Update: The Growth Opportunities Act and VAT

The recently passed law to strengthen growth opportunities, investments and innovation as well as tax simplification and tax fairness (Growth Opportunities Act) also contains various aspects of VAT law. We had already commented on the draft bill published in mid-July 2023.

The Growth Opportunities Act was already passed by the Bundestag, the German parliament, in November 2023, but was then initially discussed in the Mediation Committee due to an appeal by the Bundesrat, the Federal Council. A compromise was finally reached in the Mediation Committee in February 2024 and the law was promulgated at the end of March 2024. This compromise, and therefore also the adopted law, contains various changes compared to the draft bill.

Key Takeaways

The Growth Opportunities Act reduces bureaucratic obstacles in VAT law and strengthens Germany as a business location. Small businesses in particular will benefit from the changes to VAT law.

Above all, however, all companies of all sizes should be addressing the topic of e-invoicing now at the latest and preparing to introduce e-invoicing into their billing system or upgrade their existing systems accordingly. Paper and PDF invoices will no longer be sufficient in most cases if e-invoicing becomes mandatory from  1 January 2025. With the transitional regulations, the legislator is attempting to give the affected companies sufficient time to convert their internal systems. The Growth Opportunities Act is therefore a good opportunity to use the next few months to digitize internal processes and thus reduce bureaucratic hurdles within the company.

The following points implemented in the law are of particular interest for business practice:

• Obligation to issue e-invoices from 2025
• Exemption of small businesses from the obligation to submit advance VAT returns and annual VAT returns
• Increase in the total turnover threshold for actual VAT taxation
• Raising the threshold for a possible exemption from the obligation to submit advance VAT returns
• Obligation to notify the commencement of a VATable activity in Germany

Changes compared to the draft bill:

• Complete abolition of the climate protection investment premium
• No introduction of a notification requirement for national tax arrangements
• No tax reductions to the extent announced in the draft
  • Increase in the limit for low-value assets
  • Extension of the loss carryback

Obligation to issue e-invoices from 2025

The e-invoicing obligation applies to all invoices issued by a business to another business for the latter's company, provided that the service is taxable in Germany and both businesses are based in Germany.

Residency is established by the registered office, the management or a permanent establishment in Germany. If there is no registered office in Germany, a domicile or habitual residence is sufficient. The permanent establishment must be involved in the relevant turnover for the e-invoicing obligation to apply. A business who is registered for VAT in Germany but is not domiciled here is therefore not subject to the e-invoicing obligation.

Small-value invoices (total amount does not exceed EUR250) and invoices for tickets are also excluded from the scope of the e-invoicing obligation.

This e-invoicing obligation for domestic B2B sales will now be introduced from 1 January 2025, ie ahead of the timeframe originally set by the European Commission. Germany was granted authorization for this in advance. In principle, all invoices for domestic B2B transactions between domestic companies must be issued as e-invoices. Until 31 December 2026, paper and PDF invoices will remain permissible within the scope of the e-invoicing obligation for transactions carried out before 1 January 2027.

In 2025 and 2026, companies can choose to send bills on paper or in other electronic formats; however, sending invoices in other electronic formats will require permission from the recipient. As a result, companies that are hesitant to use e-invoicing need to set up a procedure for getting customer approval. Businesses who generated more than EUR800,000 in revenue the year before will have to start issuing electronic invoices in 2027.

An e-invoice is defined as an invoice issued, transmitted and received in a structured electronic format that enables electronic processing. So-called "other invoices" are all other invoice formats such as paper or PDF invoices.

In the meantime, the German Federal Ministry of Finance (BMF) has also clarified that the already established XStandard and ZUGFeRD systems (from version 2.0.1) meet the requirements of the European standard for electronic invoicing (Directive 2014/55/EU) and can therefore also be used as part of mandatory e-invoicing in the B2B sector.

Section 14.4 of the Administrative Provisions to the German VAT Act (UStAE) will be amended with regard to hybrid invoices, according to the Federal Ministry of Finance. As soon as electronic invoicing is mandatory for B2B transactions, the part of the invoice that can be read by the human eye will no longer be decisive. Instead, the electronically structured part, which only becomes readable through conversion, will be used to assess the validity of the invoice.

If electronic invoices are transmitted via an EDI interface, CEN standard 16931 is only applicable from 1 January 2028. This means that if an EDI interface is used, invoices can also be issued and sent as other invoices in a different electronic format up to and including 31 December 2027 with the consent of the recipient.

Further changes

The draft Growth Opportunities Act will provide relief for small businesses in particular. The new versions of Sections 18 and 19 of the German Value Added Tax Act (UStG), which affect small businesses, will be applied for the first time for the 2024 tax period.

According to Section 19 UStG, small businesses will in future be exempt from the obligation to submit advance VAT returns and annual VAT returns. However, the exemption only applies insofar as the small business regulation is applied, there is no case of § 18 para. 4a UStG and the tax office has not requested the business concerned to submit the return. The possibility of waiving the application of the small business regulation and the revocation of the same waiver has also been newly regulated.

In addition, the total turnover threshold in accordance with Section 20 sentence 1 no. 1 UStG for actual VAT taxation (option to calculate the tax according to the consideration received) has been raised from the current EUR600,000 to EUR800,000.

The threshold for a possible exemption from the obligation to submit quarterly advance VAT returns has been raised from EUR1,000 to EUR2,000. This threshold relates to the tax for the previous calendar year. The businesses concerned who do not exceed the threshold will then only have to submit an annual VAT return.

Obligation to notify the commencement of a VATable activity in Germany

In future, businesses who have neither their place of residence, registered office nor management in Germany will be subject to a notification obligation for the commencement of a VATable activity in Germany. The notification is to be made to the competent tax office in accordance with the VAT Competence Ordinance. For reasons of EU law, the obligation to notify is not applicable if the entrepreneur in Germany only carries out taxable transactions in accordance with Sections 18i to 18k UStG (other services not provided in the territory of the Union, intra-Community distance selling and distance selling from third countries with a value in kind of less than EUR150).

DLA Piper's tax law team will be happy to answer any further questions you may have in this context.