E-Invoicing Mandate for B2B Transactions

The German e invoicing mandate at a glance

Germany's e invoicing mandate for domestic B2B transactions is being phased in between 2025 and 2028. Since 1 January 2025, every business established in Germany must be able to receive structured electronic invoices from other German businesses.

The obligation to issue them follows in stages: for supplies made in 2025 and 2026, paper invoices and other electronic formats such as PDF remain permitted, the latter with the recipient's consent; for supplies made in 2027, businesses with total turnover of no more than EUR 800,000 in the previous year, and invoices exchanged by EDI, still benefit from a transitional period; from 1 January 2028, structured e-invoices are mandatory for all domestic B2B supplies within the scope (§ 27(38) of the VAT Act, UStG).

An e-invoice in the legal sense is not a PDF. Under § 14(1) UStG, an electronic invoice is an invoice issued, transmitted and received in a structured electronic format that enables electronic processing, and the format must comply with the European standard for electronic invoicing (EN 16931) or be agreed between the parties provided the required data can be correctly extracted into a compliant format. In practice, businesses use XRechnung or ZUGFeRD in a profile that meets the standard. Other formats, such as industry-specific XML standards, are possible only if they meet the extraction requirement and both parties agree on them. All other invoices, on paper or in unstructured electronic formats, are “other invoices”.

Who is covered by the e invoicing mandate

The obligation to issue an e-invoice applies to supplies by a business to another business for its business, where both the supplier and the recipient are established in Germany (§ 14(2) sentence 2 no. 1 UStG). A business is established in Germany if it has its registered office, place of management or a permanent establishment involved in the supply in Germany, or, failing these, its residence or habitual abode. Supplies to consumers, supplies by or to foreign businesses without a German establishment, and VAT-exempt supplies under § 4 nos 8 to 29 UStG, such as many financial and medical services, are outside the mandate.

Two practical exceptions are important. Invoices for small amounts with a total of no more than EUR 250 may always be issued as other invoices (§ 33 of the VAT Implementing Ordinance, UStDV), as can travel tickets. Self-billing (credit notes issued by the customer) is still possible but must meet the e-invoice requirements where the mandate applies. The receipt obligation applies to every business established in Germany, including small businesses and those making only exempt supplies; they need at least an e-mail inbox where e-invoices can be received and a way to read the structured data.

Formats: XRechnung, ZUGFeRD and EDI

The two most common formats in Germany are XRechnung, a pure XML format developed for public procurement, and ZUGFeRD, a hybrid format that combines a PDF for human readers with embedded XML data. ZUGFeRD profiles that meet the European standard qualify as e-invoices; the minimum and basic profiles do not. Where a hybrid invoice is used, the structured data prevails over the PDF image. EDI formats used in industries such as automotive and retail can qualify if the data can be extracted into a compliant format, and they enjoy a transitional period until the end of 2027 even where they do not yet meet that requirement.

The German model is a post-audit system without a central clearing platform: invoices are exchanged directly between the parties by e-mail, via interfaces or through service providers, and no real-time reporting to the tax authorities is required at present. This is expected to change when the EU's VAT in the Digital Age package introduces digital reporting requirements for cross-border B2B transactions from 1 July 2030, and a domestic reporting system based on e-invoices may follow in Germany.

Input tax deduction and archiving

Input tax deduction requires a proper invoice. Where the e invoicing mandate applies and the transitional rules have expired, a paper or PDF invoice for a domestic B2B supply will not be a proper invoice, and the recipient risks losing its input tax deduction until a correct e-invoice is issued. Recipients should therefore check that suppliers' invoices meet the requirements and request corrections where necessary.

E-invoices must be archived in their original structured form for the statutory retention period, and the archive must allow machine evaluation. Since 2025, the retention period for invoices under § 14b(1) UStG is eight years. Where a hybrid format is used, the XML data is the decisive part and must be stored unchanged. Converting e-invoices to PDF and deleting the XML is not compliant.

Implementing the e invoicing mandate

1. Inventory: identify all invoice flows, both outgoing and incoming, by volume, counterparties and current formats, including credit notes and self-billing.
2. Systems: confirm that ERP, accounting and archiving systems can create, validate, receive and store XRechnung and ZUGFeRD files, or select a service provider.
3. Master data: clean customer and supplier master data, including addresses, VAT identification numbers and routing information for invoices.
4. Counterparties: agree formats and channels with key customers and suppliers, and use the transitional periods for testing.
5. Processes: redesign approval workflows to use structured data, and train staff on rejecting non-compliant invoices.
6. Documentation: update the internal control system and the procedural documentation required for tax purposes.

Illustration: a German machinery supplier with annual turnover of EUR 5 million invoices customers by PDF e-mail. From 2027, it no longer benefits from the transitional rule for small businesses because its turnover exceeds EUR 800,000, so it must issue structured e-invoices for supplies made in 2027 unless it uses qualifying EDI. If it continues to send PDFs, its customers risk losing their input tax deduction and are likely to reject the invoices, delaying payment.

Special cases under the e invoicing mandate

Credit notes, corrections and advance payments

Self-billing credit notes issued by the customer, corrections of earlier invoices and invoices for advance payments are all invoices for VAT purposes and follow the same rules. A correction of an e-invoice must itself be issued in a structured format where the original supply falls within the mandate; correcting a structured invoice by sending a PDF letter is not sufficient. Final invoices after advance payments must refer to the advance invoices and deduct the VAT already invoiced, and the structured data must reflect this correctly so that the recipient's system can process it.

Mixed supplies and continuing contracts

Where a contract covers several supplies, some taxable and some exempt, the mandate applies to the invoice if it covers taxable domestic B2B supplies. For continuing obligations such as rent or leasing, where a contract often serves as the invoice together with payment documents, businesses should check against the administrative guidance of the Federal Ministry of Finance how such contracts are treated once the transitional periods end, and plan to document changes in structured form. Businesses with large portfolios of such contracts, for example in commercial real estate, should review them systematically.

VAT groups and intra-group invoices

Supplies within a German VAT group (Organschaft) are not taxable supplies, so internal accounting documents within the group are not invoices and are not covered by the e invoicing mandate. Supplies between group companies that are not members of the same VAT group, or between German and foreign group companies with German establishments, may be covered. Groups should map their legal entities and VAT groups carefully, because shared service centres often issue invoices on behalf of several entities.

Contractual and commercial aspects

The mandate also affects contracts. Supply and framework agreements frequently contain clauses on the form of invoices, payment terms that start with receipt of a proper invoice, and penalties for late payment. Buyers should update their general terms of purchase to require compliant e-invoices, specify the accepted formats and channels, and make the start of payment periods conditional on receipt of a valid e-invoice.

Suppliers should ensure that their general terms of sale allow them to send e-invoices to an address specified by the customer and that the customer's consent is documented where other electronic formats are still used during the transitional periods. Where EDI is used, existing EDI agreements should be checked for compatibility with the European standard before the end of 2027. Logistics and procurement teams should be involved early, because the e-invoice often needs order numbers and delivery references that are not captured in today's invoices.

Foreign businesses and public procurement

Foreign businesses without a German establishment are not obliged to issue e-invoices under the German e invoicing mandate, but German customers may prefer or require them, and the German VAT rules on invoice content still apply where the supplier is registered for German VAT. A foreign company with a German permanent establishment involved in the supply is treated as established in Germany for this purpose. For supplies to public authorities, separate rules under procurement law have required e-invoices for some years; suppliers to federal authorities must use the government's invoice portals. Our article on VAT in Germany for foreign businesses explains the wider VAT framework.

How TRW & Co helps with the e invoicing mandate

We advise businesses on the legal side of the e invoicing mandate: scope analyses for group companies and permanent establishments, contract clauses on invoice formats and input tax risks, self-billing arrangements, archiving obligations and the interaction with the EU's VAT in the Digital Age package. We work alongside IT and tax compliance providers and represent clients in VAT audits where invoicing questions arise. Further information is available on our tax and private clients page, or contact us. This article provides general information and is not tax or legal advice.