and Poland’s steps in mandating e-invoicing in the business sector. The obligation is expected to be implemented as early as 1 January 2025.

The German Federal Ministry of Finance (BMF) has issued a document regarding the mandate. Feedback from selected enterprises has been welcomed by BMF and should be provided up until 8 May 2023.

Structured electronic invoicing will be required to be sent to the tax authorities and customers. This proposal will consider not only the EN16961 European e-invoicing standard but also the ViDA (VAT in the Digital Age) proposal.

The Federal Ministry of Finance (Bundesministerium der Finanzen or BMF) intends to publish a “discussion draft” for the introduction of mandatory e-invoicing in the B2B sector in the coming weeks. The draft can be seen as a way for German decision-makers to gather more information as well as align with the ViDA proposal.

At this point, it is in the early stages of the implementation of a possible e-invoicing obligation for business transactions. At the end of last year, Germany applied to the European Commission for a derogation for mandatory B2B e-invoicing, and it is still quite unclear what the electronic invoicing regime will look like.

As we reported earlier in a previous update, Germany has been looking to implement mandatory e-invoicing and the country has formally reached out to the European Commission to obtain a derogation from Articles 218 and 232 of the 2006 VAT Directive. This would give Germany the right to introduce countrywide mandatory B2B e-invoicing.

The request seems to be in alignment with the proposals of the VAT in the digital age (ViDA) project, the results of which are planned to be presented by the EC on 7th December 2022.

This is a very important milestone not only for Germany but the whole European Union. Pagero is closely monitoring the developments - stay tuned.

Currently, three federal states (Bundesländer) - Bavaria, Hessen, and Lower Saxony are not yet connected to Peppol. However, these states have been in contact with the German Peppol Authority KoSIT (Ger.: Koordinierungsstelle für IT-Standards) to discuss specific options and prospects for the connection. Some other federal states, such as Rhineland-Palatinate and Saarland, are already connected to a productive Peppol access point but aren’t using it yet.

With the decision 2022/31, the IT Planning Council asks the federal and state governments to facilitate e-invoice acceptance via the Peppol network among all buyers in the public sector by the latest 1 October 2023 (provided they offer a web service for the delivery of electronic invoices). At the same time, KoSIT is asked to support the governmental entities in this initiative.

This is a considerable step toward the digitalization of the public procurement process in Germany that brings the opportunity for all government suppliers to send e-invoices countrywide via the Peppol network.

Earlier this year, the FDP party called on the Federal Government to introduce a nationwide e-invoicing mandate in Germany. Now, the implementation of the CTC model is officially in the new coalition programme for 2021-2025.

Italy has been referred to as an example due to an effective VAT gap reduction the country has accomplished after implementing the CTC model in 2018.

In their agreement, the new German government coalition announces that an electronic reporting system used for invoice issuance, validation and sending shall be introduced on a countrywide level as soon as possible.

Read more about Germany’s plans to combat VAT fraud in the agreement (available in German, p. 166-168).