Briefing Document: German VAT Updates and Changes
This document summarizes key developments and changes in German Value Added Tax (VAT) regulations based on provided sources, focusing on e-invoicing, exemptions, court rulings, and legislative amendments.
I. E-Invoicing Mandate & Digitalization
- Mandatory B2B E-Invoicing: Germany is implementing mandatory B2B e-invoicing for domestic transactions, starting January 1, 2025. This is a phased rollout:
- January 1, 2025: All VAT-registered businesses must be able to receive e-invoices. “From 1 January 2025, all VAT-registered businesses must be able to receive e-invoices.”
- January 1, 2027: Businesses with turnover above €800,000 must issue structured e-invoices. Larger businesses (turnover above €800,000) by January 1, 2027, and then for all businesses by January 1, 2028.
- January 1, 2028: All businesses must issue structured e-invoices. Paper invoices will eventually be phased out. Exceptions apply for invoices under €250 and those issued by small businesses (until 2028).
- E-Invoice Standards: E-invoices must comply with the European standard EN 16931. Acceptable formats are XRechnung and ZUGFeRD. “E-invoices must be issued in structured electronic formats that comply with the European standards (EN 16931).” Non-compliance with format standards results in the invoice being classified as an “other invoice.”
- Single Federal E-Invoicing Platform: The current dual-system setup will be replaced by a single federal e-invoicing platform, OZG-RE. “A single federal e-invoicing platform, OZG-RE, will replace the current dual-system setup.”
- GoBD Compliance: The “GoBD” (German Principles on Bookkeeping) has been updated to align with the e-invoicing mandate. For archiving, the structured XML component of e-invoices is the legally relevant element that must be archived. “The amendment specifies that for fiscal purposes, the XML component of structured e-invoices is the legally relevant element that must be archived, eliminating the requirement for a separate PDF copy, as long as a graphical representation can be generated on demand.” PDF components are optional unless they contain additional tax-relevant information. E-invoices must be archived for eight years with integrity, authenticity, and readability ensured.
- Reporting of Electronic Recording Systems: Starting January 1, 2025, companies and self-employed individuals must report electronic recording systems with TSE (Technical Security Equipment) to the tax office via the ELSTER platform or ERiC interface. “Starting January 1, 2025, companies and self-employed individuals in Germany must report electronic recording systems with TSE to the tax office.” This includes devices bought, rented, or leased. Devices in use before July 1, 2025, must be reported by July 31, 2025.
- Validation is Key: The BMF emphasizes the importance of validating electronic invoices against the EN 16931 standard. Validation tools are recommended for adherence to the European Norm (EN) 16931.
II. VAT Exemptions: Limitations and Clarifications
- Export Deliveries: The German Ministry of Finance is clarifying VAT exemption requirements for export deliveries, based on fiscal neutrality principles and recent court rulings. “The German Ministry of Finance issued a letter clarifying VAT exemption requirements for export deliveries.” Formal customs confirmation is not always required; alternative documents like certificates from German official bodies abroad and military transport documents can be accepted. “Acceptable substitute documents include certificates from German official bodies abroad, military transport documents, and customs clearance records from non-EU countries.” Zero-rating must be granted if substantive legal requirements are met, even if formal proof is lacking.
- Online Education: VAT exemptions for digital educational services are limited. Pre-produced content is generally not VAT exempt. VAT exemptions apply only to live and hybrid events. “VAT exemptions apply only to live and hybrid events, not to recorded or pre-produced content.”
- Distance Learning Protection Act (Fernunterrichtsschutzgesetz): This act is being broadly interpreted, affecting VAT for online education. Asynchronous teaching (recorded sessions) qualifies as spatial separation. VAT exemptions are only applicable to courses approved under the Act. If an online offering falls under the Act but lacks the necessary approval, the contract can be deemed void, potentially triggering VAT liabilities. “The Distance Learning Protection Act (Fernunterrichtsschutzgesetz) is being broadly interpreted, which has significant implications for online educational services.”
- Swimming Courses: From January 1, 2026, swimming courses and potentially other private educational services will be subject to the standard 19% VAT rate. “From January 1, 2026, swimming courses and other private educational services will be subject to 19 percent VAT.”
- Debtor and Insolvency Counseling: The VAT exemption for subcontractors in the public welfare sector and for debt counseling services remains unclear.
III. Key Legislative and Regulatory Changes
- Amendments to VAT Application Decree (UStAE): The BMF is issuing draft letters to amend the UStAE to provide further guidance on e-invoicing. The final publication of the revised VAT Application Decree is expected in the fourth quarter of 2025.
- Retention Period: The retention period for invoices has been reduced from ten to eight years. “The retention period for invoices has been reduced from ten to eight years.” This applies to invoices whose retention period has not expired by December 31, 2024. VAT records still have a ten-year retention period.
- DAC8 Implementation: Germany is implementing DAC8, introducing crypto reporting and due diligence rules, to be adopted by EU member states by December 31, 2025, with application starting January 1, 2026.
- GoBD Updates: Updated bookkeeping rules (GoBD) clarify archiving requirements for e-invoices, emphasizing XML archiving over PDFs.
IV. Significant Court Rulings & Interpretations
- ECJ on VAT Liability for Invoices: The ECJ clarified that each invoice must be assessed individually for VAT liability. “The ECJ confirmed that each invoice must be assessed individually for VAT liability.” In mass transactions, estimation is allowed but must be based on objective and verifiable data, which taxpayers must have the opportunity to contest.
- BFH on Combo Offers: The BFH rejected the “Food-and-Paper” method for allocating total price in discounted combo offers if it results in a proportional sale price for one product exceeding its individual sale price. “The BFH ruled that a method for dividing a total price for multiple food and drink items in a combo meal is inappropriate if it results in a proportional sale price for one product that exceeds its individual sale price.”
- BFH on § 14c Abs. 2 UStG Invoices: A document meets the requirements of a § 14c Abs. 2 UStG invoice if it includes the issuer, the recipient, a description of the service, the payment amount, and the separately listed VAT.
V. Other Important VAT Topics
- Intra-Community Supplies: Entrepreneurs should verify the VAT identification number of the recipient in cross-border trade.
- VAT Refunds for Non-EU Businesses: Germany has updated VAT refund rules for non-EU businesses with new digital submission guidelines.
- Voluntary Payments for Free Online Content: The German Federal Fiscal Court is reviewing a case on VAT treatment for voluntary payments for free online content.
- Cash Register Security Regulation (Kassensicherungsverordnung) effective July 23, 2025, will simplify technical rules and clarify legal uncertainties.
- The new single federal platform for e-invoicing in Germany is OZG-RE, which will be the only federal platform by December 31, 2025. Businesses using other systems will need to migrate to OZG-RE to remain compliant.
VI. Challenges and Future Directions
- Cross-Border VAT Compliance: Differences in VAT treatment for supplies involving installation between EU member states and Germany cause challenges in cross-border transactions.
- National Reporting System: The planned national reporting system for e-invoicing, intended to launch by July 1, 2030, alongside the EU-wide reporting system, faces challenges related to data protection and the need for a user-friendly state platform.
- VAT Cuts and Consumer Prices: Government studies suggest that VAT cuts may lower prices, but not all savings are necessarily passed on to consumers.
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