German Ministry of Finance: New Draft BMF Letter Outlining Mandatory e-Invoicing

Since 1 January 2025, the German Ministry of Finance (BMF) has implemented a significant change affecting B2B transactions within the country: the mandatory use of electronic invoices (e-invoices). This move marks a critical milestone in Germany's path towards full digitalisation of tax reporting and aligns the country more closely with broader EU standards, including EN 16931.

This mandate, though already introduced by the Growth Opportunities Act, is now being shaped in practical detail by BMF circulars. The first of these was published on 15 October 2024, laying the groundwork for what constitutes an electronic invoice, what formats are permitted, and who must comply. The circular is available on the Ministry's website here.

On 25 June 2025, the BMF released a draft of a second circular. This new guidance was sent to industry associations with the opportunity to comment and has been published more broadly due to its economic relevance. The final version is expected in Q4 2025, but businesses are advised to prepare now.

Why e-Invoicing Matters

E-invoicing is not just an administrative update. It represents a strategic shift in the handling of value-added tax (VAT) compliance. Under the new rules, invoices between German businesses must be issued in structured electronic formats that comply with specific technical standards. The goal is to streamline B2B transaction transparency and eventually support a real-time reporting system for VAT.

Key Regulatory Clarifications and Updates in the 2025 BMF Draft Compared to the 2024 Letter

The 2025 draft builds on the 2024 letter by clarifying definitions, expanding transitional provisions, and reinforcing compliance mechanisms. Here are the major highlights:

1. Recognition of Format Errors as Invalid E-Invoices

The 2025 draft clarifies that any invoice file with technical format errors, regardless of the type, will be considered a non-compliant invoice. Even if an XML file is used, it will not qualify as an e-invoice if it fails to meet the structural criteria of §14 UStG.

2. Deletion of Small Business Invoice Mandate

The reference to invoices from small businesses (§19 UStG) was removed from the 2025 draft, indicating a retreat from requiring them to issue e-invoices mandatorily.

3. Exemption for Small Business Invoices

The updated draft explicitly exempts Kleinunternehmer (small business) invoices from the e-invoicing obligation, putting them on par with low-value invoices and tickets.

4. Use of Validation Tools

The 2025 version introduces validation tools for checking conformity with EN 16931 and includes a new definition for "business rules," helping companies pre-validate invoice structure.

5. Content Errors and Validation Failures

A major clarification: critical content errors (e.g., validation failures) render an e-invoice non-compliant, even if it uses the right format. Content must be accurate and complete within the structured part.

6. Construction Industry and Scope Clarifications

In the construction sector, price disputes no longer require invoice corrections. However, if scope or performance changes (e.g. revised measurements), an updated invoice must be issued.

7. GoBD-Conformity Not Mandatory for Storage

E-invoices do not need to be stored in a GoBD-compliant system as long as integrity and readability of the structured part are maintained.

8. Formal Amendment Section for UStAE

A major structural update: the draft includes an entire section titled Änderungen des Umsatzsteuer-Anwendungserlasses, which amends dozens of paragraphs in the UStAE, unlike the 2024 letter which only referenced this as forthcoming.

9. Enhanced Legal Definitions in Section 14.1

The new draft extensively updates Section 14.1, offering detailed definitions for e-invoices, other invoices, and hybrid formats, aligning more closely with legal interpretation and enforcement.

10. Zugferd Hybrid Format: Structured Data Now Takes Precedence

Where hybrid formats are used (e.g. ZUGFeRD), the structured XML now legally overrides the visual PDF layer. If discrepancies exist, the XML is considered binding.

11. Input VAT Deduction – Fallback Mechanism

The new letter provides an important clarification on input VAT deduction when an e-invoice was required by law, but a non-compliant invoice format was issued.

If the invoice format does not meet the legal definition of an E-invoice (e.g., it's a PDF or a file with technical errors), it is generally not accepted as a proper invoice under §§ 14, 14a of the VAT Act. However, the updated guidance explicitly introduces a fallback mechanism: if the content of the invoice is materially complete and correct, and if the tax authority can objectively verify that all material conditions for deduction are fulfilled, the input VAT deduction may still be granted under strict standards.

However, the fallback is only available where the issuer could still legally rely on the transition period (per § 27 para. 38 VAT Act), or where a mistake was made in good faith. Need help with this requirement? Reach out to the VAT IT team. 

12. Contractual Documents as Invoices

Contracts can still serve as invoices, but only if they include all mandatory invoice details and conform to structure rules. If not, they must be amended or corrected by an additional e-invoice.

13. Clarification on Recurring (Long-Term) Invoices

For recurring invoices (e.g. rent), one compliant e-invoice is sufficient unless invoice data changes (e.g. rent increases). In such cases, a new e-invoice is required.

14. Technical Storage Requirements for B2B e-Invoicing

The draft makes clear that the structured XML portion must be archived in its original, machine-readable form to meet audit and compliance obligations.

15. Signature Retention

If a qualified electronic signature or seal is used, it must also be retained - even if the signature has expired for other legal purposes.

16. Terminology Modernisation

Older terms like Abrechnungspapier (billing paper) have been systematically replaced by Abrechnungsdokument (billing document) to reflect media neutrality and digital workflows.

Strategic Implications for Suppliers and Businesses

Suppliers and customers alike must now adapt their invoicing systems to handle compliant formats like XRechnung or ZUGFeRD. This change affects not only ERP and accounting software but also internal workflows for invoice generation, validation, and archiving. Businesses relying on manual PDF generation must upgrade to structured data systems.

Failure to issue a valid e-invoice will not just breach compliance; it may result in delayed VAT deductions, audit risks, or rejections by clients. Conversely, timely compliance can lead to process efficiencies and better alignment with digital tax audits.

Summary of Key Terms in the BMF Letter

• E-Invoice: A structured electronic invoice that enables automated processing.
• XRechnung: German national standard aligned with EN 16931.
• ZUGFeRD: Hybrid invoice format with XML and PDF.
• EN 16931: EU-wide standard for electronic invoices.
• Peppol: A standard network for secure e-document exchange.
• § 27(38) VAT Act: Transitional rule allowing certain non-compliant invoices until 2026.
• B2B transactions: Business-to-business relationships covered by the e-invoicing mandate.

Conclusion

If you have any questions about how the BMF’s e-invoicing mandate affects your business or need support preparing your systems for compliance, our experts are here to help. Contact us today for tailored advice and implementation support to ensure your invoicing processes are future-proof and fully aligned with legal and technical requirements.

The mandatory introduction of e-invoicing from 1 January 2025 marks a pivotal change in how German businesses handle invoices and VAT compliance. With the BMF's 2025 draft circular, companies now have a detailed guide on how to proceed. However, the clock is ticking: by 31 December 2026, all exceptions end, and by 2027, structured electronic formats will be universal.

We strongly advise businesses to review their invoicing processes and consult with their software providers.  With the Ministry of Finance signaling strong intent to enforce, compliance is not optional.

Still looking for a global e-invoicing software provider that offers a fully compliant German solution? Get in touch with the eezi team. We deliver a comprehensive platform for issuing and receiving electronic invoices in any of the approved formats - including XRechnung and ZUGFeRD - ensuring you're fully prepared for regulatory changes now and beyond 2027.