Further updates and clarifications on German e-Invoicing regime – the mandate is coming sooner than you think!
The latest update from the German Federal Ministry of finance has provided clarification around some key points relating to their roll out. This update specifically relates to EDI procedures and the ZUGFeRD hybrid invoice format and clarifies the timelines for optional and mandatory e-Invoicing in Germany.
The “soft mandate” from January 2025 is not as soft as it looks!
There had been some confusion about the proposed timeline for the German e-Invoicing mandate. Some parties reported an “optional” use of e-Invoicing as of 1st January 2025 which would become mandatory the following year. This would 1st January 2026 for large enterprises (those with revenues above €800,000), and then for small businesses beginning 1st January 2027.
What Germany is actually doing is implementing what I refer to as a “soft mandate” for e-Invoicing. This is an approach we saw taken by many governments implementing business to government (B2G) e-Invoicing in response to the Public Procurement Directive (2014/24/EU).
In these cases, government agencies were mandated to accept electronic invoices if they were issued by suppliers. However, suppliers were not mandated to issue invoices electronically – hence it was only a “soft mandate”. As a result, we often saw very low volumes of B2G electronic invoices in these countries. A few governments went further. They either directly or indirectly implemented a “hard mandate” requiring suppliers to issue their invoices electronically. Not unexpectedly, these countries saw a complete switch from paper invoices to electronic overnight.
In a B2B scenario this approach is unusual although not unprecedented – Turkey is one such example. It has important implications.
In Germany, from 1st January 2025 ALL taxpayers must ensure they deploy an e-Invoicing solution to receive invoices issued electronically by their suppliers.
Now, you may be thinking “my suppliers don’t issue electronic invoices, so I don’t need to rush”. And you may also be thinking “look what happened in those B2G cases”.
I urge you to think again.
The buyer acceptance clause has slowed adoption, but the Germans may remove it
Everyone in the e-Invoicing industry agrees that one of the primary reasons that e-Invoicing adoption has been so painfully slow in the European Union, despite it being formally allowed since 2001 (Directive 2001/115/EC aka the “EU115 Directive”) – is one specific and troublesome clause in the directive. We call this the “buyer acceptance” clause.
The buyer acceptance clause is Article 232 of the VAT directive. It simply states, “the use of an electronic invoice shall be subject to acceptance by the recipient.”
How can one simple sentence be responsible for hampering e-Invoicing initiatives so badly? Very simply put – in a buyer/supplier relationship, as we say here in the UK, “the customer is king” or “the customer comes first”. Suppliers do not dictate to their customers how they buy, so if the customer says “no” to electronic invoices then the supplier is forced to carry on sending paper.
In other words, attempts by suppliers to implement e-Invoicing have been severely hampered by the willingness or technical readiness of their buyer community to accept an electronic invoice.
With the German proposal to remove this requirement for buyer acceptance, it will be open season for suppliers to invoice ALL of their customers electronically. Many of them have been ready and waiting for this day. Even for those who have not yet implemented e-Invoicing you can be sure a majority will be ready by January 1st 2025.
Savvy supplies will be thinking “how can I make the most of the investment in e-Invoicing technology that I have been forced to make?” And one great way to do this is to digitize their outbound invoice process and send all their domestic invoices electronically.
An electronic invoice removes the ability for customers to say “I still haven’t received that invoice” – the old “it’s probably lost in the post” excuse. Electronic delivery mechanisms come with assured delivery which is a huge benefit to the supplier in trying to get paid more rapidly.
So the message is clear – it may not be a full e-Invoicing mandate – and you are certainly not obliged to implement e-Invoicing for your own outbound flows. However, you absolutely should expect to see a huge volume of your inbound domestic German invoices switch to electronic formats from January 1st 2025.
Of course – it certainly makes a lot of sense for you to also consider your own outbound invoice flows if you are a supplier as well as a buyer. Switching to fully digitized electronic invoices will save you significant additional costs which will help to pay for the implementation of your electronic invoice reception solution.
Of course, not all e-Invoicing solutions are created equally so ensure that when you deploy an e-invoicing solution it provides all the capabilities and coverage you require.
Likely changes to EDI procedures – to be confirmed
The Ministry of Finance also note that further clarification will be forthcoming regarding EDI procedures – noting the importance of this technology for key areas of the economy. They stated that, “a solution is currently being worked on to ensure the continued use of EDI procedures as far as possible under the future legal framework.” However, they also noted the, “possibility that technical adjustments will have to be made to certain EDI procedures with the introduction of the transaction-based reporting system”. They added that “the aim will be to limit this conversion effort to what is necessary in the interest of the economy.
Clarification around the hybrid invoice format – ZUGFeRD
There has been some question raised around whether the ZUGFeRD hybrid invoice format widely used in Germany would be acceptable under the European Union ViDA (VAT in the Digital Age) proposal, which seeks to redefine an invoice as structured electronic data. Since a PDF is generally considered to be unstructured data this raised some concerns.
According to the latest update (translated from German): “In order to provide legal and planning certainty to practitioners as early as possible, the Federal Ministry of Finance (BMF) and the highest tax authorities of the federal states have discussed this issue. They have come to the conclusion that, from the point of view of the tax authorities… an invoice in accordance with the ZUGFeRD format as of version 2.0.1 basically represents an invoice in a structured electronic format that complies with the European standard for electronic invoicing…”
They also clarified that, given that there are two distinct components to a hybrid invoice, the invoice image – a human readable representation of the invoice data, and the underlying data itself in an XML format – for the avoidance of doubt the structured data will be considered to be the legal original for tax purposes. “the structured part will be the leading one in the case of a hybrid format…. In the event of a discrepancy, the data from the structured part will then take precedence over that from the image file.”
For more background regarding ZUGFeRD see our April 2022 newsletter.
Germany propose B2B e-Invoicing mandate for January 2025
Germany has now announced it’s proposed timeline for implementation of a B2B e-Invoicing mandate covering all domestic transactions. The German Federal Ministry of Finance (Bundesministerium der Finanzen or BMF) issued a discussion document on April 17, 2023 with details of the proposed changes to the current legislation. This timeline would see implementation of the proposed mandatory e-Invoicing regime commencing on 1st January 2025.
The proposal takes into account the framework proposed by the VAT in the Digital Age (ViDA) proposal put forth by the European Commission in December 2022.
There are indications as to what key changes would be made to the existing German tax legislation.
Firstly, Germany will update the legal definition of invoices to include electronically issued invoices. The definition of an e-Invoice would be based on the ViDA proposal and the European Norm (EN16931) standard introduced by the EU Public Procurement Directive (2014/24/EU).
E-Invoices would then become the default and mandatory system of invoicing for all B2B transactions, replacing paper.
Any other types of invoices, such as paper, and electronic formats including PDF and EDI would be grouped together as “Other invoices”, and are out of scope of the mandate. There remains some confusion as to what place there might be for such invoices, if any.
The proposal also includes amendments to the existing German laws which cover the requirements for authenticity, integrity, and legibility of the invoices.
The Ministry of Finance is seeking input from businesses, software/solution providers and other stakeholders prior to issuing a draft law. This consultation process is due to run from April through to 8th May 2023.
The BMF is seeking comments around whether the government should seek a phased deployment as per France or should take more of the “big bang” approach of Poland. They are also seeking input regarding whether a phased approach should be based on size of company, invoice amounts or other alternatives.
Also open for comment is whether exceptions to the mandate should be made for certain invoice types such as micro invoices, tickets etc.
The proposal also presents two different implementation models.
One of the proposed approaches would be to leverage the PEPPOL network in a “5-corner model” leveraging the established PEPPOL network. PEPPOL Access Points would send a copy of the invoices to the proposed government e-Invoice portal for validation prior to issuance between PEPPOL end points.
The second approach would be to follow a model more like that proposed in France using certified private platforms to validate invoices prior to submission to the central government platform.
This is an important next step in Germany’s journey to mandatory e-Invoicing and it’s gratifying to see the German tax ministry seek input from key stakeholders. Once the German government collates these comments, we expect to see a more concrete formulation of legislation, although at this point no clear time line has been established for next steps.