E-Invoicing for Small Businesses: What You Need to Know

Mandatory e-invoicing does not only apply to large corporations and mid-sized companies. Small businesses that use the small business exemption under Section 19 of the German VAT Act (§ 19 UStG) are also included. Many self-employed individuals and small operations mistakenly assume they are exempt from this requirement. In this article, we clarify the rules that apply and how you can prepare cost-effectively.

Small Businesses Are Not Exempt

The Growth Opportunities Act (Wachstumschancengesetz), which introduces mandatory e-invoicing for B2B transactions in Germany, makes no exception for small businesses. The obligation is tied to the type of transaction, not to the size of the business or its VAT status.

In practice, this means: if you provide services to other businesses (B2B) as a small business, you are subject to the e-invoicing requirement. Only invoices to private individuals (B2C) are exempt.

The Distinction: Small Business Exemption vs. E-Invoicing Requirement

The small business exemption under Section 19 of the German VAT Act relieves you of the obligation to charge and remit VAT. However, it has nothing to do with the format of your invoices. Even an invoice without VAT must be submitted in a structured e-invoicing format from the respective deadlines onward, provided the recipient is a business.

What Are the Deadlines?

The legislature has established a phased timeline that grants smaller businesses a transition period:

Obligation to Receive from 1 January 2025

Since the beginning of 2025, all businesses in Germany must be able to receive structured e-invoices. This also applies to small businesses. In practice, this means you must be able to accept and process XML files in XRechnung or ZUGFeRD format.

Transition Period Until End of 2026

Until 31 December 2026, all businesses regardless of revenue may continue to issue invoices in other formats. Paper invoices are permitted without the recipient's consent. Other electronic formats such as PDF may only be used with the recipient's consent.

Transition Period Until End of 2027

From 1 January 2027, the general transition period only applies to businesses with prior-year revenue of up to EUR 800,000. These businesses may continue to issue other invoices (paper, PDF with consent) until the end of 2027. In addition, all businesses regardless of revenue may transmit invoices via EDI procedures until the end of 2027, even if these do not yet meet the requirements for an e-invoice under EN 16931.

Full Obligation from 1 January 2028

From 1 January 2028, all businesses, including small businesses, must issue e-invoices in the structured format for B2B transactions. There will be no more exceptions.

Practical Preparation for Small Businesses

What You Should Do Now

1. Be able to receive e-invoices: Set up an email inbox that can handle XML attachments. Test the receipt of an XRechnung.
2. Structure your invoice data: Make sure your invoices contain all mandatory fields, particularly a buyer reference.
3. Evaluate software: Check whether your current invoicing solution supports e-invoices or whether you need an additional tool.

Cost-Effective Solutions

As a small business, you want to avoid high costs for new software. There are several options:

• Free online tools: The XRechnung Validator from invapi checks your invoices for compliance at no cost.
• API-based solutions: With the invapi API, you can automatically convert and validate invoices. The free plan includes 10 invoices per month, which is sufficient for many small businesses.
• ZUGFeRD as a starting point: The ZUGFeRD format combines a human-readable PDF with embedded structured data. This can ease the transition, as your invoices will continue to look the way they always have.

Special Considerations for VAT-Exempt Invoices

As a small business, you do not charge VAT. In the e-invoice, the tax category must be marked as E (Exempt), and the tax rate must be set to 0 %. Additionally, the field BT-120 (VAT exemption reason text) must contain a free-text reference to the small business exemption, for example: "No VAT charged — small business exemption under Section 19 UStG." Without this exemption reason, validation will reject the invoice, as tax category E always requires a justification.

Conclusion

Mandatory e-invoicing does not stop at small businesses. The good news: you still have time to prepare, and the costs do not have to be high. Use the transition periods to familiarize yourself with the formats and rely on free or affordable tools like invapi to make the switch seamless. The best time to start is today — sign up for the free plan and try creating your first e-invoice.