Reverse invoices in Germany explained

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  1. 导言
  2. What is a reverse invoice?
  3. What is the difference between a reverse invoice and a credit note?
  4. When does a reverse invoice have to be issued?
  5. What information does a reverse invoice have to contain?
  6. What does the template for a reverse invoice look like?
  7. What are other important things to know about reverse invoices?

Invoices may sometimes contain errors. In such cases, companies create a reverse invoice, also known as a “corrective invoice.” Our article summarizes the most important information you should know: what a reverse invoice is, when it has to be issued and when it’s optional, and what mandatory information it has to contain for legal purposes. We also provide a template to make it quick and easy for you to issue your own reverse invoice.

What’s in this article?

  • What is a reverse invoice?
  • What is the difference between a reverse invoice and a credit?
  • When does a reverse invoice have to be issued?
  • What information does a reverse invoice have to contain?
  • What does the template for a reverse invoice look like?
  • What are other important things to know about reverse invoices?

What is a reverse invoice?

A reverse invoice is used to correct or revoke an incorrect initial invoice. The terms “corrective invoice” or “invoice correction” are also used in this context. The initial invoice is canceled by the reverse invoice, so that a new, correct invoice can be issued. This process is necessary as incorrect invoices cannot be corrected manually by the recipient.

What is the difference between a reverse invoice and a credit note?

According to Section 14 of the German VAT Act (Umsatzsteuergesetz, abbreviated to UStG), a credit acts as a kind of reverse invoice, which is used for bonus or commission payments. The credit could also once be used to correct or revoke incorrect invoices. For example, if a company invoiced someone for 200 euros more than it should have, a credit for the same amount would duly follow. Since July 1, 2013, when there was a change to the German VAT Act, this is no longer possible. The law now states that any correction of an invoice must take the form of a reverse invoice. Credits may now only be used for their original purpose, as a kind of clearing credit.

When does a reverse invoice have to be issued?

Reverse invoices are needed when a company sends an invoice, but quickly realizes that it contains an error, or when the other party gets in touch to say an invoice number is missing or an amount is incorrect. But a reverse invoice does not have to be issued for every single typo. For example, transposed letters in the service description are not a problem—as long as the actual meaning of the content is not affected.

What really matters is the mandatory information prescribed by law in accordance with Section 14 para. 4 UStG—this must be included on the invoice and must be correct. It includes names and addresses, the invoice number, the service period and date of issue for the invoice, a service description, the tax number or VAT identification number, the net amount, tax amount, and gross amount including the tax rate, as well as, where applicable, an additional note regarding the exemption for small businesses. Errors can easily slip in—particularly when previously issued invoices are used as a template for new invoices. When this is the case, it is easy to forget to update the date or the invoice number, or include an incorrect tax rate.

Another key factor in whether a reverse invoice needs to be issued is whether or not the other party has already recorded the invoice in their accounting system. If no payment has been made yet, a reverse invoice may be issued, although this means more paperwork compared to the second option. The simple alternative is for both parties to agree to rewrite and issue the invoice with the same invoice number. An optional corrective document may be forwarded, adding any missing or correcting any incorrect information. The corrective document would need to make a clear reference to the invoice that needs to be corrected, by stating the invoice number, although the corrective document itself is not given a new invoice number. If the invoiced service has already been recorded in the other party’s accounting system, there is no alternative, and a reverse invoice must be issued.

But reverse invoices are not only necessary when an invoice is issued incorrectly; they can also be used for refunds. This is always the case when the service promised by the company has not been provided in full, at all, or to an adequate standard. This applies to incomplete deliveries of goods or in the event of complaints.

What information does a reverse invoice have to contain?

As with standard initial invoices, reverse invoices have to meet all statutory requirements in terms of mandatory information. Some specific points are worth noting, however: instead of “invoice,” the document must be clearly marked as a “reverse invoice,” “corrective invoice,” or “invoice correction.” It will contain a new invoice number of its own and should make a clear reference to the invoice that needs to be reversed by quoting the relevant number and date: "We are hereby reversing invoice [invoice number] of [invoice date]."

The service description or invoice item is copied from the original invoice on a one-for-one basis. The invoice amount at the end of the reverse invoice and any VAT amounts are recorded as minus figures, so prefixed with a minus sign. This is where the reverse invoice differs from the credit, which does not show any negative amount. The best way to finish the reverse invoice is to state how and when the amount due will be reimbursed. Another option, besides a reverse transfer, is to perform offsetting against any outstanding bills.

According to Section 14 para. 4 UStG, reverse invoices must contain the following mandatory information:

  • Name and address of the invoice issuer
  • Name and address of the invoice recipient
  • Tax number or VAT identification number
  • Issue date for the reverse invoice
  • Marked as “reverse invoice” (instead of “invoice”)
  • New serial invoice number
  • Invoice number for the original invoice
  • Issue date for the original invoice
  • Service description or invoice item (same as for the original invoice)
  • Net, gross, and total amount recorded as minus figures
  • Tax rate and the tax amount recorded as a minus figure
  • Possibly an additional note regarding the exemption for small businesses

What does the template for a reverse invoice look like?

It is, of course, possible to create your own reverse invoices manually—the relevant amendments can be made to the original invoice. With manual revision, however, there is the risk of forgetting or overlooking something. These errors could be picked up on during a company audit and prove costly. So companies should always take great care when creating invoices, and it is best to double-check whether the reverse invoice contains all the main mandatory information. A model form, serving as a template, can make this even easier and save time, too.

With the help of certified payment service providers, companies also have the option to fully automate their invoicing process. Smart invoicing programs are able to create and send invoices instantly. Payments can also be collected and transactions completed. It’s a scalable approach to invoicing that frees up resources and reduces error rates.

What are other important things to know about reverse invoices?

Once the reverse invoice has been created, the new, corrected invoice should be set up. This will ensure it is not forgotten and can be sent directly with the reverse invoice. Three documents are then archived in the physical or virtual records in relation to the specific process: the incorrect initial invoice, the reverse invoice, and the new, corrected invoice. In Germany, a retention obligation applies to invoices and business documents of all kinds, which obliges companies to hold these for at least 10 years. This is particularly applicable to reverse invoices: these are very closely inspected during company audits as they fall under the general suspicion of VAT and tax manipulation. So companies should retain the documents with great care and always be in a position to state the reason for reversal in each case.

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