Coalition Government Plans Mandatory E-Invoicing for Germany

Since November 2021, Germany has had a new coalition government made up of the SPD (social democrats), FDP (free democrats) and the Green parties. Known as the traffic light coalition due to their political colours of red, yellow and green, they have given top priority to one particular policy: digitalizing Germany.  One part of this will be the introduction of mandatory e-invoicing. Our e-invoicing expert Rolf Wessel has taken a closer look at this part of the coalition agreement, and what it means for German companies.

According to the coalition agreement, the goal of mandatory e-invoicing is to combat tax fraud in Germany. In the following, we will look at how that should work and the advantages e-invoicing has for those involved.

Since November 2020, the B2G sector in Germany has been legally required to use the e-invoicing standard XRechnung. Germany’s coalition government now intend to roll this requirement out into the B2B sector, in an attempt to combat VAT fraud and to modernize Germany’s public administration.

‟We will continue to combat VAT fraud, and shall be strengthening our efforts by working hand-in-hand with the federal states.  As soon as possible, we shall be introducing a standardized electronic reporting system throughout Germany. This is to be used for creating, verifying and forwarding invoices. This should significantly reduce the susceptibility to fraud of our VAT system and at the same time modernise and reduce bureaucracy between public administration and business.”^[1]

The intention is therefore to combat VAT fraud through an electronic reporting system, which inspects invoices.  A further point looks at the forwarding of invoices. However, what is behind this, and how does VAT fraud actually happen?

E-Invoicing in Germany: Why does VAT invite fraud?

VAT is responsible for most of a state’s tax revenue. However, the majority of tax evasion cases involve VAT. And it all comes down to the invoice.

One method of VAT fraud is as follows: normally, a company passes on the VAT it has collected to the tax office. If this doesn’t happen, it is problematic – fraud – if the creditor company has declared the VAT on the invoice as a tax pre-payment. The tax office refunds the creditor the amount declared as a prepayment. However, is has never actually received the amount in question.

Although the German government does not have exact figures on how much tax it loses through this kind of VAT fraud, the value is said to be around 22 billion euros. The collective loss for all EU countries is estimated at 140 billion euros.^[2]

The benefits of adopting e-invoicing in Germany

VAT fraud is a major reason why e-invoicing is being mandated in the coalition treaty. However, this will not be the only benefit. E-invoicing also enables you to

• reduce costs,
• minimize pressure from trading partners,
• automate and innovate processes, and
• raise the processing quality of incoming invoices.

Adopting e-invoicing has a number of benefits, whether as an invoice issuer or recipient.

E-Invoicing in Germany: the advantages for the invoicing party

For the issuer of an invoice, paperless processes result in significantly lower costs for printing, postage, processing and materials – or even eliminate these altogether. A positive side effect is of course that e-invoicing reduces CO2, helping conserve our environment. Thanks to integration into your ERP system, the invoice enjoys straight-through processing, from sender to recipient and beyond.  This guarantees 100% data quality – at all times.

E-Invoicing in Germany: the advantages for the recipient of an invoice

The benefits for the invoice recipient are similar to those for the issuer. The recipient also saves time and money entering and processing the invoice into their system as this is automated and therefore error-free. Fewer invoices are mislaid and there are no more typos. Required fields mean that fewer incomplete and therefore invalid invoices are received. Even personnel and archiving costs are lower. Furthermore, e-invoicing noticeably accelerates and improves the purchase to pay process.

How will the new German e-invoicing system work?

Now that we’ve looked at the advantages of e-invoicing over paper-based billing, one question still remains. What is the government-planned reporting system going to be like? There isn’t yet a definitive answer. However, the e-invoicing experts here at SEEBURGER see several possible approaches.

The new e-invoicing system could be built upon the already compulsory XRechnung standard and go through a central portal, the desired electronic register. A further possibility would be to send a month’s worth of invoices at the end of a calendar month to the register.

How do other countries manage e-invoicing?

Since there are several possible approaches for Germany, it is worth taking a look at our EU neighbours that already use an e-invoicing system. There are considerable differences in the individual countries’ e-invoicing systems.

• In Italy, FatturaPA is mandatory for B2G and B2B invoicing. Invoices are sent to the Italian tax authority in XML format via a central interface. The system checks the e-invoice and forwards it to the recipient in the address field.
• Poland has allowed voluntary use of an e-invoicing platform since the end of 2021. Participating companies send a month’s worth of invoices to a central register at the end of each calendar month. However, the tax authority wants to introduce mandatory e-invoicing by 2024.
• Serbia made e-invoicing mandatory in May 2022. Invoices must be sent via a state gateway.
• France is making electronic reporting mandatory by 2025 and B2B issuers will be required to send their invoices electronically from then on.
• In Finland, invoices are sent via an electronic invoicing system. However, there is no tax authority involved.

Mandatory e-invoicing in Germany: a summary

A look at our European neighbours shows that there are many ways to achieve the coalition’s goal of combatting VAT fraud. The most likely method will probably be to upload invoices to a portal and automatically convert them into the desired format before sending them out.^[3] Germany’s e-invoicing solution will most likely be based on systems currently in use. In order to carry out cross-border trade and transactions, the various e-invoicing systems must be able to exchange data with each other, with no solitary e-invoicing ‘islands’. To this end, the EU plans to introduce a compulsory solution.

The introduction of an e-invoicing system is a challenge, both technically and from an organizational perspective. Nevertheless, mandatory e-invoicing also helps drive the digitalization and automation of a company’s internal processes. At the 2022 E-Invoicing Summit, there was even a discussion on whether it would make sense to also make electronic ordering (Order-X ) and electronic delivery notes (Deliver-X) mandatory.^[4]

E-Invoicing in Germany: let SEEBURGER help you go live

SEEBURGER AG offers cloud-based and on-premises e-invoicing solutions for businesses of any size, enabling companies to go live in just a few days. For example, our cloud-based Invoice Portal Service automates the processing of incoming invoices from their arrival to entry in the ledger. The SEEBURGER Invoice Delivery Service, also available as a cloud solution, supports you when implementing XRechnung and ZUGFeRD.  The SEEBURGER Peppol Access Point is a quick and easy way to exchange documents through Peppol.  Why don’t you get in touch with us to explore how your organization could benefit from e-invoicing and digitalization?

^[1] Koalitionsvertrag 2021-2025 [Coalition Treaty 2021-2025] P 132. (accessed on 12th August 2022).

^[2] cf. Bundesrechnungshof: Umsatzsteuerbetrug: Finanzbehörden digital aufrüsten [VAT fraud: tax offices arm themselves with a digital upgrade] (accessed on 12th August 2022).

^[3] cf.: AFI Solutions: E-Rechnungspflicht? Die Zukunft der E-Rechnung in Deutschland [Mandatory E-Invoicing? The Future of the Electronic Invoice in Germany] (accessed on 12th August 2022).

^[4] Vcf.: XimantiX: E-Rechnungs-Gipfel 2022 [E-Invoicing Summit 2022] (accessed on 12th August 2022).