Mandatory E-Invoicing : The Rocky Road to Digital Invoices

Mandatory E-Invoicing Has Arrived -- and Many Businesses Are Not Yet Ready

On January 1, 2025, it came into effect: mandatory e-invoicing for domestic B2B transactions in Germany. What appears at first glance to be a purely technical change turns out in practice to be a profound transformation of commercial processes. Many small and medium-sized enterprises face significant challenges -- from selecting the right format to integrating with existing accounting software and complying with statutory transition periods.

This article provides a comprehensive overview of the new legal framework, approved formats, transitional provisions, and offers a practical checklist for implementation.

Legal Basis: Section 14 UStG (German VAT Act) -- New Version

The legal basis is found in the newly amended Section 14 UStG (Umsatzsteuergesetz -- German VAT Act), which was revised by the Growth Opportunities Act (Wachstumschancengesetz) of March 27, 2024. Under Section 14(1) sentence 3 UStG (new version), an electronic invoice (E-Rechnung) is an invoice that is issued, transmitted, and received in a structured electronic format and enables electronic processing.

Crucially: A simple PDF invoice sent by email does not meet these requirements. Simply digitizing a paper invoice does not constitute an e-invoice within the meaning of the law. Rather, the invoice must contain machine-readable, structured data that complies with the European standard EN 16931.

What Is an "Other Invoice"?

The legislator now distinguishes between the e-invoice and the other invoice (sonstige Rechnung). The latter includes paper invoices and simple PDF files -- essentially anything that does not conform to the structured electronic format. During the transition periods, other invoices may still be used under certain conditions.

Approved Formats: ZUGFeRD and XRechnung

Two formats have established themselves as standards for German e-invoicing:

XRechnung

XRechnung is the national implementation of the European standard EN 16931. It is based exclusively on XML and is therefore purely machine-readable. In the B2G (Business-to-Government) sector, it has been mandatory for invoices to federal authorities since 2020. Its strength lies in the complete automation of invoice processing.

ZUGFeRD

ZUGFeRD (Central User Guide of the Forum for Electronic Invoicing Germany) takes a hybrid approach: The invoice is transmitted as a PDF/A-3 with an embedded XML dataset. This means the invoice is both human-readable (as PDF) and machine-readable (as XML). The current version ZUGFeRD 2.3.3 offers various profiles -- from the basic profile to the EN 16931-compliant profile.

Which Format to Choose?

For most medium-sized businesses, ZUGFeRD is recommended as a pragmatic entry point: The PDF component allows recipients without specialized software to read the invoice. At the same time, the embedded XML meets the legal requirements. Those who primarily work with public sector clients should use XRechnung instead.

Transition Periods: The Detailed Timeline

The legislator has provided a graduated model of transition periods, regulated in Section 27(38) UStG:

From January 1, 2025: All businesses must be able to receive e-invoices. The obligation to receive applies without exception -- a simple email inbox is generally sufficient for this purpose.

Until December 31, 2026: Businesses may continue to use paper invoices and other electronic formats (e.g., simple PDFs) for sending. The recipient's consent is required for other electronic formats.

Until December 31, 2027: Businesses with prior-year revenue up to EUR 800,000 may continue to send other invoices. For businesses above this threshold, the sending obligation applies from January 1, 2027.

From January 1, 2028: The e-invoicing obligation applies in full to all domestic B2B transactions -- regardless of company size.

The BMF circular of October 15, 2025 (BMF-Schreiben) contains further explanations on the transitional provisions and answers numerous practical questions.

Technical Requirements and Software Integration

Switching to e-invoicing requires adjustments to IT infrastructure. The following aspects should be considered:

Receipt and Processing

For receiving e-invoices, an email inbox is initially sufficient. However, businesses should aim for automated processing in a timely manner. Modern ERP and accounting systems offer corresponding modules:

• DATEV offers a comprehensive solution with its e-invoicing platform for receiving, processing, and sending e-invoices. Integration with DATEV Unternehmen online enables an end-to-end digital process chain.
• Lexware has also expanded its products with e-invoicing capabilities and supports both ZUGFeRD and XRechnung.
• SAP, Sage, and other ERP providers offer corresponding modules and interfaces.

Creation and Sending

Various options are available for creating e-invoices: integrated functions in accounting software, specialized e-invoicing portals, or conversion services that transform existing invoices into the required format.

Archiving

E-invoices are subject to the principles of proper bookkeeping (GoBD -- Grundsätze ordnungsmäßiger Buchführung). The structured part of the e-invoice must be archived in a revision-proof and unalterable manner. For ZUGFeRD invoices, this means: Both the PDF and the embedded XML must be retained.

The European Context: The ViDA Directive

Germany's e-invoicing obligation exists within the context of the European VAT in the Digital Age (ViDA) package, which was adopted on March 11, 2025. From July 1, 2030, e-invoicing will be mandatory for intra-Community transactions across the EU. Germany is taking a pioneering role with its national regulation.

The ViDA directive also provides for a transaction-based reporting system (Digital Reporting Requirements) that will eventually replace the recapitulative statement. Businesses that invest in e-invoicing infrastructure now are laying the groundwork for upcoming EU-wide requirements.

Impact on SMEs: Challenges and Opportunities

For small and medium-sized enterprises in particular, the transition presents a challenge:

Challenges

• Costs: Investments in software, training, and process adjustments
• Expertise: Technical understanding of formats and standards
• Process changes: Established workflows must be adapted
• Business partners: Coordination with customers and suppliers regarding format selection

Opportunities

• Efficiency gains: Automated invoice processing saves time and reduces errors
• Cost reduction: Elimination of printing, postage, and paper archiving costs
• Faster payments: Automated processing accelerates the payment cycle
• Future-proofing: Preparation for the EU-wide ViDA obligation

Penalties for Non-Compliance

Non-compliance with the e-invoicing obligation can have significant consequences. While the UStG does not provide a standalone penalty provision for failure to use an e-invoice, a non-compliant invoice may result in the invoice recipient being denied input VAT deduction (Vorsteuerabzug). This effectively constitutes a substantial financial penalty.

Furthermore, violations of retention obligations under the Fiscal Code (Abgabenordnung -- AO) may be sanctioned. Inadequate archiving of e-invoices can lead to estimated assessments (Hinzuschätzungen) during a tax audit.

Practical Checklist: How to Successfully Transition

1. Take stock: Analyze your current incoming and outgoing invoice processing
2. Check software: Clarify with your software provider whether your accounting solution supports e-invoices (ZUGFeRD/XRechnung)
3. Ensure receipt capability: Set up at least a dedicated email inbox for receiving e-invoices
4. Choose a format: Decide on ZUGFeRD or XRechnung -- or both, depending on your client base
5. Conduct a test run: Send and receive test e-invoices with key business partners
6. Adjust archiving: Ensure your document management system archives e-invoices in compliance with GoBD
7. Train employees: Train your accounting team on the new formats and processes
8. Observe deadlines: Plan the transition well before the expiration of the transition period applicable to you
9. Involve your tax advisor: Coordinate the technical implementation with your tax advisor to ensure correct transmission and processing

Conclusion: Act Now, Don't Wait

Mandatory e-invoicing is not a distant prospect but current law. Even though the transition periods still provide some leeway, businesses should not procrastinate. The technical and organizational requirements need lead time -- and those who transition early also benefit early from the efficiency advantages of digital invoice processing.

At compleneo, we support you with the transition to e-invoicing -- from tax advice and format selection to integration with your existing processes. Get in touch with us.