Executive summary

The German Federal Ministry of Finance (BMF) has issued a draft administrative guideline that marks a significant move toward mandatory electronic invoicing (e-invoicing) for business-to-business (B2B) transactions, effective from 1 January 2025. This initiative is part of Germany's transformation to B2B e-invoicing aiming to enhance tax compliance, reduce fraud and streamline financial operations. The draft, which is open for feedback until 11 July 2024, outlines the framework and requirements for the adoption of e-invoicing, including the acceptance of hybrid formats and adherence to international standards.

Key developments

The BMF anticipates finalizing the e-invoicing guidelines by the fourth quarter of 2024, after coordinating with German state tax authorities — suggesting limited opportunities for subsequent amendments.

The draft directive introduces the option for an accompanying human-readable document alongside the e-invoice, with hybrid formats also permissible. However, differences between the machine-readable and the human-readable parts of hybrid invoices might trigger value-added tax (VAT) liability due to incorrectly charged VAT.

The national e-invoicing standards, XStandard and ZUGFeRD from version 2.0.1, comply with the German law. International formats are also permissible, provided they meet the EN 16931 standard. The draft guideline names Italy's FatturaPA and France's Factur-X as examples for such compliant international standards.

The draft stipulates that additional service descriptions may be included as attachments to the e-invoice, including contracts for ongoing services. Contracts for ongoing services initiated before 1 January 2025 are required to issue e-invoices.

E-invoices are required to be transmitted electronically, and multiple dispatches of the same e-invoice are deemed acceptable. Corrections to invoices must be made electronically, and no new e-invoice are necessary for changes to the taxable amount.

Taxpayers may rely on the service provider's information when verifying e-invoicing obligations, subject to the due diligence of a prudent businessperson.

Invoice corrections are retroactive if an alternative invoice form was initially issued instead of the required e-invoice.

Impact on taxpayers

The transition to mandatory e-invoicing will require taxpayers to adapt their accounting systems to comply with the new digital standards. Businesses will need to ensure that their invoicing processes are capable of generating, sending, and receiving e-invoices that meet the specified formats and standards. The ability to make and accept corrections electronically will also be crucial. Taxpayers should be prepared for increased scrutiny and the need for diligent recordkeeping to mitigate potential tax liabilities arising from discrepancies in e-invoices.

Key steps

While the draft guidelines elucidate numerous aspects of the new German e-invoicing requirements, some practical implications remain unclear. Taxpayers should initiate their implementation projects promptly and not defer action until the publication of the final guidelines, which may occur in October 2024 or later. Implementation plans should include a review of the definitive guidelines once they are released and allow for modifications to satisfy the ultimate regulations.