On 12 July 2023, the German Ministry of Finance (MOF) published a draft of the business tax reform bill (“Growth Opportunity Act”), which includes the introduction of mandatory electronic invoicing (e-invoicing) provisions for domestic business-to-business (B2B) supplies. After publishing a “working paper” version for discussion in April 2023, the MOF has considered input from business associations, particularly on the ambitious implementation deadline, and has finalized its plans to introduce mandatory B2B e-invoicing for domestic supplies. The draft bill is expected to be adopted by the end of 2023, and the new rules would come into force on 1 January 2025.
Currently, the imposition of mandatory e-invoicing for B2B supplies would contradict the EU VAT directive, and there is no firm timeline for approval of the EU’s VAT in the Digital Age (ViDA) proposals for mandatory e-invoicing across the EU. Therefore, the European Commission has recommended the approval of Germany's derogation from the provisions of the EU VAT directive, which would be necessary to introduce mandatory e-invoicing for domestic B2B supplies into Germany’s national legislation.
The MOF intends to limit compulsory e-invoicing to domestic B2B supplies. As such, taxable persons established in Germany would be obliged to issue e-invoices for their taxable supplies of goods or services provided for business purposes to other taxable persons established in Germany. This obligation would not affect supplies to taxable persons established abroad or to private customers. The determination of a taxable person’s place of establishment would be based on the location of the registered office, its management, or the presence of a fixed establishment involved in the relevant transaction for which an e-invoice is issued. Based on the draft bill’s provisions, a taxable person registered for German VAT, but without a place of business in Germany, would not be subject to the e-invoicing obligations.
Another key element of the draft bill concerns the introduction of a new definition of e-invoice, which is based on the EU standard format CEN 16931 (from the European Committee for Standardization). The proposed format complies with the European Commission’s ViDA initiative.
The draft bill also provides for a new legal concept through the introduction of the term “other invoice,” to cover out-of-scope invoices. This would encompass any billing document in hard copy form and all other invoices that do not meet the CEN 16931 standard, such as PDFs.
The German VAT rules currently give precedence to paper invoices; however, the MOF intends to remove this provision and provide e-invoices as the authoritative version.
Generally, as from 1 January 2025, the draft bill provides that all invoices for domestic B2B supplies between taxable persons should be issued as e-invoices compliant with the EU CEN standard 16931; however, transitional provisions would apply until 1 January 2028, at which point all e-invoices would have to comply with CEN standard 16931.
As an exception to the general rule, the draft bill allows the issuance of invoices in other formats (e.g., paper) for amounts up to EUR 250 and travel tickets for domestic taxable persons in B2B scenarios.
The draft bill does not contain any provisions on transaction-based digital reporting requirements (DRR); however, the MOF has announced its intention to follow the ViDA DRR proposal closely. It remains to be seen if the draft bill will be amended during the on-going regulatory process.
While tackling the VAT gap is the main driver for the introduction of e-invoicing by the European Commission and the MOF, businesses also may benefit from its implementation. Once introduced, e-invoicing will help to streamline accounting processes and reducing compliance costs, as structured e-invoices involve automated data entry and facilitate recordkeeping. The removal of the need for manual data entry increases data quality and mitigates the risk of misplaced or incorrect invoices.
To ensure compliance with the new e-invoicing rules, taxable persons must be aware of regulatory changes, and review and analyze current transactions and processes. Ensuring e-invoicing readiness includes ERP system checks to identify the need for further tools and add-ons. Various company departments, like tax, accounting, and IT divisions, also are likely to be affected, and it is, therefore, essential to monitor the upcoming developments at the EU and national level.
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