German e-invoicing mandate: Long-awaited BMF letter published

Starting 1 January 2025 the German e-invoicing mandate will begin, with a phased rollout extending until early 2028.

Acknowledging the significance of this change, the tax authorities issued a draft introductory letter on the new e-invoice in June 2024. On 15 October 2024, they released the final introductory letter, outlining the principles for implementing the new e-invoice system.

 Businesses and transactions in the scope of the mandate

The mandate will apply solely to transactions between businesses based in Germany. A business is considered resident if any of the following are located in Germany:

• Registered office or place of residence
• Place of management
• Permanent establishment for VAT purposes (fixed establishment) involved in the respective turnover.

In contrast to the draft, the final BMF letter clarifies that the requirement also applies to tax-exempt sales under Section 4 Nos. 1-7 of the VAT Act, as long as these transactions occur between two companies located in Germany.

Companies based outside of Germany are exempt from the e-invoicing obligation as a VAT registration alone does constitute a basis for residency.

The requirement also does not extend to small-value invoices and travel tickets. However, it is noted that voluntary e-invoicing is possible with the recipient’s consent in these cases.

 How do I know if my business model constitutes a fixed establishment in Germany?

According to section 3a.1(3) of the VAT Application Decree, a fixed establishment is defined as any fixed location used for business purposes that has adequate equipment and personnel to carry out the necessary supplies.

Under the VAT Application Decree, a fixed establishment subject to VAT exists if a branch office has a minimum size and a sufficient number of permanent staff and assets to render, receive, and use supplies or services.

Adequate equipment and personnel mean that the fixed establishment must operate independently, including the ability to conclude contracts, manage its accounting, and make business decisions.

The BFH clarified, referencing the Advocate General’s opinion at the ECJ in the Welmory case (C-605/12), that a fixed establishment does not need its own human and technical resources if third-party resources are available comparably (i.e., with similar control and constant access). This view was reiterated by the Fiscal Court Berlin-Brandenburg regarding a customs-bonded warehouse managed by a German warehouse keeper for a foreign taxable person. The Court opined that a warehouse where a subcontractor accepts goods on behalf of a foreign supplier justifies a permanent establishment of that supplier in Germany (judgment in 5 K 5103/15, May 15, 2017).

ECJ later clarified in the Berlin Chemie case (C-333/20, April 7, 2022) the personnel and equipment do not have to be the taxable person’s own, provided the person can use them as if they were their own.

If you are still unsure whether or not your business model might constitute a fixed establishment in Germany, contact the eezi team and chat with one of our dedicated consultants.

 Are there any similarities or differences between the draft and final introductory letter that a business needs to note?

Yes - the final introductory letter does not only clarify certain points from the draft letter but also introduces new information.

The BMF letter outlines which formats are acceptable. It confirms that the national formats “XRechnung” and “ZUGFeRD” meet the required standards. However, unlike the draft, the final letter excludes certain ZUGFeRD sub-profiles (MINIMUM and BASIC-WL) as they do not comply with the standards. The French format “Factur-X,” which is similar to “ZUGFeRD,” is included in the tax administration’s recommended list, along with “Peppol-BIS Billing.” The Italian format “FatturaPA,” mentioned in the draft, is excluded in the final letter as it does not meet the CEN standard 16931.

The final letter reiterates the proposed transmission channels by the tax authorities:

• E-mail: The BMF letter clarifies that a separate e-mail inbox exclusively for e-invoices is not required.
• Electronic interface: E-invoicing platforms like PEPPOL are considered the most future-proof method, as they will be crucial for the future introduction of an electronic (near real-time) reporting system.
• Shared access to a central storage location within the corporate group: This point is newly included in the final version of the letter.
• Download via an internet portal.
• Physical handover of a data storage device (e.g., USB stick): Initially excluded in the draft, this method is no longer explicitly excluded and may be permitted in exceptional cases.

The final letter also addresses the treatment of ongoing obligations, final or remaining invoices, and invoice corrections. In the draft BMF letter, the tax authorities required that an initial e-invoice be issued for continuing obligations no later than the end of the transitional period, including those established before 1 January 2025. This requirement is no longer present in the final version. For continuing invoices issued as traditional invoices before 1 January 2027, there is no obligation to issue an e-invoice, provided the invoice details remain unchanged.

When it comes to final invoices, if the entrepreneur has already issued invoices (including e-invoices) for advance payments or prepayments with VAT shown separately, the VAT already shown separately may not be shown separately again in the final invoice.

From the final letter, it is also clear that electronic invoices must contain all the necessary invoice content.

 What are the important dates highlighted in the final letter?

The final letter warns taxpayers that from 1 January 2025, the receipt of an e-invoice is mandatory for all domestic entrepreneurs. If the invoice issuer decides to use an electronic invoice, the invoice recipient must also accept it. 

 Why is it important to find a software solution well in advance?

There will not be an official federal portal for issuing or visualising e-invoices. Although this was initially proposed during the Finance Committee hearings, the federal government ultimately rejected the idea, as stated by Parliamentary State Secretary Katja Hessel on 29 August 2024, in response to a query from the CDU/CSU parliamentary group.

This means that businesses must find a e-invoicing solution well in advance. Especially considering that businesses must be able to receive e-invoices in Germany from January 2025 already.

Feeling uncertain about the upcoming electronic invoicing mandate in 2025? Don’t worry! Call the eezi team and speak with our experts. We’ll keep you informed and up-to-date with the latest e-invoicing information and provide world-class e-invoicing solutions. Reach out to us today and ensure your business is ready for 2025!