Germany’s E-invoicing and E-reporting Mandate
E-invoicing in Europe is growing, and now the biggest political and economic player in the European Union – Germany has detailed its own proposals for e-invoicing and e-reporting implementation. Below, we will summarise the latest information relating to Germany’s proposed mandate.
Germany: an overview of e-invoicing in the country
Having been overshadowed by its neighbour France, and further afield Poland, who are, comparatively, in the advanced stages of e-invoicing implementation, it may appear that Germany’s entrance to the e-invoicing / e-reporting orbit is relatively ‘late’. In reality, Germany is not a stranger to e-invoicing. Germany’s e-invoicing roots extend as far back as 2021 when the coalition government contemplated the digitisation of its fiscal procedures to plug the VAT gap – which represents an estimate of the overall difference between expected VAT revenue and the amount collected. Moreover, Germany has developed 2 established EU-compliant invoice formats in the form of the ZUGFeRD 2.x, a hybrid e-invoice format, and the XRechnung, an electronic invoice standard that aligns with the European standard 16931. Finally, Germany has a rich tradition in one of the most ubiquitous invoice formats today- Electronic Documents Interchange (EDI). EDI requires a standard electronic invoice format for data exchange and is especially prevalent within automotive and manufacturing environments.
E-invoicing mandates serve as Continuous Transaction Controls (CTCs), which assist countries in regulating and overseeing VAT collection. Germany’s decision to mandate e-invoicing took a more decisive step in November 2021, when it requested a derogation from the European Commission to mandate e-invoicing. Currently, the European Commission has not yet granted this derogation.
Germany’s e-invoicing and e-reporting mandate at a glance
In April 2023, the German Ministry of Finance, Bundesministerium der Finanzen (BMF) released Germany’s discussion paper that provides insightful commentary on Germany’s plans for a mandate. This mandate is expected to follow a two-tier trajectory, commencing with e-invoicing in January 2025 followed by e-reporting at a later stage – and will cover B2B domestic transactions. With Germany’s mandate initially scheduled for January 2026, the paper confirms the timeline for implementation has been expedited by one year. In line with the goal for all e-invoicing mandates, this mandate aims to eliminate paper invoices entirely- to the point where paper invoices will be relegated to the status of ‘other invoice’ as per the draft paper. Service providers can also play an active role on behalf of suppliers and buyers.
The exchange of invoices can take place either via a state e-invoice platform or via existing private e-invoice platforms. This narrative may be familiar: Germany’s projected mandate model is similar to the French e-invoicing model which is scheduled for 2025. The use of existing platforms in the private sector to exchange electronic invoices securely serves a dual purpose:
- It builds on existing infrastructure, and so is expected to save money and resources;
- It will help facilitate the implementation of e-invoicing in line with the ambitious January 2025 inception date.
If building on existing foundations is an important consideration for the BMF, then the BMF will need to clarify whether a standardised invoice format will be introduced at the expense of EDI, which is well established in Germany. The German government knows preparation is key for e-invoicing and e-reporting implementation, and phased implementation may need to be considered to accommodate the accelerated timeline.
What the discussion paper excludes is arguably just as important as what it does include. The BMF will have gleaned valuable lessons from the French e-invoicing / e-reporting mandate, where specific cybersecurity certification requirements have hindered rather than advanced the e-invoicing and e-reporting implementation plans. With the omission of such specific ‘sovereignty’ requirements, Germany’s projected mandate does, at face value at least, appear to be a more feasible and workable solution.
That being said, the discussion paper raises as many questions as it answers. The BMF still needs to address whether private platforms will need to be certified, as well as confirm further technical requirements in terms of transmission for platforms. Potential exceptions to the mandate, for example, businesses not subject to Value Added Tax (VAT), must also be outlined. And of course, if a phased implementation is confirmed as the German approach to rolling out e-invoicing, the specific criteria for this phased approach will need to be defined, considering variables such as company turnover, invoice amount etc, amongst others.
The amalgamation of a hybrid e-invoicing and e-reporting element may be at odds with Germany’s ambitious timeline- but there are external factors at play that can explain Germany expediting their e-invoicing / e -reporting mandate.
The German mandate and the clear markings of ViDA
If the discussion paper does not provide the finer details around the mandate, what is evident is that the VAT in the Digital Age (ViDA) proposal will (and must) heavily influence Germany’s choice of its e-invoicing model. The European Commission’s proposal, which dictates the e-invoicing and e-reporting landscape for EU Member States over the next 5 years, has compelled Germany to unveil its e-invoicing plans.
The ViDA proposal permeates almost every level of the German e-invoicing / e-reporting mandate. Germany’s structured format is expected to align with the European common standard format – EN16931. More specifically, ViDA discourages conventional ‘clearance’ checks- and again, as a nod to the proposal, Germany’s proposed e-invoicing plans will most likely only undertake plausibility and syntax checks- which do not appear to contravene the spirit of the proposal. Moreover, the e-reporting elements keep the mandate in tandem with the ViDA proposal, which imposes e-reporting obligations for intra-community transactions from January 1st, 2028.
It is also important to note that Germany’s current B2G landscape operates on a federal, rather than country-wide, level. Germany’s proposed mandate will apply uniformly across the country, discounting individual federal states- and therefore represents a fundamental transition from Germany’s existing, arguably more fragmented, e-invoicing topography. Moreover, it again endorses the fundamental ideology of ViDA which is a harmonised and co-ordinated e-invoicing / e-reporting infrastructure.
What is next for Germany’s proposed mandate?
E-invoicing / e-reporting mandate implementation is a two-way process: it is the result of a dialogue between the government and the public. The German government has already begun the process of public consultation with business stakeholders, specifically, select larger German enterprises who have requested detailed information about the e-invoicing process. The BMF will collate and consider their feedback, which is expected to provide the foundation for a more sharply defined e-invoicing model.
Germany is influential in Europe – what they do matters. Germany’s e-invoicing / e-reporting strategy is set to be scrutinised and while not going so far as to say it will set the bar for e-invoicing definition in Europe, it may certainly provide a good indication of it.
It will be the responsibility of the German government to produce an e-invoicing model that is ViDA compliant- and from what we have seen so far, Germany’s proposed mandate ticks the right boxes. On balance, the first glimpses of the e-invoicing model give limited scope for the European Commission to refuse Germany’s derogation request.
Germany’s mandate is an exciting addition to what is already a congested e-invoicing landscape across Europe, and we expect further details at the end of June 2023 as Germany is set to announce further features in respect of its mandate. You can be assured that Kofax will follow all the latest developments in relation to the mandate, as we await the next chapter of Germany’s e-mandate implementation.
