As a freelancer or small business owner in Germany, you may be unclear about the use of electronic invoices and records, or the possibility of scanning your documents.
Perhaps you send invoices to your customers as PDF documents by Email? Or you receive invoices digitally from your suppliers. Or you might have considered scanning any paper invoices or documents you receive to simplify your record-keeping. In all cases you are dealing with electronic accounting records.
Having your invoices and documents in electronic form can have huge advantages. You can find documents and data quickly, and you can save the cost of postage and manual paper handling.
Nevertheless there are rules concerning the use of electronic documents which I want to share with you.
Contents: Electronic invoices for freelancers in Germany
- What is the basis for the rules about electronic invoices?
- What is an electronic invoice?
- Are the rules different for Small Businesses?
- Can you force your customers to receive electronic invoices?
- What are the rules concerning electronic invoices?
- Can you scan all your documents and destroy the originals?
- How should you deal with invoices and other accounting documents you receive electronically?
- How long do you need to keep your electronic invoices and why?
- What happens if you do not comply with the rules?
- Closing Remarks on the rules concerning electronic invoices for freelancers in Germany.
What is the basis for the rules about electronic invoices?
You might have heard of the abbreviation GoBD. If you want to impress your friends try telling them what it stands for:
“Grundsätze zur ordnungsmäßigen Führung und Aufbewahrung von Büchern, Aufzeichnungen und Unterlagen in elektronischer Form sowie zum Datenzugriff”.
or, in English:
“Basic principles on the proper keeping and storage of financial books, recordings and documents in electronic form as well as data access”.
The Federal Ministry of Finance issued these principles which took effect on January 1, 2015. They define the requirements for dealing with accounting and other associated records which are in electronic form. They also apply to the use of electronic cash registers.
What is an electronic invoice?
But first of all, what is an electronic invoice? Any invoice that you produce and send in a digital format – whether it be a PDF, JPG or another image format – is an electronic invoice. This also applies to invoice data that is transferred automatically between customer and supplier.
There are two exceptions to this:
- if you use your computer to produce an invoice, but only as a sort of typewriter to produce a document which you then print out and send. This is not an electronic invoice but a paper invoice.
- if you receive or send an invoice by fax, this still counts as being a paper invoice.
Are the rules different for Small Businesses?
The rules about electronic invoices and accounting records apply to EVERY business in Germany, regardless of size.
If annual sales are less than EURO 500,000 and your profit is less than EURO 50,000, you only have to produce an income and expense summary for the tax office. You do not have to use double-entry bookkeeping and produce a balance sheet and profit and loss account. You must however still stick to the rules regarding electronic invoices.
Can you force your customers to receive electronic invoices?
The recipient of an electronic invoice must agree to this. There is no particular form for the agreement. Your Business Terms and Conditions might specifically address the issue or the customer might give his approval tacitly – for example, simply by paying the invoice.
What are the rules concerning electronic invoices?
The Ministry of Finance set out the rules in terms of guiding principles. This ensures that, even if technologies change in the future, the basic principles of dealing with electronic data are already clear.
1. Data security (integrity)
If you keep any accounting data in electronic form, you must ensure it is secure from loss. You must back up the data regularly. The system must ensure that nobody can subsequently change or delete the data.
The electronic documents must make it possible for a third party to identify and understand all business transactions. So there must be some kind of document or voucher to support every entry in an accounting system.
You must register every single transaction. You cannot group items together. For example, you cannot summarize in one number all the individual travel expenses you had on one day. You must record them individually. You must identify each individual customer and business partner. (There are exceptions to this for certain types of business such as shops.)
It is your responsibility to ensure that the documents are accurate. For example, you must check whether you have received all the pages of a supplier invoice and that it is clear and readable.
You must record all transactions in a timely manner. This does not mean that you must enter the documents into the accounting system immediately. You should ensure, however, that you have recorded the relevant documents. This could mean scanning the documents or passing the documents into an online accounting system. Or it can just mean entering them into a list of documents received. Recording the transactions within 10 days is adequate as far as timeliness is concerned.
The GoBD does state that small businesses may record their non-cash transactions periodically. (If you have cash transactions, you must record them immediately). This means by the end of the following month at the latest. However you must ensure that you keep the documents in some kind of orderly system with no risk of them being forgotten.
You must organise the digital documentation in such a way that an interested third party can easily follow the transactions. For this reason, the documents must be archived systematically. The tax office has the right to examine your accounting system and documents. One of the requirements is that a tax auditor (“Betriebsprüfer”) is access to your accounts. Most accounting systems take this fact into account within the setup of their system.
Once you have recorded electronic invoices within the system, you must ensure that they cannot be changed or deleted. Accounting systems usually take care of this by locking down the data after a certain period. After you have done this, the data can be reviewed but no longer changed.
Can you scan all your documents and destroy the originals?
As far as pure accounting documents, invoices for example, are concerned, you may scan the documents and destroy the originals. However, there are a few caveats to this:
- You must keep the originals of certain documents – for examples, legal documents signed by a notary.
- You must define – and document – a process by which you scan the documents. This includes the process of destroying the originals. This documentation answers questions such as:
- Who is allowed to scan documents?
- When are documents scanned?
- Which documents are scanned?
- How is the quality of the scanned documents controlled?
- Which hardware and software is involved in the scanning process?
- Who is allowed to destroy documents?
- Which documents are destroyed and which are retained in paper form?
- As a freelancer or small business owner, you may be the only person working in your business. Nevertheless, you should prepare this process document – even if it is only short and simple. It is a requirement of the GoBD.
- You must ensure that scanned documents can be retrieved easily after they have been archived. There must be links to the relevant accounting records. The tax auditor must be able to read the documents regardless of their format.
- The documents you scan must be kept on servers in Germany and conform with German data protection laws. The archive system should index and record data about the documents. This means you cannot simply scan documents to a Dropbox or google folder, for example, as these do not fulfil these archive requirements.
How should you deal with invoices and other accounting documents you receive electronically?
You must keep and archive electronically any documents which you receive in electronic form. So, for example, you must keep and archive electronically an invoice from a supplier in PDF format. It is not sufficient to print the document and maintain it in paper form.
This means it is highly likely that you will have electronic documents of some kind within your business. You must therefore have some kind of archive system to deal with them, regardless of whether you have paper documents as well.
If you receive an invoice by email, You do not have to keep and archive the mail. In this case it is only acting as a form of envelope for the document.
How long do you need to keep your electronic invoices and why?
You must keep accounting documents for 10 years after the end of the current business year. Electronic documents must receive exactly the same treatment.
Throughout this period the archived electronic documents must be available for the tax auditor. If you change your system or the supplier of your archiving system, then you must still ensure that the archived documents are available. You must either transfer the data, or have the possibility of accessing the data.
What happens if you do not comply with the rules?
All the rules and guidelines are designed to ensure that your accounting system is meaningful and reflects your business activities. If the tax authorities believe that this is not the case – for whatever reason – they can simply estimate the numbers that are relevant for calculating tax.
This is, of course, the worst scenario. When dealing with issues like the archiving of data over a period of up to 10 years, it is simply not possible to take care of it retroactively.
Closing Remarks on the rules concerning electronic invoices for freelancers in Germany.
The rules and guidelines relating to electronic accounting records in Germany are complex. I have therefore only given a summary of the most relevant points.
You will almost certainly be dealing with electronic invoices as a freelancer or small business owner in Germany. It is well worth the time, therefore, to understand the rules, particularly as it also relates to the archiving of your data for the next 10 years.
Most accounting packages today already have functions built in for handling electronic documents and conform with the guidelines laid down in the GoBD. If you have outsourced your accounting to a tax advisor (“Steuerberater”), he will probably use the DATEV software which will take care of all your accounting and archiving requirements.
I would strongly advise you to consult a tax advisor with regard to setting up an electronic accounting system. She or he can not only advise you on setting up the system but also in dealing with the tax office if issues do arise out of a tax audit. It is important, however, that you take responsibility yourself for abiding by the guidelines.
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