Plans Are Being Discussed to Introduce a B2B E-invoicing Mandate in Germany

+++ Update May 2024:  How mandatory e-invoicing will affect accounts payable

Now that e-invoicing is soon becoming a legal requirement, companies are under considerable pressure to digitalize their invoicing processes. This requirement is no longer a nice extra, rather a necessity that requires strict compliance and companies that delay or ignore the transition to e-invoicing run the risk of sanctions and legal consequences. This legal push is a catalyst for comprehensive digitalization in finance, highlighting the importance of adaptability in the modern business world and emphasizing the need to be proactive to ensure continued compliance.

What invoice formats will be permitted in the B2B sector?

German companies are facing a significant change in their business processes. Soon, they will be required to exclusively use electronic invoices for the B2B sector. This requirement will affect all business transactions between companies based in Germany, with just a few exceptions, such as invoices under 250 euros or the sale of tickets. The upcoming changes encompass the following:

• Requirement to accept e-invoices. Companies must be able to accept electronic invoices which conform to the European standard EN 16931 . It is no longer required to seek special approval from business partners.
• Rules for the transition period. During an initial transition phase, alternative electronic invoice formats such as XRechnung or ZUGFeRD will still be permitted, provided they are supported by the recipient. Companies may also continue to issue paper invoices during this period.
• The end of paper-based invoices. At the end of the transition phase, companies will no longer be able to issue paper-based invoices. Instead, electronic invoices will become the mandatory standard. Initially, formats that do not comply with the EN 16931 standard will still be permitted as long as they adhere to the transitional rules.
• Option of using EDI. EDI will remain an option for invoice exchange, provided that the invoices contain all the mandatory fields required by the EN 16931 standard.
• Adherence to standard EN 16931. Ultimately, all electronic invoices will need to comply with EN 16931 . This paves the way for a uniform application of this standard throughout the EU, which will promote efficiency and standardization in digital invoicing.

Companies must therefore start preparing for these changes now, and adapt their processes to ensure compliance and avoid penalties. These changes mark a decisive step towards a fully digitalized business world and underline the need for companies to adapt their internal processes and actively take advantage of the opportunities offered by digitalization.

What is the difference between EN 16931 and Electronic Data Interchange (EDI)?

It’s important to understand the differences between the EN 16931 invoice data standard and the traditional Electronic Data Interchange (EDI) process as this helps understand the different requirements and process flows in digital invoicing and processing. The chart below shows the main differences and their significance for companies.

What does this mean for invoice recipients?

For invoice recipients in the B2B sector in Germany, the mandatory switch to electronic invoices means a significant change in how they will need to process incoming invoices. Let’s look at some of the concrete consequences and requirements:

1. Changes to systems. Invoice recipients must ensure that their internal systems and processes are capable of efficiently receiving, processing and archiving electronic invoices. This may require investment in new software or updates to existing A/P invoice solutions.
2. Legal compliance. Recipients need to ensure that processing the electronic invoices complies with legal requirements, including compliance with the EN 16931 standard and archiving regulations (GoBD).
   In future, PDF or paper-based invoices will no longer be permitted in Germany. This also applies to the previous handling of ZUGFeRD invoices. The XML structure within these hybrid invoices will assume a central role, which will prevent a traditional manual capture or OCR processing. Companies are now obliged to automatically process the XML files contained in the ZUGFeRD invoices and use them for accounting purposes. This requirement underscores the importance of digitalization and automation in financial processes.
3. Automation. This mandatory switch to electronic invoices gives companies the opportunity to automate their invoice processing. An automated invoice process is quicker, more efficient and leads to fewer errors.
4. Prior consent no longer necessary. Invoice recipients must accept electronic invoices that comply with the European standard EN 16931 without having given prior explicit consent. This requires a willingness to switch to the standardized formats.
5. Rules for the transition period. During the transition period, invoice recipients may need to be flexible in terms of the formats they accept, as long as they meet the basic requirements. In the long term, however, e-invoices will be required to strictly conform with EN 16931.
6. EU-wide obligation. Once electronic invoicing has been fully introduced in accordance with EN 16931, invoice recipients must also prepare for EU-wide e-invoicing and ensure that they have appropriate systems in place.

On a company basis, this means that firms need to review and potentially adapt their internal processes to ensure they can accept and process electronic invoices without an issue. This will put them in good stead to take full advantage of the benefits of digitalization.

What are the advantages of mandatory e-invoicing for accounts payable?

E-invoicing automates the posting of invoices into the correct ledgers, enabling invoice recipients to efficiently integrate incoming electronic invoices into their accounting systems with no manual intervention.

This process can be carried out using the SEEBUGER SAP-integrated purchase-to-pay solution or the ERP system-independent cloud solution Invoice Portal. Both enable the seamless transfer and processing of invoice data.

The solutions cover specific aspects of e-invoicing, such as automatic posting. Let’s take a look:

Automated reconciliation and posting

• With the help of rules and algorithms, systems can automatically match incoming invoices with orders and delivery confirmations. This is known as three-way matching. If the system makes a match, it can automatically post an invoice directly into the correct ledger without the need for manual intervention.
• Invoices that are not within predefined tolerance limits or contain discrepancies are routed into an approval and clarification workflow.

The advantages of automation

• Higher efficiency. Automation requires less time than manually processing invoices, which increases the overall efficiency of the finance team.
• Fewer errors. Automated systems remove the risk of user error when entering data or reconciling invoices.
• Lower costs. Companies can save on operating costs through reduced manual intervention.
• Better cashflow. Swifter invoice processing can lead to quicker payments and improved cash flow.
• Greater compliance and transparency. Automated booking systems facilitate compliance and provide clear audit trails for financial transactions.

SEEBURGER solutions help companies to comply with legal requirements  for e-invoicing and support automated posting.

Takeaway

The introduction of mandatory e-invoicing in Germany is presenting companies with the challenge of systematically digitalizing their accounts payable and other financial processes. SEEBURGER’s e-invoicing solutions are proving to be crucial tools in not only for meeting legal requirements, but also for significantly increasing efficiency and transparency in the finance department.

As a leading provider in the field of electronic invoicing, SEEBURGER has extensive experience in implementing the necessary regulations for e-invoicing and reporting obligations, uncomplicated and in compliance with the required standards. Within its extensive product range, SEEBURGER not only covers the specific requirements of the German market with standards such as EDI, ZUGFeRD, Factur-X, XRechnung and Peppol, but also includes compliance with international e-invoicing guidelines. SEEBURGER’s range of services is characterized by two key strengths: Flexibility and deep integration. Firstly, SEEBURGER offers a flexible solution that works without being dependent on your ERP system. Secondly, SEEBURGER’s deep integration with SAP systems, especially SAP S/4HANA, guarantees a smooth, user-friendly process for processing incoming and outgoing invoices. This combination of flexibility and specific SAP expertise from SEEBURGER ensures that your company can work efficiently and in compliance with current e-invoicing standards.

Here are some examples of what we offer:

1. Processing of e-invoices conforming with EN 16931
   • SEEBURGER enables processing of e-invoices that conform with the European standard EN 16931. This is a prescribed, standardized format for electronic invoices to ensure cross-border acceptance and processing ability within the EU. SEEBURGER’s solutions support the conversion, validation and integration of these invoice formats into existing ERP systems to ensure smooth processing and compliance.
2. Approval and clarification workflows for e-invoices
   • SEEBURGER offers advanced workflow solutions for invoice approval and clarification. These solutions allow organizations to create custom workflows that align with their specific business rules and approval processes. Automating these processes makes it quicker to review and approve invoices, or escalate them for further clarification. This not only reduces processing times but also improves efficiency in invoice management.
3. Archive:
   • SEEBURGER’s archiving solution ensures secure, compliant storage of electronic invoices and related documents. SEEBURGER’s archiving systems ensure that all e-invoices are stored in accordance with the relevant legal requirements and retention periods. The archiving solutions also provide easy recovery and access options to enable quick access to archived invoices when required, which is particularly important for audits and compliance checks.

These offerings from SEEBURGER are designed to not only automate and accelerate companies’ e-invoicing processes, but to ensure that they also comply with national and international regulations. By integrating these solutions, companies can increase their efficiency, reduce errors and ultimately lower their operating costs.

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An e-invoicing mandate is being discussed in Germany for the B2B sector. Should this plan come into effect, e-invoicing will become mandatory before the e-reporting system is in place. The e-invoicing mandate is expected to be phased in and to be in line with the EU directive ViDA – VAT in the Digital Age. Read on to get the latest information.

In a letter dated 17 April 2023, the German Federal Ministry of Finance (abbr. BMF) informed associations that they were planning to introduce mandatory e-invoicing for domestic B2B transactions in Germany. This proposal, currently under discussion, would be equivalent to an e-invoicing mandate for the German B2B sector.

In order to take into account the concerns of the business community and the tax advisory professions beforehand, the Federal Ministry of Finance has invited comments on the proposal until 8 May 2023.

This proposal follows the pledge made in the German government’s coalition agreement¹ to fight VAT fraud in Germany, and to introduce an electronic reporting system for creating, verifying and routing invoices as soon as possible.

The BMF is in favour of starting with an e-invoicing mandate for domestic B2B transactions, even before the actual e-reporting system is in place.

What are the key points in this proposed B2B e-invoicing mandate?

The proposal to introduce an e-invoicing mandate in Germany of April 17 2023, and currently under discussion, contains the following points:

• Limiting the e-invoicing mandate to domestic B2B transactions.
• Creating a new e-invoice definition based on the EN 16931 standard from the European Committee for Standardization (abbreviated to CEN) and the ViDA legislative proposal.
• Categorizing paper invoices and e-invoices that do not meet the new requirements as “other invoices”.
• Downgrading the supremacy of paper invoices currently in 14 para. 1 of the German Vat Code.
• Redefining invoice issuing obligations currently in 14 para. 2 of the German Vat Code.
• Carrying over the statements on the “authenticity of the origin of the invoice, the integrity of its content and its readability” within § 14 of the German Vat Code.

These key points involve changing paragraph § 14 of the German Vat Code, which also requires discussion.

What is the proposed schedule for phasing in the German B2B e-invicing mandate?

The current proposal is to start introducing the e-invoicing mandate for domestic B2B transactions from 1 January 2025.

The following options are available to phase in the mandate while relieving the burden on SMEs:

a) A phased introduction by company size

In the first year, small and medium-sized enterprises would need to consent to receiving electronic invoices. In the second year, consent would only be required from small businesses. From the third year onwards, e-invoicing would be introduced across the board.

b) A phased introduction by invoice amount

The e-invoicing mandate would only apply above a certain threshold, such as 50,000 euros in the first year and 30,000 euros in the second year. There would be no threshold from the third year onwards.

c) A phased introduction using other criteria

The mandate to receive e-bills could apply from day one. However, the obligation to issue e-bills, on the other hand, would only come into effect later for small and medium-sized businesses. This system of staggering introduction has already been used to introduce e-invoicing and e-reporting in France.

It remains to be determined which invoices should be exempt from the e-invoicing mandate, either in the introductory period or on a permanent basis. Candidates for exemption may include micro invoices as per § 33 of the German VAT implementation ordinance (UStDV) or proof of travel as per § 34 UStDV.

How does creating and introducing an e-reporting system fit into the proposed schedule?

Creating and introducing an e-reporting system is an integral part of the e-invoicing mandate as set out in the German government’s coalition agreement.

The only difference is that the mandate itself is being introduced in Germany before the reporting system, therefore creating the need to implement the reporting system.

Figure 1: The current schedule for implementing B2B e-invoicing and e-reporting (as per ViDA) in Germany

How will the proposed e-reporting system for Germany be aligned to the EU directive ViDA – VAT in the Digital Age?

The ViDA EU proposal only stipulates that intra-community B2B transactions need to be e-reported from 1 January 2028.  In Germany, the plan is to create a reporting system that fulfils both domestic and EU requirements in order not to burden the business world twice. This means that the reporting system will deal with the following transactions:

• Domestic B2B transactions (as per the German government’s coalition agreement)
• Cross-border B2B transactions (as per EU-ViDA)

Germany is therefore coordinating with the EU to implement their domestic reporting system.

What is the proposed data flow for future e-invoices and reporting data?

The invoice issuer’s e-invoicing platform checks the plausibility according to EN16931, extracts the reporting data from the invoice and reports it to the state portal. Subsequently, the invoice issuer’s e-invoicing platform sends the invoice to the recipient’s e-invoicing platform. This means that the reporting data is sent to the tax authorities at the same time as the actual invoice is sent. Invoice data exchange may occur on either a private or governmental e-invoicing platform.

Figure 2: Proposed data flow for B2B e-invoicing and e-reporting

When transmitting data to the reporting system, taxable entities only electronically transmit certain invoice data (known as reporting data) to the tax authorities. Currently, there are no plans in Germany to transmit the complete e-invoice to the tax authorities.

Once the reporting system is in place, invoice data can be transmitted either via the

• Government’s e-invoicing platform

or a

• Private e-invoicing platform that meets official specifications

SEEBURGER supports you in the implementation of e-invoicing and reporting systems

As an experienced provider of e-invoicing solutions, we help you to implement the necessary e-invoicing and reporting system requirements in a simple and standardized way. In addition to EDI, ZUGFeRD, FacturX, XRechnung and Peppol for Germany, SEEBURGER also covers global e-invoicing requirements and offers on the one hand a flexible, ERP-independent solution, and on the other hand deep process integration in SAP with a high level of user convenience for processing incoming and outgoing invoices due to excellent SAP expertise. This includes, for example, the seamless integration of SAP S/4HANA.

The SEEBURGER Invoice Delivery Service lets your customers and business partners securely send you invoices in the EN16931-based ZUGFeRD, Factur-X and XRechnung formats, including over Peppol. Legally compliant, this works with any ERP system.

The SEEBURGER Invoice Portal Service processes incoming e-invoices in a seamless, automated workflow, from receipt to entry in a ledger and transfer to any ERP system.

Source: https://blog.seeburger.com/plans-are-being-discussed-to-introduce-a-b2b-e-invoicing-mandate-in-germany/