Mandatory electronic invoices for services between domestic entrepreneurs from January 1st 2025

It is well known that electronic invoicing between domestic companies will become mandatory from 1.1.2025 with transitional periods until 1.1.2028 at the latest. The Federal Ministry of Finance published a draft application letter on 14.6.2024 (BMF draft letter). The following article deals with the consequences under tax law.

From January 1, 2025, entrepreneurs must be able to receive and store electronic invoices (e-invoices), otherwise they will not be able to deduct input VAT. It is assumed that the entrepreneur will have the technical requirements in place from 1.1.2025; his consent to receive e-invoices from other entrepreneurs is not required like in the past. At the very least, an email inbox must be provided for receipt. Other means of transmission can be agreed. Electronic processing in the accounting department is not mandatory but recommended. Without these requirements, the entrepreneur, as the recipient of the service, has no input VAT deduction for his incoming services that he receives via e-invoice. However, if the entrepreneur receives paper invoices during the transitional period until 1.1.2027 or 1.1.2028, these will initially continue to allow input VAT deduction.

From 1.1.2027 at the latest, an entrepreneur is obliged to issue e-invoices to other entrepreneurs, otherwise this is no proper invoice for VAT purposes. Companies with turnover of less than EUR 800 thousand within the meaning of the small business regulation (Section 19 UStG) are only obliged to issue e-invoices from January 1, 2028. For VAT groups, the turnover of the VAT group applies. This means that after the transition period 1.1.2027 or 1.1.2028, only e-invoices will allow input VAT deduction.

The mandatory information on an invoice (Section 14 (4) of the German Value Added Tax Act - UStG) has not changed.

Exempt from the obligation to issue an e-invoice are VAT-exempt services in accordance with § 4 no. 8-29 UStG, invoices for small amounts up to a gross amount of EUR 250 and tickets (§ 34 UStDV). This also affects VAT-exempt property sales (Section 4 no. 9 UStG) and VAT-exempt rents (Section 4 no. 12 UStG). Previously, the entrepreneur was not obliged to issue an invoice in this respect either. This did not and still does not apply if VAT is opted for for VAT-exempt services in accordance with Section 9 UStG. In this case, the obligation to issue e-invoices will apply from 1.1.2027 or 1.1.2028 at the latest.

In future, an e-invoice will only exist if the invoice is issued, transmitted and received in a structured electronic format and enables electronic processing. In future. e-invoices according to German VAT law will therefore no longer be PDF invoices or invoices as text in an email.

For the meaning of structured electronic format and further technical details, please refer to points 4 and 21-30 of the BMF draft letter.

The e-invoice must be machine-readable. Human readability is not required but is optional and recommended.

E-invoices can be sent by email or as a download via a (customer) portal. An e-invoice can be sent multiple times as long as it is the same invoice and the transmission only takes place as a multiple copy with identical content (see Section 14c 1 (4) of the VAT Application Decree - UStAE). Transmission via external memory (e.g. USB-stick) is not possible.

The obligation to issue e-invoices applies to entrepreneurs established in Germany, i.e. companies with their registered office, management or a permanent establishment for VAT purposes in Germany that is involved in the turnover. It should be noted that a permanent establishment for VAT purposes is not necessarily identical to a permanent establishment in accordance with Section 12 of the German General Fiscal Code. According to Section 18.10 (1) sentence 4 UStAE, entrepreneurs who own and rent out property located in Germany are deemed to be established in Germany.¹

The obligation to use e-invoices also applies to invoices for which the recipient is liable for tax (Reverse Charge Mechanism) and for small business invoices (Section 19 UStG). The obligation also applies if the service recipient is a small business or only carries out tax-free transactions. This means that pure residential landlords with VAT-free rental turnover, for example, must also be able to receive e-invoices.

An e-invoice to non-entrepreneurs can only be issued for taxable supplies of work or other services in connection with a property if the recipient of the service agrees. Consent can be given implicitly by acceptance without objection.² However, a paper invoice (in future other invoices) can still be issued in this respect.

Contracts can be regarded as e-invoices if they contain the required information in accordance with § 14 (4) UStG.

E-invoices must also be issued for continuing obligations (long-term rental invoices). For existing rental agreements, electronic long-term rental invoices must be issued by the end of the transition phase from 1.1.2027 or 1.1.2028 at the latest, even if the rental payments have not changed.

The BMF draft letter does not comment on which documents are required if an invoice consists of several documents in accordance with Section 31 (1) of the German VAT Implementation Ordinance (UStDV). The following can be found in paragraph 38:

"If there is an obligation to issue an e-invoice for a continuing obligation (e.g. tenancy), it is sufficient if an e-invoice is issued for the first partial performance period, to which the underlying contract is attached as an annex, or (...)".

It can therefore be assumed that if an invoice document refers to other documents in the text (e.g. real estate purchase agreements or rental agreements), these must also be provided electronically, otherwise there is no complete, proper invoice. Simplification rules are recommended here in future, as a real estate purchase agreement with all attachments, for example, may exceed the electronic reception capacity.

The correction or completion of an e-invoice must also be made in the electronic form prescribed for this (using the corresponding document type). It is not sufficient to transmit the missing or incorrect information in another form. Subject to the other requirements, an effective completion has retroactive effect to the date on which the original e-invoice was issued.

Recommendations

The introduction of e-invoices should mean huge changes in your organization and its proper implementation should be planned at an early stage.

It is recommended that the introduction of e-invoices be seen as an opportunity to increase the efficiency of automated processing in accounting processes.

The ADVANT Beiten tax teams at our 6 locations in Frankfurt, Düsseldorf, Munich, Hamburg, Berlin and Freiburg will be happy to answer your tax-related questions and assist you with the technical implementation of e-invoices.

Jens Müller

^{1 Please refer to the author's blog post from July 20, 2021 for information on the conflict with EU case law: Link}

^{2 An e-invoice with a human-readable attachment is therefore recommended.}