Electronic invoicing: mandatory for B2B companies from 2025

The e-invoicing obligation, a significant innovation in the field of accounting, raises questions for many companies. With the growing influence of digitalisation on business processes, electronic invoicing is becoming mandatory. In this context, it is crucial to understand the new legal requirements and take appropriate measures to implement them.

In the following, we will take a closer look at the e-invoicing obligation and its impact on companies.

What is the e-invoicing obligation?

The e-invoicing obligation is a legal requirement for companies in the B2B sector to accept electronic invoices from 2025 and to send them in future. This means that companies will no longer be allowed to receive or send paper-based invoices, but will have to switch to electronic formats instead.

It is part of the Growth Opportunities Act, which was passed by the Federal Council on 22 March 2024. This legislative package contains various regulations to promote economic growth and modernise business practices.

According to the regulations contained in the legislative package, from 2025 all companies in German domestic business transactions must accept e-invoices in one of three accepted formats. These formats include the two XML formats Cross Industry Invoice (CII) and Universal Business Language (UBL) as well as Factur-X/ZUGFeRD.

The introduction of mandatory e-invoicing will be staggered until 2028, with companies having to gradually start sending invoices in one of these formats from 2027. By 2028 at the latest, small companies will also have to send exclusively electronic invoices.

These measures should help to make the exchange of invoices more efficient and transparent and reduce the administrative burden for companies.

When will electronic invoicing become mandatory?

In concrete terms, this means that from 1 January 2025, companies must be able to receive electronic invoices and archive them in a legally compliant manner. Transitional periods are planned for this period from 2025 to 2028 to give companies enough time for the changeover.

These deadlines differentiate between issuing and receiving invoices - and between electronic and other invoices. According to the new definition, an electronic invoice is an invoice that is issued, transmitted and received in a structured and electronic format and can be processed electronically. All other types of invoices will henceforth be referred to as other invoices and are no longer to be used from 1 January 2025 or in accordance with the respective cut-off dates of the transitional regulations.

The Growth Opportunities Act stipulates that electronic invoices must comply with the European standard for electronic invoicing as well as the list of syntaxes according to Directive 2014/55/EU of 16 April 2014 and thus ultimately the CEN standard EN 16931. The Federal Ministry of Finance (BMF) has confirmed that both the XRechnung and invoices in ZUGFeRD format from version 2.0.1 meet this definition. Other formats are also possible, provided they allow the extraction of all required information into a format that complies with CEN standard EN 16931. PDFs, for example, are only permitted if they contain XML in accordance with the Factur-X/ZUGFeRD specification.

Incidentally: After 1 January 2025, paper invoices or electronic invoices that do not comply with the format specified in the Growth Opportunities Act may also be issued in certain cases, but only with the consent of the invoice recipient. However, companies must be able to receive and archive e-invoices from 2025.

Overview of transitional regulations and deadlines for the e-invoicing obligation

As part of the transitional regulations and deadlines, companies must meet various deadlines in the upcoming era of mandatory e-invoicing. The following table provides an overview of these milestones and serves as a guide for B2B companies that need to prepare for the changeover.

Note: Companies can continue to use the EDI procedure, provided that the VAT-relevant information can be extracted correctly and completely from the invoice format used in order to fulfil the requirements of CEN standard EN 16931 or to be compatible. The demands of trade associations, in particular the German Chamber of Industry and Commerce (DIHK), to retain established procedures such as EDI were taken into account in order to avoid possible far-reaching effects on companies. The Federal Ministry of Finance (BMF) has already announced in a letter to the associations that it is working on a solution that will ensure the continued use of the EDI procedure in the future legal framework. However, it cannot be ruled out that technical adjustments will be necessary, particularly with regard to the subsequent introduction of a transaction-based reporting system. However, the conversion effort should be limited to what is necessary.

Digital invoice: not mandatory for all.

It is important to note that invoices between businesses and consumers are not affected by this regulation and can continue to be issued on paper or in PDF format. Businesses still have six months after the service has been performed to issue invoices and this regulation remains unchanged, even though the legal text has been amended. What is new, however, is the obligation to issue invoices electronically in accordance with Section 14 para. 2 sentence 2 no. 1 UStG (new version).

The new regulation on electronic invoicing also provides for exceptions.

These must be observed:

• The obligation to issue invoices electronically only applies to domestic transactions between German companies. Transactions between companies abroad are exempt from the obligation.
• Tax-free transactions in accordance with § 4 No. 8 to 29 of the Value Added Tax Act (UStG) are also not subject to the e-invoicing obligation.
• Exceptions also apply to invoices for small amounts of up to 250 euros and for tickets.

Domestic residency is defined by the registered office, the management or a permanent establishment in Germany, whereby domicile or habitual residence in Germany is also sufficient. VAT registration in Germany without being domiciled in Germany at the same time therefore does not trigger an obligation to issue invoices electronically.

Furthermore, landlords should note that in future they may also be obliged to issue invoices electronically if they rent to other entrepreneurs on a taxable basis by way of an option (Section 9 UStG). This regulation also affects entrepreneurs who only provide tax-free services themselves, such as landlords of flats or doctors, who must be able to receive and archive electronic invoices in a structured form.

Background to the e-invoicing obligation

In the area of public contracts (B2G), e-invoicing has been mandatory since 2020 and companies working for public authorities must submit their invoices electronically. This requirement was introduced by an amendment to the E-Government Act in April 2017 in order to implement the EU directive on electronic invoicing. The precise requirements for the format were set out in the ‘Ordinance on Electronic Invoicing in Federal Public Procurement (E-Invoicing Ordinance/ERechV)’. The XRechnung/ZUGFeRD data exchange standard is generally favoured, but other formats are also permitted as long as they comply with European standards. Since November 2020, companies that carry out public contracts have had to submit their invoices electronically in order to simplify the bureaucratic process and make work easier for the authorities.

The obligation to issue invoices electronically from 1 January 2025 is now a direct response to a draft directive from the European Commission as part of the ‘VAT in the Digital Age’ (ViDA) initiative. The aim of this initiative is to effectively combat VAT fraud and drive forward the digitalisation of invoicing. The draft stipulates that companies must use electronic invoices for intra-Community business-to-business transactions. These invoices must be issued and transmitted no later than two days after the service is provided; collective invoices are no longer permitted. Furthermore, additional mandatory information is to be introduced for electronic invoices.

Germany reacted immediately to the proposed directive and decided to gradually introduce mandatory electronic invoicing as part of the Growth Opportunities Act. This legislative package bundles various measures to improve the current economic situation. The aim is to strengthen companies' liquidity, promote investment and expand growth opportunities. In addition, tax simplifications and a fairer tax policy are to be achieved. Ultimately, the Growth Opportunities Act is intended to help increase the growth opportunities of the German economy as a whole.

Goals and motivation of the e-invoicing obligation

At the same time, the obligation to issue invoices electronically is part of a comprehensive strategy to modernise the tax system and reduce bureaucratic hurdles. A key objective is to optimise tax relief while at the same time reducing bureaucracy. The obligation to issue invoices electronically not only increases the efficiency of business processes, but also combats VAT fraud.

The EU is also currently planning a VAT reporting system in which copies of every invoice must be submitted within a few days of dispatch. The introduction of a domestic German system that is compatible with European standards is intended to facilitate cross-border co-operation. According to the German government, these measures could lead to considerable additional revenue by curbing VAT fraud. According to estimates, between 11 and 14 billion euros in additional revenue could be generated each year. In view of the large number of affected invoices in circulation each year - around 1.2 billion - the obligation to issue invoices electronically is an important step towards increasing efficiency and strengthening the integrity of business transactions.

Problems and challenges

While the introduction of mandatory e-invoicing offers promising benefits, companies are facing considerable challenges. Despite the clear objectives of tax relief and reducing bureaucracy, various associations are warning of potential difficulties. Large companies in particular are confronted with technical problems and the complexity of the changeover. In a statement by business organisations such as the BDI and DIHK, the short implementation period is seen as problematic. The enormous technical requirements for the conversion of invoice receipt systems represent a major hurdle that can hardly be overcome in the short time available. In view of these challenges, careful planning and appropriate support from the public sector are required to ensure the smooth implementation of the e-invoicing obligation.

It is an administrative offence to violate the obligation to use electronic invoices. In these cases, the right to deduct input tax may be cancelled.

This is exactly where our experts at elio come in! As a company that has been working with the ZUGFeRD format since 2020, we have extensive expertise in the creation and processing of e-invoices. We are also happy to help you set up an audit-proof digital archive. Regardless of whether you are a large or small company, we are able to support you in the introduction and implementation of an e-invoicing system for sending and receiving invoices. Our expertise and experience will ensure that your company benefits from a smooth transition.

Conclusion on the e-invoicing obligation

What is now clear is that the Growth Opportunities Act has set a milestone in German business transactions with the introduction of mandatory e-invoicing. This not only reduces taxes and bureaucracy, but also combats VAT fraud. The EU is already planning a VAT reporting system that requires a copy of every invoice within a few days of it being sent. This shows the trend towards digitalisation throughout Europe.

Despite these advantages, companies are facing challenges, particularly with regard to technical problems and the changeover within short deadlines. Warnings from business organisations highlight the complexity of the changeover. In order to overcome these hurdles, careful planning and preparation is crucial in order to exploit optimisation potential and involve employees in good time. For example, the Federal Ministry of Finance is also planning to support companies with a free service for creating and visualising electronic invoices. This can be particularly beneficial for companies without the appropriate software. For other companies, it may make sense to commission a service provider such as elio.

All in all, the obligation to issue electronic invoices will permanently change business transactions and force companies to become more familiar with digital processes.