E-invoices in Germany: What businesses need to know

Invoicing
Invoicing

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  1. Introduction
  2. What are e-invoices?
  3. XRechnung: The German e-invoicing standard
  4. How do you create an e-invoice?
    1. Step-by-step guide to creating an e-invoice in XML
  5. What are the pros and cons of electronic invoicing?
    1. Pros
    2. Cons
  6. What does an electronic invoice need to be valid?
  7. How to comply with archiving laws when using electronic invoicing
    1. Key aspects of archiving laws for electronic documents

In the digital age, entrepreneurs, the self-employed, and founders are continually trying to optimize and digitalize their processes. E-invoicing, a form of electronic invoicing, has proven to be an effective method of saving time and resources while significantly reducing administration. In this article, you’ll find out what an e-invoice is; how to create one; the pros and cons; and the legal requirements that you’ll need to meet.

What’s in this article?

  • What are e-invoices?
  • XRechnung: The German e-invoicing standard
  • How do you create an e-invoice?
  • What are the pros and cons of electronic invoicing?
  • What does an electronic invoice need to be valid?
  • How to comply with archiving laws when using electronic invoicing

What are e-invoices?

An electronic invoice—often shortened to e-invoice—is an invoice created, sent, and received electronically. This format replaces traditional paper invoices with digital documents that can be shared online. E-invoices contain the same information as their physical counterparts—such as details of the product or service, prices, taxes, and payment details—but they are easier to process, store, and archive.

In several countries, e-invoicing is being encouraged through legislation because it helps to combat fraud and tax evasion. It also offers many other benefits. To be considered an official request for payment, electronic invoices must meet certain legal requirements.

XRechnung: The German e-invoicing standard

XRechnung is a standard for electronic invoicing in Germany that was developed specifically for the public sector. This is a standardized, digital format for sending invoice data aiming to improve efficiency, reduce errors, and speed up invoice processing. XRechnung is part of the public authorities’ digitalization efforts and meets the requirements of European Union Directive 2014/55/EU on promoting electronic invoicing in public sector contracting.

The XRechnung standard specifies a set of structured data that must be included in an electronic invoice to enable automated processing without any changes in medium. This includes information such as the invoice issuer, invoice receiver, performance period, invoice amount, and tax information. The standard supports both semantic and syntactic uniformity, which means that the data is sent in a predefined structure, and also in a clear, machine-readable format.

XRechnung is particularly relevant for suppliers and service providers working with German public authorities. As of November 27, 2020, all public contracting authorities in Germany must receive and process invoices in electronic format—for example, via XRechnung. This will increase transparency and efficiency in the public sector, and also contribute to the wider use and acceptance of electronic invoices in business.

How do you create an e-invoice?

To create an e-invoice, you need invoicing software or an online service that allows you to create invoices in the predefined electronic format.

Important elements of an e-invoice include:

  • Invoice issuer, including tax number, and invoice recipient
  • Unique invoice number
  • Invoice date
  • Description of goods or services provided
  • Amounts and taxes

The software should be able to generate invoices that meet the legal requirements and send them securely by electronic means. For e-invoices, XML format has proven to be very effective, as it offers a structured and standardized method of exchanging invoice data.

Step-by-step guide to creating an e-invoice in XML

  • Open your XML template: Start your preferred text processing application and open the XML template for e-invoices. This template should already contain the basic structures, such as tags for the invoice header, customer information, product information, and payment details.
  • Fill in the required fields: Go through the template and fill in all the required fields with the relevant information. Usually, this includes data such as the invoice date, invoice number, customer name and address, product description, quantities, unit prices, and total price.
  • Check the accuracy of the data: Once you have entered all the information, carefully check that all the data is accurate. Make sure that all amounts have been correctly calculated and that all the relevant details have been entered accurately and in full.
  • Validate the XML file: Use an XML validation tool or a similar feature in your text processing software to ensure that your XML file meets the required standards. This is an important step to ensure that the invoice will be processed properly and accepted.
  • Save the XML file: Once you are sure that your e-invoice in XML is correct and complete, save the file to your computer or cloud storage. Make sure to use a meaningful file name that clearly identifies the invoice.

What are the pros and cons of electronic invoicing?

Sending invoices digitally is becoming increasingly popular. This development has its pros and cons that apply to businesses and public authorities of all sizes.

Pros

  • Cost savings: Sending electronic invoices eliminates printing and shipping costs. Processing invoices digitally can also save on working hours that would otherwise be spent on manual tasks.
  • Payments received faster: Electronic invoices reach the recipient immediately, which can speed up the payment process. Several systems allow one-click payments, which can further shorten payment terms.
  • Improved efficiency: Creating, sending, and processing invoices digitally allows for more efficient accounting. Errors from manual data entry are reduced and the whole process is faster.
  • Eco-friendly: Doing away with paper helps to protect the environment and helps businesses reduce their carbon footprints.
  • Better traceability: Electronic invoices can be stored and archived more easily and can be retrieved when needed. This simplifies bookkeeping and makes it easier to comply with legal retention requirements.
  • Increased security: Many electronic invoicing systems offer strong security measures that reduce the risk of fraud and loss. Digital signatures and encryption ensure the authenticity and integrity of the invoices.

Cons

  • Technical requirements: Businesses will need to invest in the relevant software or services.
  • Resistance to the change: Customers or suppliers may be hesitant to move away from paper invoices.
  • Compatibility issues: Different standards and formats can cause compatibility issues between the sender’s and receiver’s systems, which would make it difficult to exchange the electronic invoices.
  • Security concerns: Despite the high security standards, there are concerns about data protection, data security, and the risk of cyberattacks. Businesses must ensure that their systems are up-to-date with the latest technology.
  • Legal requirements: Complying with the legal requirements for electronic invoices—including authenticity, integrity, and readability requirements—can be complicated. On top of this, the legal requirements differ from country to country.

Despite these disadvantages, the pros of electronic invoicing outweigh the cons for most businesses and public authorities. As ongoing digitalization and improvements in technical solutions continue to lower the hurdles for making the change, more and more businesses are choosing electronic invoicing.

What does an electronic invoice need to be valid?

For electronic invoices to be valid, they must meet the following legal and technical requirements. These criteria ensure that electronic invoices will be accepted by the financial authorities and that the data in them is trustworthy and unaltered.

  • Authenticity of origin
    Authenticity of origin means being certain that the invoice actually originated from the specified sender. This can be done in a variety of ways, including digital signatures, electronic data interchange (EDI), or by using an internal verification procedure to establish a reliable trail between an invoice and the supply of goods or services.

  • Content integrity
    Content integrity means that the content of the invoice was not altered after it was sent. Digital signatures or EDI processes also provide mechanisms to ensure that invoice data is unaltered.

  • Readability of the invoice
    An electronic invoice must be able to be read by people. This means that the invoice must be in a format that allows the parties concerned to view it, such as a PDF document. Readability must be guaranteed for the entire retention period required by law.

  • Regulatory compliance
    Electronic invoices must meet the same legal requirements as for paper invoices. This includes data such as the issue date; unique invoice number; the service provider’s tax identification number or value-added tax (VAT) identification number; full name and address of the service provider and recipient; quantity and type of the delivered goods or the scope and nature of the service provided; the payment for it and the amount of tax due; and the applicable tax rate or tax exemption notice.

  • Retention and archival
    Both the issuer and receiver of an electronic invoice are required to retain the invoice for the period required by law (in many countries this is 10 years). The storage system must allow the invoices to be accessed within a reasonable period of time and the above requirements for authenticity, integrity, and readability must be met over the entire retention period.

  • Consent of the recipient
    In many legal systems, the prior consent of the receiving party is required to be able to send electronic invoices instead of paper copies. Consent may be given expressly or tacitly, but it must comply with the statutory provisions.

How to comply with archiving laws when using electronic invoicing

Archiving of electronic invoices must comply with the law, including regulations relating to retention periods and ensuring readability throughout the entire period. Businesses must ensure that electronic invoices are stored in a way that allows them to be accessed at any time and viewed in a format corresponding to that of the original document.
These regulations aim to guarantee the authenticity, integrity, and readability of electronic documents over a defined period of time. The exact requirements vary from country to country, but some basic principles are largely standardized.

Key aspects of archiving laws for electronic documents

  • Authenticity and integrity
    The archiving system must guarantee that the authenticity of origin and content integrity of electronic documents are retained over the entire archiving period. This means that it must be possible to prove that the invoices actually originated with the specified sender and that their content has not been changed since they were issued. Technology such as digital signatures or specialized archiving systems, which store files in an uneditable state, plays a central role in this.

  • Readability and accessibility
    Electronic invoices must be archived in a format that guarantees that the file will remain human-readable for the entire retention period. Invoices must also be made available for inspections and audits within a reasonable period of time. Specialized software is often required for this, which facilitates the long-term readability and fast retrieval of the documents.

  • Retention periods
    The above-mentioned legal retention periods for electronic invoices vary from country to country. In Germany, it is 10 years. During this period, businesses must be able to provide all archived invoices to the financial authorities upon request. Contact the relevant tax authority or a tax consultant for the exact deadlines and requirements.

  • Data privacy
    Data protection regulations must also be observed when archiving electronic invoices. Personally identifiable information contained in invoices must be protected as per the relevant data protection law, such as the General Data Protection Regulation (GDPR) in the European Union. This includes data security measures and restrictions on access to and the processing of this data.

  • Technical and organizational measures
    Businesses must take technical and organizational measures to ensure compliance with archiving regulations. This includes choosing suitable archiving systems, regularly checking data security, and protecting against data loss. Implementing a reliable document management system is often an important step in meeting these requirements.

For detailed information on a wide range of bookkeeping and financial management issues affecting businesses, visit the Stripe resources portal. There is also a specific section on invoicing. For support and advice on all aspects of your business’s invoicing, start now with Stripe.

The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.

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