Advance payments and interim invoices: how to bill large projects correctly in Germany

Advance payment, interim invoice, partial invoice, final invoice: the terms

In everyday business the terms are often mixed up. For VAT purposes one question matters most: is part of the service already finished and accepted (a partial service, Teilleistung) – or does the client pay in advance for a service that will only be delivered as a whole later (advance payment, Anzahlung, or interim payment, Abschlag)?

When can you ask for interim or advance payments?

There is no general right to payment in advance – you need an agreement. So state in the quote or contract when which amount is due, for example “30 % on order, 40 % after design approval, 30 % on acceptance”. Under a contract for work (Werkvertrag), such as software or web development, § 632a BGB lets you request interim payments equal to the value of the work already performed even without a special agreement.

Protective rules apply to private clients: under a consumer construction contract (Verbraucherbauvertrag) interim payments may total no more than 90 % of the total price (§ 650m BGB). In other sectors, advance payments from consumers in general terms and conditions are only valid if they are reasonable in amount.

Interim payments make most sense for long projects: they secure your cash flow and reduce the risk of non-payment. How to price a project is shown in the guide calculating your hourly rate.

What must an advance payment invoice contain?

An advance payment invoice is an invoice within the meaning of § 14 UStG and needs the same mandatory details as any other – name and address of both parties, tax number (Steuernummer) or VAT ID (USt-IdNr.), sequential invoice number, issue date, description of the service, net amount, tax rate and tax amount. More in the guide writing invoices.

• Label the document clearly as “Anzahlungsrechnung” (advance payment invoice) or “1. Abschlagsrechnung” (1st interim invoice) so your client does not book it as the final bill.
• Instead of the date of supply, state the date the payment is received if it is known and differs from the invoice date – otherwise add a note such as “Service expected to be performed in March 2027”.
• Describe what the advance payment is for: “30 % advance payment for website relaunch as per quote AN-2026-018 of 4 September 2026”.
• Show the VAT as on a normal invoice – with reverse charge the client owes the tax on advance payments too, and as a small business (Kleinunternehmer) you charge none.

VAT on advance payments: Mindest-Istversteuerung

Normally, under accrual-basis VAT (Soll-Versteuerung), VAT arises at the end of the month in which you perform the service. Advance payments are an exception: if you receive money before the service is performed, the tax on it already arises at the end of the VAT return period in which the money comes in (§ 13 Abs. 1 Nr. 1 Buchst. a S. 4 UStG). This is called Mindest-Istversteuerung (minimum cash-basis taxation).

Example: the advance payment of €7,140 arrives on 15 March. The €1,140 VAT it contains belongs in the VAT return (Umsatzsteuer-Voranmeldung) for March (if you file quarterly: Q1), due on 10 April – or on 10 May with a permanent filing extension (Dauerfristverlängerung). If you have written the advance payment invoice but not yet received the money, no tax arises yet.

For your client it is the mirror image: they may only deduct input VAT from an advance payment invoice once they have the invoice and have paid (§ 15 Abs. 1 Nr. 1 S. 3 UStG). If you already account for VAT on a cash basis (Ist-Versteuerung), nothing changes for you – your tax always arises with the payment. More in the guide on VAT (Umsatzsteuer).

Worked example: advance payment, interim invoice and final invoice

A web designer carries out a website relaunch for €20,000 net. The agreement is 30 % in advance, 40 % after design approval and the rest on acceptance. All amounts with 19 % VAT:

The final invoice: deducting advance payments correctly

The final invoice (Schlussrechnung or Endrechnung) bills the entire service. Under § 14 Abs. 5 S. 2 UStG you must deduct the partial payments received before the service was performed and the tax amounts on them, if you issued advance payment invoices for them. The clearest layout is the one in the example: total net amount and VAT, below it each advance payment with date, net, tax and gross, then the remaining amount.

You may also deduct the sum of all advance payments in one line, as long as the net amount and VAT are shown separately. It is not enough to deduct only the gross amount of the advance payments and leave the full VAT of €3,800 in place. You would then show the tax on the advance payments a second time and owe it twice under § 14c Abs. 1 UStG – until you correct the final invoice. How to do that is explained in the guide on invoice corrections.

Alternatively, you can issue a remaining-balance invoice (Restrechnung) that bills only the outstanding part (€6,000 plus €1,140) without listing the advance payments. For VAT purposes it is not a final invoice, but it is often less clear for your client. For projects with several interim payments, the full final invoice is the better choice.

Common mistakes and how to avoid them

Most problems with interim invoices do not arise with the advance payment but at the end of the project:

• Forgetting advance payments in the final invoice: the client is asked to pay the full amount again and you owe the VAT twice. Keep a list of all advance payments per project.
• Reporting VAT only with the final invoice: the tax on advance payments belongs in the VAT return for the month of payment. A mistake costs interest and possibly late filing penalties.
• The tax rate changes during the project: the rate at the time the service is performed applies. The tax on advance payments is adjusted accordingly in the final invoice.
• Same number for advance payment and final invoice: every advance payment, interim and final invoice needs its own sequential number.
• Advance payment without an invoice: even if you do not issue an advance payment invoice, VAT arises when the payment is received – but your client may then not deduct input VAT.

Advance payments in the EÜR and at year end

In the cash-basis profit statement (Einnahmenüberschussrechnung, EÜR) the cash principle applies (Zuflussprinzip, § 11 EStG): every advance payment is business income in the year it reaches your account, regardless of when the service is finished. The VAT received is also business income, and the payment to the tax office is a business expense.

Example: if you receive the advance payment of €7,140 on 20 December 2026 for a project that is only finished in February 2027, it increases your 2026 profit. If you receive many advance payments at year end, take this into account in your tax reserves.

Interim invoices as e-invoices

From 2027/2028, advance payment, interim and final invoices to businesses in Germany must also be e-invoices. For the invoice type (BT-3) XRechnung has its own codes, for example 326 for partial invoices and 875 to 877 for interim and final invoices for construction work. In the final invoice, the amounts already paid go into the field “Paid amount” (Vorausgezahlter Betrag, BT-113); the amount due is then the remaining balance.

Advance payments with Kontelio

In Kontelio you create advance payment, interim and final invoices as normal invoices with a sequential number, all mandatory details and, if you wish, as an e-invoice. You match incoming payments to invoices; partly paid invoices appear as “Partially paid”, and an amount that cannot yet be matched to an invoice is recorded as an advance payment and matched later. The “Tax impact” card on every invoice shows which VAT return and which Anlage EÜR it feeds into.

There is currently no dedicated template for final invoices that deducts advance payments automatically – so check the deductions against the example above. More about Kontelio’s invoicing software.

Frequently asked questions