Are you aware of the new invoicing requirements under The Growth Opportunities Act? The German Bundesrat endorsed new electronic invoicing requirements on March 22, 2024, looking to streamline processes for companies operating in Germany.
Under European Directive #EN16931, businesses must be prepared to receive e-invoices beginning in January 2025; however, issuance of e-invoices isn’t mandated until January 2027 for companies with over €800,000 in annual turnover. Companies under this threshold can wait until January 2028 to begin utilizing e-invoicing.
These changing invoice procedures call on the need for companies to re-work existing processes and workflows to maintain compliance. In this article, we’ll explore the basics of Germany’s new e-invoicing, including the legal and regulatory requirements, the impact on accounting and financial management, the tentative benefits, and the side effects of noncompliance.
Legal and regulatory requirements of e-invoicing
Germany’s e-invoicing requirements apply to business-to-business (B2B) transactions between German taxpayers. Article 14 of the VAT code outlines two types of invoices: structured e-invoices and other invoices, such as paper invoices or other electronic formats. Following the passage of The Growth Opportunities Act, Article 14 has been amended to include e-invoices as a structured format.
An electronic invoice, known as an e-invoice, is an invoice that has been created, transmitted, and received in a structured data format. A structured data format puts the data in a machine-readable format, allowing for automatic and electronic processing. This means that PDFs will no longer be considered an e-invoice and accepted in Germany.
To help facilitate the e-invoice process, Germany has submitted a request to the European Commission for a derogation of buyer’s consent. This means that the buyer’s consent is no longer needed to issue an electronic invoice. As a part of the new e-invoicing laws, Germany is making it more difficult to transmit unstructured e-invoices and paper invoices. Businesses must obtain consent from the buyers before issuing unstructured invoices.
E-invoice implementation timeline
Here’s the timeline you need to know for implementation:
- January 2025 – Taxpayers will need to be able to receive structured e-invoices, but there is no requirement to issue structured e-invoices or obtain consent for non-structured formats.
- January 2026 – Invoices related to 2026 transactions can still be issued in a non-structured format if the company receiving the invoice has given consent.
- January 2027 – Invoices can be issued in a non-structured format if the receiving company has given consent and the company sending the invoice has a total annual turnover under €800,000 in the previous calendar year (2026). Companies exceeding €800,000 in annual turnover during the previous calendar year are required to issue structured invoices that follow the new e-invoicing guidelines.
- January 2028 – All taxpayers, regardless of annual turnover, will be required to follow new e-invoicing procedures when sending and receiving invoices.
Acceptable e-invoicing formats
When it comes to creating an invoice, the structure needs to comply with EU standards and the new German requirements. One accepted method by both regulatory agencies is ZUGFeRD format, a hybrid method that does not require recipients to have a specific software to process the data.
Similarly, XRechnung is another compliant format accepted by both regulatory agencies. This type of e-invoice uses an XML format to send and process data. It’s important to note that Germany is not mandating a specific exchange channel to send and receive e-invoices. Instead, businesses can choose their method for transmitting invoices with the stipulation that they are compliant with EU standards.
The impact on accounting and financial management
The German e-invoicing requirements may warrant necessary changes to your accounting systems to maintain compliance. For example, if you are currently issuing B2B invoices using standard PDF or historical EDI formats, you will need to convert to a compliant system.
Additionally, businesses will now need to integrate changing electronic invoicing processes into existing financial management systems to avoid operational silos and promote transparency in invoice management.
The issue of data security also comes into play with Germany’s e-invoicing requirements. In countries where e-invoicing is a common practice, there are streamlined reporting channels, including national platforms, exchange networks, and private platforms. These channels act as intermediaries, replacing direct communication with customers and suppliers.
Germany does not have any of these platforms established, leading businesses to use email and other less secure methods. As a part of your adoption of e-invoicing, your business might consider switching to safer methods, such as a dedicated e-invoicing software like N2F.
The expected benefits of e-invoicing
E-invoicing isn’t a new concept. In fact, there are over a dozen countries, like Italy, Belgium, Austria, and the United Kingdom, that already have e-invoicing policies in place. Here are some of the benefits that Germany looks to unlock for business owners:
- Greater Savings – With streamlined electronic invoices, business owners can save on paper, shipment costs, and track spending easier.
- Error Reduction – Automatic data processing can easily detect errors and mistakes, helping business owners send accurate invoices.
- Improved Efficiency – Businesses can send, process, and receive invoices quickly when all data is formatted similarly. This gives your team the ability to issue and receive payments faster.
- Reduced Fraud – VAT is highly susceptible to fraud. With e-invoicing, both businesses and regulatory agencies can quickly detect fraud.
These are just a few of the advantages of moving to e-invoicing. To fully leverage these benefits, it’s important that your business has the right resources to receive, transmit, and process invoices.
The side effects of noncompliance
Germany already has stiff noncompliance penalties for VAT reporting, including penalties of 10% of the amount due and up to €25,000 per return. Noncompliance with the new e-invoicing regulations can also subject your business to fines and penalties. Germany hasn’t fully clarified the type of penalties and fines that business owners can expect for e-invoicing noncompliance.
Staying legally compliant and avoiding harsh penalties relies on having the right controls in place. For one, it’s important to fully understand the implementation deadlines you are subject to. In addition, consider investing in e-invoicing software, like N2F, that helps monitor compliance.
About N2F
Our software has compliant invoicing formats built-in, allowing you to manage invoices in PDF, XRechnung, and ZUGFeRD forms. The N2F Invoice solutions extract all metadata out of theXRechnung or ZUGFeRD invoice, or use the OCR recognition to extract informations from traditional PDF invoices, transitioning them into compliant e-invoices.
With a robust invoice solution at your fingertips, you are fully prepared for the new rules. Additionally, one of the main concerns for business owners is losing access to historical invoice data when switching to e-invoices. This isn’t the case with N2F, as we have archiving functionality that complies with Germany’s GoDB standard.
The N2F platform also allows you to manage different ledger entries, implement a rigid approval process, and integrate information into over 200 accounting software programs. For more information on how N2F can help you manage your invoicing function, contact a team member.
