E-invoicing becomes mandatory in Germany! Who does it affect? Which transition periods apply? What exactly is an e-invoice and how can ISR support you?
As of January 1, 2025, electronic invoicing (e-invoicing) will be mandatory in Germany for transactions between domestic German companies. With a transition period until 2028, companies must now switch to the new format. But what does this mean? And who does it affect?
We shed light on the future requirements and offer tips for the transition.
Note: The Federal Ministry of Finance has issued extended guidance on e-invoicing in Germany. Click the button to learn more:
A brief look back: On November 17, 2023, the Growth Opportunities Act was passed in Germany. From our perspective, this represents a significant step towards advancing the digital transformation of business processes. However, it also raises questions: Who is affected? What exactly is an electronic invoice, or e-invoice for short? What does this mean for your company? Let's address these in order!
E-Invoicing Mandate & Growth Opportunities Act
The Growth Opportunities Act , which came into force on March 28, 2024, introduces numerous significant changes for German companies.
A key aspect of this is e-invoicing, which is scheduled for implementation in Germany starting January 1, 2025. The underlying objective is to accelerate digitalization in accounting and eliminate unnecessary bureaucratic hurdles.
Consequently, starting January 1, (domestic) German companies will gradually be required to use e-invoices for national B2B transactions.
The e-invoicing mandate therefore implies that companies will henceforth be required to issue electronic invoices in a specific, standardized European format. The transition to e-invoicing presents a considerable challenge for companies, as it necessitates the adaptation of their existing systems and processes.
Are you still unsure how and where to begin? No problem! We have compiled a concise guide for you:
E-INVOICING WHITEPAPER
Prepare optimally for the e-invoicing mandate in 2025! Our whitepaper provides all essential information, from legal foundations and benefits to a practical implementation checklist.
What is an E-Invoice?
The term e-invoice primarily refers to an electronic document that is created, transmitted, and received electronically. Its electronic format facilitates straightforward automated processing. The XRechnung and ZUGFeRD formats (a combination of a PDF document and an XML file) already meet these format requirements. Both formats, XRechnung and ZUGFeRD, are already standardly implemented in our intelligent invoice processing program, Accounts Payable Flow.
Who is subject to the e-invoicing mandate?
The obligation for mandatory electronic invoicing applies exclusively to services rendered between domestic German companies (B2B). This applies to both service-providing companies and service recipients established within Germany (or in territories as per § 1 Para. 3 UStG).
When does e-invoicing become mandatory?
Given that digitalization initiatives in Germany often face implementation complexities, and the transition entails significant effort, the following transitional provisions are planned until the end of 2027:
Effective January 2025
Commencement of the electronic invoicing mandate (e-invoicing mandate) for domestic B2B transactions in Germany. As of January 1st, companies must be capable of receiving! e-invoices.
Until End of 2026 - Transition Period 1
For B2B transactions executed in 2025 and 2026, paper invoices or electronic invoices that do not comply with the new format may still be submitted or used.
Until the end of 2027 - Transition Period 2
The issuance of paper invoices for business-to-business transactions conducted in 2027 remains permissible. Digital invoices that do not conform to the new format are also allowed, provided the invoice issuer had a maximum prior-year turnover of EUR 800,000 (in accordance with § 19 Para. 3 UStG).
From early 2028
From 2028, all invoices must be e-invoices and comply with the new requirements. This means companies must be capable of receiving, processing, and sending e-invoices!
Transition Period 1: Until the end of 2026, for B2B transactions executed in 2025 and 2026, paper invoices or electronic invoices that do not comply with the new format may still be submitted or used. Therefore, from January 1st, companies must be capable of receiving e-invoices!
Transition Period 2: Until the end of 2027, the issuance of paper invoices for business-to-business transactions occurring in 2027 remains permissible. Digital invoices that do not conform to the new format are also allowed, provided the invoice issuer had a maximum prior-year turnover of EUR 800,000 (in accordance with § 19 Para. 3 UStG).
From 2028, e-invoicing becomes mandatory! This means all invoices must be e-invoices and comply with the new requirements. Consequently, companies must be capable of receiving, processing, and sending e-invoices!
Further information on the topic of “Introduction of the mandatory electronic invoice” from the Federal Ministry of Finance can also be found here.
Are PDF Invoices Electronic Invoices?
The answer to this question – to make it quick and painless, like tearing off a bandage – is: No!
A PDF invoice is not an e-invoice in the sense of the EU directive. While a classic PDF invoice is an electronic format for issuance, transmission, and receipt, it is merely a digital and visual representation of the invoice. Automatic electronic processing is not possible with this format. To enable this, invoice information must be manually transferred into accounting software or via additional systems such as text recognition systems or OCR. The same applies to other file formats like ".tif", ".jpeg", or ".docx".
What Must Your Company Do Now?
The transition to e-invoicing is two things: unavoidable, yet also a significant opportunity. This is particularly due to the evident benefits arising from the automated processing of structured invoice data.
Incidentally, electronic invoices are already mandatory in public procurement, and an increasing number of companies in the private sector expect their business partners to be capable of sending and receiving electronic invoices. In a subsequent blog article, we will provide you with a guide that can assist you in implementing e-invoicing within your company.
Update October 2024: E-Invoicing FAQs!
On October 15, 2024, the Federal Ministry of Finance published further details regarding the mandatory introduction and application of e-invoicing from 2025. The document contains important clarifications on formats, transmission methods, and transitional provisions. Despite the broad scope of topics covered, it essentially reiterates the BMF's previous statements. Therefore, we have summarized the most important (newly added) answers for you:
Electronic invoicing is not required for invoices to private individuals (B2C), tax-exempt transactions, small-value invoices under 250 Euros, and for small businesses. Invoices to associations, state institutions, and for certain real estate services also remain exempt.
For public contracting authorities, special electronic invoicing rules have been in effect since 2020, via portals such as: www.e-rechnung-bund.de.
Due to the complexity of the exemption regulations, we recommend that companies seek individual consultation to clarify the specific requirements for their particular situation.
In brief: A Leitweg-ID is not required for invoices exchanged between businesses. This specific electronic address is only necessary when submitting invoices to public authorities.
A Leitweg-ID represents a unique electronic address for e-invoices within public sector transactions. It functions as a digital postal address, ensuring that electronic invoices are accurately delivered to the appropriate administrative entity.
Within the B2B sector (transactions between businesses), a Leitweg-ID is typically not required. Its application is exclusively for e-invoices directed to public contracting authorities (B2G sector). Consequently, if your company submits an invoice to a public authority, you are mandated to utilize the recipient's specific Leitweg-ID.
Effective January 1, 2025, companies in Germany will be mandated to receive e-invoices, with a focus on flexibility. The legislation permits diverse transmission channels, including email, electronic interfaces, centralized storage solutions, USB drives, or download portals. The precise method of transmission will be mutually agreed upon by the contracting parties.
A basic email inbox is sufficient for receiving e-invoices. This requirement applies universally to all businesses, including small enterprises that are not obligated to issue e-invoices themselves. The overarching objective is to achieve the broadest possible adoption of electronic invoicing.
Under current VAT law, businesses are required to retain both incoming and outgoing invoices for a period of eight years. E-invoices are subject to specific additional requirements: the structured component of the invoice must be stored immutably and in its original format.
The retention process must adhere to the Principles for the Proper Management and Retention of Electronic Documents (GoBD). This implies that e-invoices must be archived in an audit-proof and tamper-resistant manner.
Consequently, businesses should configure their digital archiving systems to ensure that e-invoices can be fully and immutably verified throughout the entire eight-year retention period.
Advantages of E-invoicing:
Reduction of costs associated with postage, paper, printer ink, and archiving.
Faster delivery of invoices to customers results in more prompt settlement, thereby yielding liquidity and cost benefits, such as reduced interest expenses.
Electronic invoices are digitally accessible and viewable on computers or smartphones. This capability reduces the effort for specialist departments in tasks such as searching, creating copies for inquiries, or researching specific matters. Additionally, it eliminates the need for physical storage space for invoices.
Invoices are transmitted to the customer in near real-time, which ideally facilitates quicker payment.
The adoption of e-invoicing provides an opportunity to gain access to larger business partners, as these entities typically mandate fully digitized business processes.
Admittedly, this transition may necessitate a substantial investment of time and resources upfront. The extent of this requirement is directly contingent upon your company's size and its existing system landscape. A comprehensive assessment of your current invoice processing workflow is imperative. Identifying vulnerabilities and inefficient procedures is crucial for establishing clear objectives for the automation project. Prioritizing areas where automation yields the most significant benefits is essential for implementing targeted and efficient enhancements. Comprehending, optimizing with appropriate Business Process Management solutions, and implementing such business processes across various platforms is indeed a complex undertaking. However, rest assured, you do not have to navigate this alone. We are pleased to offer our assistance and guide you through the entire process, from inception to completion. Further details are available here.
E-invoicing: What are the next steps?
It's simple: with us! Over two decades ago, we made the digitization of invoice processing and management a PRIMARY focus. We remain steadfast in this commitment, continuously enhancing our solutions. Today, the ISR software Accounts Payable Flow inherently includes numerous beneficial features that streamline digital invoice processing and simplify your engagement with e-invoices.
However, rest assured, we are here to assist! We recommend the timely implementation of appropriate project structures, if not already in place. This proactive approach will facilitate a seamless transition once all legal and technical specifications are definitively established.
Processing e-invoices? With ISR, it's seamless!
Combined with our proprietary AI input management software Buildsimple, Accounts Payable Flow is a true game-changer in digital invoice processing. Buildsimple handles the import and automated processing of unstructured data, whether it involves PDFs or paper invoices. For instance, e-invoices can be processed simply and directly within Accounts Payable Flow, in compliance with e-invoicing mandates.
Invoice data is classified using our proprietary artificial intelligence and made available to ISR Accounts Payable Flow for further review. Within minutes, the digital invoice file, complete with all necessary information, is ready for use.
SmartCoding algorithms assist with accounting and the automatic selection of approvers or release managers. Competency regulations and budget approval limits are managed enterprise-wide by grouping users into roles. Posting in the financial accounting system is automated and can be individually customized.
Automated invoice verification processes enable financial accounting professionals to focus on critical tasks, while the software efficiently handles routine operations.
Should you have any questions, require further information, or be interested in a live demo, please do not hesitate to contact us.
Feel free to explore our How-To Videos to gain insight into the look and feel of our software.
Joachim Wrzeciono
Head of Product Development
Application Management
joachim.wrzeciono@isr.de
+49(0)151 422 05 462
