Issue 02, September 2023
VAT Newsflash
Draft amendment to the German VAT Act
The German Government recently published its draft of the Wachstumschancengesetz (Growth Opportunities Act). Among other amendments to several other tax laws, it will make some important amendments to the German VAT Act – most notably, the introduction of mandatory electronic invoicing for certain business-to-business (B2B) transactions.
Mandatory electronic invoicing
Under current regulations, invoices may be submitted electronically under certain conditions (e.g. the recipient must grant their approval). However, these rules do not mandate a particular format; it is only necessary to ensure the authenticity of the origin, the integrity of the content and the legibility of the invoice. Under the Growth Opportunities Act, the definition of an “electronic invoice” or “e-invoice” is set to be narrowed down to mean invoices issued, sent and received in a particular structured electronic format and that can be processed electronically. Paper invoices and invoices in other electronic formats will be classified as “other invoices”. These “e-invoices” will be governed by the European standard for e-invoicing and the corresponding list of syntaxes under Directive 2014/55/EU of 16 April 2014. These standards are already compulsory – albeit not under VAT aspects – for invoicing to certain public bodies in Germany (business to government, or B2G).
Use of these new e-invoices will be compulsory if both the supplier and the customer are established in Germany, irrespective of their size and turnover. If this is not the case, electronic invoices of all kinds may be used subject to the recipient’s approval as before, but will not be mandatory.
Purportedly, mandatory e-invoices are a step towards the subsequent introduction of a federal reporting system for domestic B2B transactions. A Council Implementing Decision authorising a German derogation from the relevant provisions of the Main VAT Directive has already been passed. The draft Growth Opportunities Act states that mandatory e-invoicing is set to come into force in 2025. However, the draft also states that objections will not be raised if suppliers fail to issue e-invoices under the new rules during 2025, so the regulation will apply de facto from 2026 (or 2027 for suppliers whose total turnover does not exceed €800,000 in 2025). Another transitional rule in the draft states that electronic data interchange (EDI) invoices may be used instead of e-invoices under the new rules for transactions carried out up to the end of 2027 (for VAT purposes, not under other regulations).
This initiative will complement the proposed “VAT in the Digital Age” EU Directive, which will cover B2B intra-community supplies of goods. However, the timeline for this directive is currently unclear.
Other intended amendments
The Growth Opportunities Act is set to make a number of other amendments in terms of VAT, including measures to reduce bureaucracy for companies classified as small businesses under Section 19 of the German VAT Act. Small businesses are to be exempted from the obligation to submit preliminary VAT returns and annual VAT returns – except for certain transactions, such as intra-community acquisitions and reverse charging, or unless the tax authorities specifically request such returns. Changes are also to be made to the deadlines within which a small business may waive taxation under the small businesses regime, or revoke such a waiver. If the business’s tax burden for the previous calendar year does not exceed €2,000 (set to be increased from €1,000 under current regulations), the tax authorities may exempt the business from the obligation to submit preliminary VAT returns and to make corresponding payments. These changes will officially come into force on 1 January 2024, but the authorities are planning to apply the exemptions around submitting VAT returns from the 2023 tax year onwards.
Note
Experience suggests that draft laws are subject to change, sometimes to a substantial degree. In particular, it is by no means unusual for entire proposed amendments to the law to be added to or removed from later drafts.
Sources
Governmental draft (Regierungsentwurf) of the Growth Opportunities Act on the Federal Ministry of Finance website (in German only)
Council Implementing Decision (EU) 2023/1551 of 25 July 2023 authorising Germany to introduce a special measure derogating from Articles 218 and 232 of Directive 2006/112/EC on the common system of value added tax
© 2017 - 2023 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.
