E-invoicing obligation for domestic B2B transactions

E-invoices versus paper invoices

Historically, there were no format requirements for invoices. Any document could be considered an invoice within the meaning of the VAT law. Distinctions were made primarily with regard to the content of the invoice. For a long time, the ‘standard’ invoice was therefore the paper invoice. Nonetheless, the legal possibility of issuing an ‘electronic invoice’ had already been created earlier. The invoice recipient always had to agree or could reject the ‘electronic invoice’. The initial definition of an ‘electronic invoice’ was broad and included all documents created as structured or unstructured data records. This included all kinds of PDF invoices, EDI invoices and other electronic invoice formats without further restriction.

As part of a general global trend that has also reached Europe, the definition of an ‘electronic invoice’ has been and continues to be narrowed. Now, the term ‘electronic invoice’ (hereinafter: e-invoice) is only used to refer to a structured data record. The central standard within the EU is the so-called CEN standard EN 16931, which is based on Directive 2014/55/EU. All other kinds of ‘electronic invoices’, such as PDF invoices or EDI invoices, which do not comply with the CEN standard, are no longer considered ‘electronic invoices’ (these invoices are hereinafter referred to as ‘digital invoices’). In addition, the importance of paper invoices is continuing to decline.

What is an e-invoice from a VAT perspective?

In Germany, since 1 January 2025, a structured data record in accordance with the requirements of the above-mentioned CEN standard is an e-invoice (see the definition in Section 14 (1) sentence 3, 6 of the German VAT Act). This norm is already the standard to be used as part of the e-invoicing obligation for transactions with the public sector (i.e. for certain B2G transactions). As a structured data record, an e-invoice must first be made legible to the human eye. However, the main advantage of structured data records is their machine readability, which enables automatic processing of the data in order to increase efficiency in accounting.

In particular, the CEN standard specifies the semantics and syntax of the XML file. To put it simple, the standard specifies how the structured data set should be created. Companies must align their invoice processes with these specifications.

Please note: A PDF invoice is not an e-invoice. If there is an e-invoice obligation, PDF invoices are no longer considered to be VAT invoice documents.

What e-invoice formats are available?

In Germany, two e-invoice formats that fulfil the requirements of the CEN standard are primarily used: XRechnung and ZUGFeRD. The German Federal Ministry of Finance has already recognized these. A XRechnung is a purely structured data format. A ZUGFeRD file, on the other hand, consists of an XML data record and an image file that can be read by the human eye (a so-called hybrid e-invoice). The advantage of a hybrid e-invoice is that people can read the e-invoice immediately without any problems; at first glance, it does not differ from a conventional PDF invoice.

In addition to the e-invoice formats already mentioned, all other e-invoice formats that fulfil the requirements of the CEN standard may also be used. These include, for example, all national e-invoice formats of other Member States or the well-known PEPPOL-BIS format. Companies must be able to receive all e-invoice formats that comply with the standard. A corresponding mapping must be carried out so that the e-invoices can also be processed in the company's IT landscape.

The wording of the German law also allows to uses other e-invoice formats that are conform to the CEN standard or are interoperable with it. This means that many investments already made in corresponding solutions can be retained. It should be checked whether e-invoice formats already in use (such as EDI invoices) can be transferred to the CEN standard.

How does the verification of an e-invoice look like?

In order to be able to claim input VAT from incoming transactions, an invoice must be available in accordance with the requirements of Sections 14, 14a of the German VAT Act, Section 15 para. 1 sentence 1 no. 1 sentence 2 of the German VAT Act. This also applies in the context of the e-invoicing obligation. In other words, a ‘correct’ e-invoice is required in order to be able to claim input VAT.

The Federal Ministry of Finance (BMF) has defined different error categories in this context (content errors, format errors, and business rule errors). A corresponding review can be broadly categorized as follows:

• Checking the mandatory invoice details in accordance with Sections 14, 14a of the German VAT Act
  An e-invoice must be checked for the presence (and correctness) of the mandatory invoice details in accordance with Sections 14, 14a of the German VAT Act. As the e-invoice is a structured data record, the challenge is to check the XML data record.
  
  The XML data record is not (or only with difficulty) legible to the human eye. The invoice must therefore first be made ‘visible’ with the help of an appropriate software tool. This applies in particular to purely structured e-invoice formats such as XRechnung. In the case of hybrid invoices (e.g. ZUGFeRD), which already consist of an XML and a visible component, it must be ensured that both parts of the invoice are identical. The verification process for the mandatory invoice details can be set up as follows, for example: Either it is ensured that the XML and the image part are identical; then the image part can be checked by the responsible person. Or, as with a purely structured data format, a separate (identical) image file is generated from the XML file that can be checked and the supplied image file is ‘ignored’.
   

• Semantics and Syntax checks
  In addition to checking the mandatory invoice details, e-invoices must also be checked for correct semantics and syntax i.e., the requirements from the CEN standard . This dimension of invoice verification is new and must be carried out automatically. It is a validation of the e-invoice at a technical level. Such format errors can only be recognized as part of a validation check.
   

Incorrect invoices are often a point of discussion with the tax authorities when it comes to recognizing input VAT deductions. The introduction of the e-invoice obligation adds a further technical component to the content check. The Federal Ministry of Finance has already clarified that e-invoices must be validated to secure the input VAT deduction. In addition to suitable software solutions for creating, receiving, and processing e-invoices, it is therefore essential to ensure that a validation of e-invoices regarding the correctness of mandatory invoice information, syntax, and semantics is carried out. If a validation solution is missing, the input VAT deduction is at risk. Companies should therefore ensure that a technical verification is a fix component when establishing new e-invoicing processes.

For which transactions does the e-invoicing obligation apply?

With the narrowing of the definition of e-invoices, obligations to issue e-invoices are also being introduced in numerous Member States, including Germany. In most cases, e-invoicing obligations only apply to certain local B2B transactions. For all other kinds of transactions (e.g. B2C), paper invoices or digital invoices can still be issued. However, the details vary and the country-specific rules must be analyzed carefully.

In Germany, an e-invoicing obligation for domestic transactions between two established companies has been in force since 1 January 2025.
The e-invoice obligation applies between established companies for domestic taxable transactions that are not tax free in accordance with Section 4 No. 8 - 29 of the German VAT Act. This means that as soon as a transaction fulfils the following requirements, an e-invoice must be issued:

• Transaction is taxable in Germany in accordance with Section 1 (1) No. 1 of the German VAT Act,

• Transaction is taxable or zero-rated in accordance with Section 4 No. 1 – 7 of the German VAT Act and

• Transaction is provided by an established company to another established company.

In principle, the e-invoicing obligation is therefore tailored to domestic transactions. However, the e-invoicing obligation can also apply to foreign businesses or in the case of certain cross-border transactions. Above all, it must be precisely analyzed and documented whether, for example, a domestic fixed establishment of a company not based in Germany is involved in the specific transaction.

The e-invoice obligation also applies to transactions that are subject to the reverse charge mechanism in accordance with Section 13b of the German VAT Act.

Please note: As soon as an e-invoice obligation exists, the invoice recipient may not reject the e-invoice. It must be ensured that the e-invoice can be received. If an e-invoice is issued and sent voluntarily, the invoice recipient can still object the e-invoice.

What are exceptions to the e-invoicing obligation?

E-invoices do not have to be exchanged in the following cases:

• Small value invoices up to EUR 250 according to Section 33 of the German VAT Implementation Code

• Tickets according to Section 34 of the German VAT Implementation Code

• Sales by small businesses in accordance with Section 19 of the German VAT Act, Section 34 a sentence 4 of the German VAT Implementation Code

Please note: Small businesses may continue to issue paper invoices or other digital invoices that do not comply with the CEN standard. However, they are obliged to receive e-invoices. This also applies to other companies, such as doctors, who do not have to issue e-invoices for their transactions in accordance with Section 4 No. 14 of the German VAT Act.

What transitional rules are in place?

The e-invoice obligation has been in force since 1 January 2025. The following transitional rules can be applied until 31 December 2027:

• The issuing of e-invoices is not yet mandatory in 2025 and 2026. However, if an (established) company receives an e-invoice for domestic transactions, it must be able to accept it.

• In 2027, the issuing of e-invoices will only be voluntary for established companies who have an annual turnover in the amount of maximum EUR 800,000 in 2026.

• Until 2027, other electronic e-invoice formats can also be exchanged with the consent of the invoice recipient if they are transmitted using EDI-channels.

The transitional rules only apply to the issuing of e-invoices and not to their receipt. Affected companies must therefore decide whether they want to switch their incoming invoice processes first or also issue e-invoices. The transitional rules give them time to defer the necessary investments or to test their e-invoicing processes in live operation. When converting invoice processes, care should be taken to ensure that existing procedural documentation is adapted or that such documentation is created for the first time.

How should e-invoices be sent?

The only requirement for the transmission of e-invoices is that they must be sent electronically. E-invoices can therefore be sent by email or via the PEPPOL network, for example. Online portals can also be used to make e-invoices available to the customer.

Are there reporting requirements for e-invoices?

Currently, there is still no requirement to submit e-invoices (or parts thereof) to the tax authorities. In other words, there are no further reporting obligations connected to e-invoices. However, this will change in the future, as it was already announced that a reporting obligation for transactions that are subject to the domestic e-invoicing requirement will be introduced in Germany, too. It is not yet clear what this additional reporting obligation will look like – whether the entire e-invoice will have to be reported or only parts of it. Initial working groups at the Federal Ministry of Finance are currently exploring different forms and possibilities for digital reporting based on the current e-invoicing obligation.

What developments are there in the EU and other Member States?

Germany is not the only country to be revising the definition of e-invoicing and introducing e-invoicing requirements. Italy introduced obligatory B2B e-invoicing in 2019, Romania in 2024, and numerous other Member States are currently in the planning or implementation phase. In 2026, further national e-invoicing obligations have been or will be introduced in Belgium, France and Poland, among others. These mostly apply only to local B2B supplies. Taxable persons operating in the individual countries should inform themselves and analyze (or have analyzed) whether their supplies in these countries are subject to local e-invoicing obligations. It is to be noted that the list of Member States with a (partial) e-invoicing requirement is constantly expanding.

In addition, an e-invoicing obligation will also be introduced at EU level from July 2030 for cross-border B2B supplies (i.e. for intra-Community supplies and services). As part of the ‘VAT in the Digital Age’ initiative (hereinafter: ViDA), e-invoicing is a part of digitalization efforts. By then at the latest, companies operating across borders in particular will be confronted with various e-invoicing obligations.

Parallel to the introduction of obligatory e-invoicing by ViDA, a digital reporting obligation for the affected supplies will be introduced, too. The requirement to submit EC Sales Lists will then be abolished. Unlike in Germany, in some other Member States, the introduction of e-invoicing obligations is already being accompanied by reporting obligations in a wide variety of forms. At the latest with the implementation of ViDA in 2030, businesses will be confronted with new reporting obligations in addition to e-invoicing obligations.