Germany’s 2025 E-Invoicing & VAT Amendments: Key Updates for Small Businesses

December 8, 2024

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The beginning of 2025 brings many novelties to taxable persons in Germany, from new B2B e-invoicing rules to VAT amendments that concern small businesses. Several acts are essential for these novelties, including the Annual Tax Act, the Fourth Bureaucracy Relief Act, and the Growth Opportunity Act.

E-Invoicing Implementation and Changes in VAT Thresholds

The Growth Opportunity Act defines a three-phased rollout of mandatory B2B e-invoicing. The first phase starts on January 1, 2025, and marks the beginning of obligations for all taxable persons to accept e-invoices. The second phase will begin in 2027, requiring most businesses to issue e-invoices. The final third phase will start in 2028, and from that moment, small businesses with annual turnover below EUR 800,000 will be subject to B2B issuing e-invoicing rules.

The retention period for archiving VAT records will decrease from ten to eight years. However, the retention period for other documents, such as inventories or annual financial statements, will remain at the current ten years.

Amendments to the VAT regulatory framework state that the small businesses VAT exemption threshold will increase from EUR 22,000 to EUR 25,000 starting January 1, 2025.

In addition, small businesses have another threshold of EUR 50,000. Under this threshold, small businesses that did not exceed EUR 22,000 in the previous fiscal year and estimate that their turnover for this fiscal year will be below EUR 50,000 could still benefit from the small business regime. Now, that second threshold will be increased to EUR 100,000.

Conclusion

E-invocing rules are mandatory for all taxable persons established in Germany. Paper and other electronic invoices will be allowed in cases where e-invoices are not strictly required and the recipients' consent is needed.

From 2025, all businesses must fulfill all technical and other requirements to receive B2B e-invoices, while the obligation to issue e-invoices will be gradually implemented.

Source: KPMG, EY, Annual Tax Act 2024 (Annual Tax Act 2024 - JStG 2024), Fourth Bureaucracy Relief Act, Federal Ministry of Finance

What is the timeline for Germany's mandatory B2B e-invoicing rollout?

The rollout begins on January 1, 2025, requiring all taxable persons to accept e-invoices. In 2027, most businesses will be obligated to issue e-invoices, with small businesses following in 2028.

What changes are being made to the VAT thresholds for small businesses in Germany?

From January 1, 2025, the VAT exemption threshold will increase from EUR 22,000 to EUR 25,000. Additionally, the threshold allowing small businesses to benefit from the VAT regime will rise to EUR 100,000.

How will the retention period for VAT records change?

Starting in 2025, the retention period for VAT records will decrease from ten years to eight years. However, other records like inventories and financial statements will still require a ten-year retention.

Will paper invoices still be allowed under the new e-invoicing rules?

Yes, paper and non-strict electronic invoices will still be permitted when e-invoices are not mandatory, provided the recipient consents to receive them.

Who must comply with Germany's e-invoicing rules?

All taxable persons in Germany must comply with the e-invoicing rules, meeting technical and other requirements to accept B2B e-invoices starting in 2025.

How will the changes affect small businesses with annual turnover below EUR 800,000?

Small businesses with annual turnover below EUR 800,000 will need to issue e-invoices by 2028 as part of the third phase of the e-invoicing rollout.

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