From January 2025, the use of electronic invoice, or e-invoice (E-Rechnung in German), will be mandatory for B2B companies. While some businesses must transition earlier, solo entrepreneurs and small businesses have grace periods. But what exactly is an e-invoice, what needs to change, and by when does the transition need to happen? Let’s explore these questions and more.
What is an e-invoice?
The shift to electronic invoicing in the public sector began in 2017 with the introduction of the „Verordnung über die elektronische Rechnungsstellung im öffentlichen Antragswesen des Bundes“ (“Regulation on Electronic Invoicing in Federal Application Processes”).
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Starting in 2025, with the enactment of the Wachstumschancengesetzes (Growth Opportunities Act), this obligation will extend to all companies and solo entrepreneurs in the B2B sector. The legal basis is already in place under the amended VAT Act (§ 14), which defines an e-invoice as:
“An electronic invoice is a bill issued, transmitted, and received in a structured electronic format, allowing for automated electronic processing.”
— Artikel 23, Änderung des UmsatzsteuergesetzesBundesgesetzblatt Teil I (27.03.2024)
Simply put, an e-invoice is like a regular invoice containing the same required details but formatted electronically and structured according to the European invoicing standard EN 16931. This format enables machine readability.
Although invoices are already being sent digitally today, such as PDFs via email, these documents do not count as E-invoices and will no longer be legally compliant from 2025.
Why introduce e-invoicing?
The introduction of the e-invoice is part of a larger plan by the European Commission to combat VAT fraud. This is related to the proposal for the ViDA directive – “VAT in the Digital Age.” The Commission aims to introduce an electronic reporting system for VAT payments, which is expected to be implemented by 2032. Some European member states have already switched to e-invoices, and Germany will follow by 2028.
Pros and cons of e-invoice
Advantages for invoice issuers
Until 2027, invoices can still be created in any format as long as they include the legally required details and the recipient agrees to the format.
This means that in some invoices, the fields for sender and recipient might be on the left side of the document, while in others, they are on the right. Some may use tables to list quantities, services, and hours, while others might rely on bullet points or plain text.
This is precisely where the new regulation comes into play, introducing uniformity in how invoices should look. Even when using the ZUGFeRD format, the structure of the data remains consistent, regardless of visual presentation.
In addition to standardization, there are other benefits. For example, invoice issuers will save money on postage and the shipping of paper invoices, and archiving costs (no folders or storage issues) will also be eliminated. Additionally, automated invoicing through software can save freelancers valuable time, allowing them to focus more on their projects.
Disadvantages for invoice issuers
For invoice issuers, the introduction of the e-invoicing mandate also brings a few drawbacks. Since accounting software or at least some form of technical support will now be required, freelancers will first need to invest time in choosing the right software.
This may involve upfront costs, and it will be necessary to ensure that technical requirements are met. Additionally, learning how to use such a tool can take time, which might be challenging to fit into a freelancer’s busy schedule, even if it promises long-term benefits.
Another downside: once you’ve transitioned to suitable software, you become highly dependent on it. With client and supplier data, invoices, and related information stored exclusively in one tool, technical issues, server outages, or cyberattacks could severely disrupt the invoicing process.
Advantages for invoice recipients
There are also several advantages of e-invoicing for clients or recipients. For example, they can process incoming invoices more efficiently through automated and standardized workflows, saving time in the process. Most tools automatically validate e-invoices, checking for accuracy and completeness, which eliminates the need for manual verification or recalculations—such as ensuring the VAT amount is correct. Additional benefits include:
- Lower costs due to reduced manual processing
- More environmentally friendly processes through reduced paper consumption
- Easier archiving thanks to digital data storage
Disadvantages for invoice recipients
Not only businesses and freelancers need to adapt; clients also need to prepare for receiving e-invoices. For instance, if you’ve worked with a client who previously printed, manually processed, and filed their invoices, these adjustments will pose challenges during the transition to e-invoicing.
First, the appropriate software and technical infrastructure must be implemented. Only then can e-invoices be received, processed, and archived in compliance with legal requirements and GoBD standards starting in 2025. Additionally, invoice recipients must protect themselves against cyberattacks and technical issues.
Who must issue and receive e-invoices?
Until now, the e-invoicing obligation applied only to B2G transactions—services invoiced to the federal government (Business-to-Governance). With the new Wachstumschancengesetz (Growth Opportunities Act), passed on March 27, 2024, this requirement will be extended to all businesses based in Germany in the Business-to-Business (B2B) sector starting in 2025.
From 2025 onward, every business must be able to receive e-invoices. This means that even solo self-employed individuals, such as freelancers, will need to accept, process, and archive electronic invoice formats.
Exemptions:
In these cases, freelancers may still issue paper invoices or send invoices in PDF format.
Transition deadlines
Although all companies in the B2B sector must be able to receive e-invoices starting in 2025, not every company will be required to issue e-invoices from January of that year. Since many organizations are expected to face significant transition challenges, such as those not yet using suitable software for invoice creation, the government has introduced transition periods.
Accordingly, until the end of 2025, companies can still send paper invoices or, with the recipient’s consent, “other” invoices in PDF format. Starting in 2027, the transition will be mandatory for all B2B companies, except small businesses (Kleinunternehmer).
How to create e-invoices
With the introduction of e-invoicing, freelancers and other business owners can no longer use invoice templates in Word, Excel, or PDF format, as these no longer comply with the new standard. According to legal requirements, the following formats are permissible:
- XML invoices (XRechnung)
- ZUGFeRD
These new formats allow for the fully electronic creation, transmission, and processing of invoice data. Below, we’ll explain in detail what these formats entail and how self-employed individuals can create invoices in the required formats.
Invoices that do not comply with the XML format or ZUGFeRD will be classified as “other invoices” starting in 2025. This includes paper invoices or those sent as PDF or other file formats (e.g., Word, JPG, PNG, etc.).
E-invoice in XML Format
Electronic invoices created in XML format are also called XRechnung. XML stands for Extensible Markup Language. It is a universal format that structures data and makes it machine-readable. This allows data to be easily extracted and processed by programs.
Visually, XML files resemble HTML documents, like those used on websites. Just like HTML, XML uses tags (<>) that enclose the data and structure it. This way, the program processing the invoices knows which data belongs where.
The term XRechnung or “Standard XRechnung” refers to the national implementation of the European Standard EN 16931. Each European member state sets its own requirements, which the E-invoice in XML format must comply with.
An example of an e-invoice in XML format, according to the German government, looks like this:
E-invoice as ZUGFeRD
The abbreviation ZUGFeRD stands for “Zentraler User Guide des Forums elektronische Rechnung Deutschland,” which translates to the Central User Guide of the Forum for Electronic Invoice Germany. It is a hybrid model combining XML and PDF, where the XML files are embedded in the PDF so that both humans and machines can easily process them.
Advantages of ZUGFeRD
- A combination of a human-readable PDF and a machine-readable XML file
- Easy data processing
- Complies with legal standards
- Supported by many software systems today
For humans, a ZUGFeRD invoice looks just like a PDF file. However, software or systems can automatically extract all necessary data.
Creating e-invoices
When creating an e-invoice – whether in XML or ZUGFeRD format – strict legal requirements must be met. To avoid negative consequences, freelancers and other business owners should use specialized software. Accounting software is typically well-suited for this purpose.
To receive E-invoices electronically and comply with the 2025 requirement, all you need is an email account. The invoice data can then be manually extracted or processed with software. The advantage of using software is that it not only allows you to create E-invoices but often also helps you digitally store other data and documents in one place, such as customer data, legally compliant and consecutive invoice numbers, pre- and value-added taxes, and much more.
With modern tools, the invoice creation and data management can even comply with GoBD (Principles of Proper Accounting and Documentation). Some examples of suitable invoicing software that supports E-invoices in XML or ZUGFeRD format include:
- PDF24 Tools (free)
- Billomat
- FastBill
- Lexware
- SevDesk
- Sage
- DATEV Unternehmen Online
Can electronic invoices be created without accounting software?
In theory, it is also possible to manually create XML invoices using a text editor. However, this approach is not really recommended, as you must be thoroughly familiar with the legal requirements and structuring data in XML format. Otherwise, errors may occur during accounting that could result in the business partner not recognizing the invoice, being unable to receive it, or the invoice not being legally valid.
How and for how long must e-invoices be stored?
Just like all previous invoices, e-invoices must comply with the GoBD („Grundsätze zur ordnungsmäßigen Führung und Aufbewahrung von Büchern, Aufzeichnungen und Unterlagen in elektronischer Form sowie zum Datenzugriff“). This means that when handling e-invoices, the following points must be considered:
- E-invoices must be stored in their original format (e.g., XML or ZUGFeRD)
- Electronic invoices must be stored for a period of 10 years
- It is important that the storage is audit-proof (protection against data loss, manipulation, and loss of readability)
FAQ
How does the e-invoice work?
An e-invoice is created in a structured, machine-readable format (e.g., XML), which allows for automatic processing. It is transmitted electronically and must comply with certain standards such as XRechnung or ZUGFeRD.
Who must issue an e-invoice?
Businesses and freelancers who conduct B2B transactions within Germany must issue e-invoices by the end of 2026. Exemptions apply to small businesses with annual revenues expected to be less than 100,000 euros (revenue threshold valid from 2025).
What do I need to create an e-invoice?
E-invoices in XML or ZUGFeRD format can be created using modern accounting software, such as SevDesk, Billomat, FastBill, DATEV, Lexware, or Sage. Alternatively, free tools like PDF24 Tools can also be used.
When will the e-invoice be mandatory?
Receiving e-invoices will be mandatory in Germany from January 1, 2025, for all domestic B2B transactions. Even small businesses must be able to receive, process, and archive e-invoices.
Who has what transition periods?
From 2025 to 2026, all businesses can still use paper or PDF invoices if the recipient agrees.
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