Berlin, March 22, 2024 – In its 1042nd plenary session today, the German Federal Council (Bundesrat) has, amidst heated political debates in recent weeks, approved the compromise version of the Growth Opportunities Act (Wachstumschancengesetz, WCG). This pivotal decision paves the way for the phased introduction of mandatory electronic invoicing (E-Invoicing) in Germany, starting with a receipt obligation for invoice recipients in the B2B sector from January 2025. The formats chosen for this transition are the standardized XRechnung and ZUGFeRD, which are set to streamline the invoicing processes significantly.
The Significance of E-Invoicing for Germany
The digitalization of invoice exchanges between B2B business partners, previously underappreciated in political discussions, is now recognized for its significant impact. According to estimates by the European Commission and the Federal Ministry of Finance (BMI), the mandatory implementation of E-Invoicing, specifically utilizing the XRechnung and ZUGFeRD formats, could increase tax revenues by over ten billion euros annually.
The Rationale Behind the Move
The transition to electronic invoicing, particularly through XRechnung and ZUGFeRD, allows for immediate control of input tax deductions by tax authorities. This measure aims to close the persistent VAT gap in Germany, combating input tax deduction fraud and other unfair tax avoidance practices. Italy and other EU neighbors have already seen success with similar implementations.
Additional Benefits of the Legislation Change
Beyond improving tax compliance, this legislative change is expected to provide a significant boost in digitalization for German companies’ business processes. Adopting standardized formats like XRechnung and ZUGFeRD is anticipated to help the Eurozone’s largest economy regain competitive footing by simplifying and standardizing electronic transactions.
The Roadmap for E-Invoicing in Germany:
- Starting January 1, 2025, receiving an E-Invoice that adheres to the EN16931 standard, particularly through formats like XRechnung and ZUGFeRD, will become mandatory for all German B2B transactions.
- Exceptions will exist for invoices under 250 euros and for travel tickets, while invoices to consumers remain unaffected.
- Until December 31, 2026, businesses can transition, continuing to exchange paper invoices or E-Invoices in non-standard formats. However, post this period, the focus will firmly shift towards standardized digital formats like XRechnung and ZUGFeRD.
Why E-Invoicing Matters?
Mandatory E-Invoicing, with an emphasis on standardized formats such as XRechnung and ZUGFeRD, is more than a procedural change. It represents a significant step towards closing the tax gap, enhancing transparency, and streamlining financial processes across the B2B landscape. As Germany prepares for this digital shift, businesses are encouraged to familiarize themselves with these formats, ensuring compliance and leveraging the potential for improved operational efficiency.
