Ina Ree­se Tax & Legal Prac­ti­ce – Flens­burg | Harrislee

Limitation period at the end of the year

Limitation period at the end of the year

Sta­tu­te of limi­ta­ti­ons at the end of the year: Secu­re out­stan­ding claims now

Many busi­nesses have invoices on their out­stan­ding items list that have been awai­ting pay­ment for some time. The cus­to­mer has clai­med the­re are defects, asked for a defer­ral, or sim­ply fai­led to respond. As long as no one takes any action, the limi­ta­ti­on peri­od con­ti­nues to run in the back­ground. At mid­night on 31 Decem­ber 2026, the limi­ta­ti­on peri­od will expi­re for most claims ari­sing in 2023.

Many busi­ness owners assu­me that sen­ding a remin­der will extend the limi­ta­ti­on peri­od. This is a mis­con­cep­ti­on. We explain when claims beco­me time-bar­red, which steps actual­ly halt the run­ning of the limi­ta­ti­on peri­od, and what this means for VAT and the annu­al accounts.

When a claim becomes time-barred

Most claims for pay­ment by busi­nesses are sub­ject to the stan­dard limi­ta­ti­on peri­od of three years (Sec­tion 195 of the Ger­man Civil Code (BGB)). The­se include purcha­se pri­ces, remu­ne­ra­ti­on for work per­for­med, fees and rent. The limi­ta­ti­on peri­od does not, as a rule, com­mence on the invoice date, but at the end of the year in which the cla­im aro­se and the cre­di­tor was awa­re of the deb­tor and the cir­cum­s­tances giving rise to the cla­im, or should have been awa­re of them had it not been for gross negli­gence (Sec­tion 199(1) of the Ger­man Civil Code (BGB)).

An exam­p­le: An invoice for a deli­very in March 2023 was due in April 2023. The limi­ta­ti­on peri­od beg­ins on 31 Decem­ber 2023 and ends three years later, at the clo­se of 31 Decem­ber 2026. The same cut-off date appli­es to an invoice that beca­me due in Decem­ber 2023. All claims from a given year the­r­e­fo­re beco­me time-bar­red at the same time.

If, in excep­tio­nal cir­cum­s­tances, the cre­di­tor is una­wa­re of their cla­im through no gross negli­gence, the start­ing point is defer­red. Howe­ver, regard­less of whe­ther the cre­di­tor is awa­re of the cla­im, claims beco­me time-bar­red at the latest ten years after they ari­se (Sec­tion 199(4) of the Ger­man Civil Code (BGB)), cal­cu­la­ted to the day.

Exceptions that business owners should be aware of

  • Titled claims: Claims ari­sing from a final jud­ge­ment, an enforce­ment order or an enforceable sett­le­ment are sub­ject to a limi­ta­ti­on peri­od of 30 years (Sec­tion 197 of the Ger­man Civil Code (BGB)). Inte­rest acc­ruing in the future is nevert­hel­ess sub­ject to the three-year limi­ta­ti­on period.
  • Claims for defects: War­ran­ty claims ari­sing from con­tracts of sale and con­tracts for work and mate­ri­als gene­ral­ly beco­me time-bar­red after two years; for struc­tures, the limi­ta­ti­on peri­od is five years. The limi­ta­ti­on peri­od beg­ins on the exact day of deli­very or accep­tance (Sec­tions 438, 634a of the Ger­man Civil Code (BGB)), not at the end of the year. Howe­ver, for ser­vices that do not invol­ve the manu­fac­tu­re, main­ten­an­ce or altera­ti­on of an item – such as purely advi­so­ry or expert ser­vices – the stan­dard limi­ta­ti­on peri­od appli­es. This appli­es in par­ti­cu­lar to coun­ter-claims made by the cus­to­mer, which they may set off against the prin­ci­pal claim.
  • Wages: It beco­mes time-bar­red three years from the end of the year in which it beca­me due. In the case of a con­tract for work and ser­vices, the debt gene­ral­ly beco­mes due upon accep­tance (Sec­tion 641 of the Ger­man Civil Code (BGB)). In the case of a con­s­truc­tion con­tract under the BGB, a veri­fia­ble final invoice is also requi­red (Sec­tion 650g(4) BGB). Anyo­ne who issues the final invoice one year after accep­tance ther­eby also post­po­nes the start of the limi­ta­ti­on period.

A reminder does not suspend the limitation period

A pay­ment remin­der or demand for pay­ment, even if sent by regis­tered post, has no effect on the limi­ta­ti­on peri­od. It mere­ly results in the deb­tor being in default (Sec­tion 286 of the Ger­man Civil Code (BGB)). In com­mer­cial dealings bet­ween busi­nesses, default occurs in any case no later than 30 days after the due date and receipt of the invoice.

Nevert­hel­ess, late pay­ment does have a value. Cre­di­tors may char­ge inte­rest on over­due pay­ments at a rate of nine per­cen­ta­ge points abo­ve the base rate for claims against other busi­nesses (Sec­tion 288(2) of the Ger­man Civil Code (BGB)), and five per­cen­ta­ge points abo­ve the base rate for claims against con­su­mers. Sin­ce 1 July 2026, the base rate has stood at 1.52 per cent, mea­ning that the inte­rest on arre­ars in B2B tran­sac­tions is 10.52 per cent. In addi­ti­on, the­re is a flat-rate char­ge of 40 euros per cla­im, which is set off against any sub­se­quent legal cos­ts (Sec­tion 288(5) of the Ger­man Civil Code (BGB)). None of this affects the limi­ta­ti­on peri­od. On the con­tra­ry: the inte­rest beco­mes time-bar­red tog­e­ther with the prin­ci­pal cla­im, even if it accrued at a later date (Sec­tion 217 of the Ger­man Civil Code (BGB)).

What actually stops the limitation period

The Act distin­gu­is­hes bet­ween two effects. The Inhi­bi­ti­on The time limit remains in force. The peri­od during which the time limit is sus­pen­ded is not coun­ted; after that, the time limit con­ti­nues to run. The A fresh start sets the dead­line to zero; the three years start again from the very begin­ning, to the day, not just at the end of the year.

The order for payment

A court order for pay­ment is the most com­mon means of secu­ring a cla­im befo­re the end of the year. Ser­vice of such an order sus­pends the limi­ta­ti­on peri­od (Sec­tion 204(1)(3) of the Ger­man Civil Code (BGB)). For appli­cants based in Schles­wig-Hol­stein, the Schles­wig Local Court is the com­pe­tent court for debt coll­ec­tion pro­cee­dings. Busi­nesses can com­ple­te the appli­ca­ti­on them­sel­ves via the online-mahnantrag.de por­tal. Howe­ver, wit­hout an online ID func­tion or a qua­li­fied elec­tro­nic signa­tu­re, the appli­ca­ti­on will only be gene­ra­ted the­re as a bar­code form, which must be prin­ted out, signed and sent by post to the court respon­si­ble for debt coll­ec­tion. The dead­line is then deter­mi­ned by the date the paper form is recei­ved by the Local Court, not by when it was com­ple­ted on screen. Soli­ci­tors sub­mit pay­ment order appli­ca­ti­ons electronically.

The timing is cru­cial: the stay takes effect as soon as the appli­ca­ti­on is recei­ved by the court, pro­vi­ded the order for pay­ment is sub­se­quent­ly ser­ved „short­ly“ (Sec­tion 167 of the Code of Civil Pro­ce­du­re). An appli­ca­ti­on recei­ved by the court befo­re mid­night on 31 Decem­ber can the­r­e­fo­re still save the cla­im. Howe­ver, no one should rely on this. In prac­ti­ce, three mista­kes regu­lar­ly result in the cla­im being lost:

  • The cla­im has not been suf­fi­ci­ent­ly spe­ci­fied. The cla­im must cle­ar­ly iden­ti­fy the debt in ques­ti­on, for exam­p­le by sta­ting the invoice num­ber and date. Sim­ply sta­ting the total amount of seve­ral invoices is not suf­fi­ci­ent and does not sus­pend the limi­ta­ti­on period.
  • The court’s queries remain unans­we­red. If the debt coll­ec­tion court objects to the appli­ca­ti­on, a respon­se must be pro­vi­ded prompt­ly. Case law gene­ral­ly sets a dead­line of one month in such cases.
  • Not­hing hap­pens after the objec­tion. If the deb­tor lodges an objec­tion, the case will only be refer­red to the court of first ins­tance if the cre­di­tor so requests and pays the addi­tio­nal court fee (Sec­tion 12(3) of the Court Fees Act (GKG)). If the cre­di­tor does not pur­sue the pro­cee­dings fur­ther, the sus­pen­si­on ends six months after the last pro­ce­du­ral step (Sec­tion 204(2) of the Ger­man Civil Code (BGB)). The­re­af­ter, the time limit con­ti­nues to run.

The claim

A legal action also sus­pends the limi­ta­ti­on peri­od (Sec­tion 204(1)(1) of the Ger­man Civil Code (BGB)). This is a sui­ta­ble cour­se of action if the deb­tor has alre­a­dy dis­pu­ted the cla­im and an objec­tion to a pay­ment order is to be expec­ted in any case. Sin­ce 1 Janu­ary 2026, local courts have had juris­dic­tion over claims up to 10,000 euros; pre­vious­ly, the limit was 5,000 euros. The­re is no requi­re­ment to be repre­sen­ted by a soli­ci­tor in the­se proceedings.

Negotiations

If the cre­di­tor and deb­tor are nego­tia­ting the cla­im, the limi­ta­ti­on peri­od is sus­pen­ded until one par­ty refu­ses to con­ti­nue the nego­tia­ti­ons. The­re­af­ter, the limi­ta­ti­on peri­od beg­ins to run no ear­lier than three months later (Sec­tion 203 of the Ger­man Civil Code (BGB)). Case law inter­prets ‘nego­tia­ti­ons’ broad­ly: any exch­an­ge regar­ding the cla­im in which the deb­tor does not imme­dia­te­ly reject it is suf­fi­ci­ent. The catch lies at the end. If the dis­cus­sions peter out, the sus­pen­si­on ends at the point in time when the next step would have been expec­ted. In the event of a dis­pu­te, the cre­di­tor must pro­ve the start and dura­ti­on of the nego­tia­ti­ons. Nego­tia­ti­ons are the­r­e­fo­re only of limi­t­ed use as a safe­guard at the turn of the year.

Acknowledgement and advance payment

If the deb­tor ack­now­led­ges the cla­im, the limi­ta­ti­on peri­od starts afresh (Sec­tion 212(1)(1) of the Ger­man Civil Code (BGB)). Such ack­now­led­ge­ment may be made express­ly, for exam­p­le in a signed state­ment of account or an inst­al­ment pay­ment agree­ment. Howe­ver, it may also be impli­ed by a par­ti­al pay­ment, an inte­rest pay­ment or the pro­vi­si­on of secu­ri­ty. Anyo­ne agre­e­ing an inst­al­ment plan with a cus­to­mer wil­ling to pay should express­ly sta­te in the agree­ment that the total cla­im is acknowledged.

Two points are often over­loo­ked. The ack­now­led­ge­ment must be made befo­re the limi­ta­ti­on peri­od expi­res; a cla­im that has alre­a­dy beco­me time-bar­red is not revi­ved as a result. And the new limi­ta­ti­on peri­od runs to the day: if the cus­to­mer signs a state­ment of account on 15 Novem­ber 2026, the cla­im beco­mes time-bar­red at the end of 15 Novem­ber 2029.

Waiver of the limitation period

Cre­di­tors and deb­tors may agree that the limi­ta­ti­on peri­od shall com­mence at a later date (Sec­tion 202 of the Ger­man Civil Code (BGB)). Simi­lar­ly, the deb­tor may decla­re that they will wai­ve the defence of the limi­ta­ti­on peri­od for a spe­ci­fic peri­od. This may be con­side­red whe­re an ami­ca­ble sett­le­ment is fore­seeable and neither par­ty wis­hes to incur court cos­ts at this stage. The wai­ver should be set out in wri­ting and spe­ci­fy a spe­ci­fic end date.

What applies after 31 December

A cla­im that is time-bar­red does not lap­se. Howe­ver, the deb­tor may refu­se to pay (Sec­tion 214 of the Ger­man Civil Code (BGB)). The deb­tor must, howe­ver, rai­se this defence them­sel­ves; the court does not exami­ne the limi­ta­ti­on peri­od of its own moti­on. If the deb­tor pays despi­te the cla­im being time-bar­red, they can­not recla­im the money.

The­re is one loopho­le: even in the case of a cla­im that is time-bar­red, the cre­di­tor may still set it off if the claims were in balan­ce at a time when the creditor’s cla­im was not yet time-bar­red (Sec­tion 215 of the Ger­man Civil Code (BGB)). This is rele­vant in ongo­ing busi­ness rela­ti­onships invol­ving recipro­cal invoices.

Tax implications of outstanding and time-barred claims

An unpaid invoice is not just a cash-flow pro­blem. It can also cost you money in tax if nobo­dy takes action in time.

VAT: paid, but never received

Busi­nesses that account for VAT on the basis of agreed fees (dee­med taxa­ti­on) have alre­a­dy paid the VAT on an invoice to the tax office, even if the cus­to­mer has never paid. If the con­side­ra­ti­on beco­mes irre­co­vera­ble, the VAT must be adjus­ted (Sec­tion 17(2)(1) of the Ger­man VAT Act (UStG)). It then redu­ces the VAT for the advan­ce return peri­od in which the irre­co­vera­bi­li­ty occurs.

‘Uncoll­ec­ti­ble’ does not mean that the deb­tor must be insol­vent. It is suf­fi­ci­ent if the cla­im can­not be enforced for the fore­seeable future, for exam­p­le becau­se the cus­to­mer dis­pu­tes it on sub­stan­ti­ve grounds and refu­ses to pay. A mere delay in pay­ment, on the other hand, is not suf­fi­ci­ent, nor is an agreed inst­al­ment plan. As a gene­ral rule, the cla­im is likely to be uncoll­ec­ti­ble at the latest when the deb­tor invo­kes the limi­ta­ti­on period.

The timing is important. The adjus­t­ment must be made for the peri­od in which the debt beco­mes irre­co­vera­ble. The­re is no opti­on in this mat­ter. Anyo­ne wis­hing to make the adjus­t­ment years later may lose the right to do so if, under pro­ce­du­ral law, the rele­vant year can no lon­ger be amen­ded. If the cus­to­mer does pay at a later date, the VAT must be paid again.

This pro­blem does not ari­se under the cash basis of taxa­ti­on based on con­side­ra­ti­on recei­ved (Sec­tion 20 of the Ger­man Value Added Tax Act (UStG)). In that case, VAT only beco­mes char­geable upon payment.

Balance sheet and income statement

Com­pa­nies pre­pa­ring finan­cial state­ments must wri­te down doubtful debts in their annu­al accounts. Under com­mer­cial law, the strict lower-of-cost-or-mar­ket prin­ci­ple appli­es to receiv­a­bles; irre­co­vera­ble debts must be writ­ten off in full. The net amount is writ­ten off, and VAT is adjus­ted in accordance with Sec­tion 17 of the Ger­man VAT Act (UStG). For tax pur­po­ses, a par­ti­al wri­te-down is per­mit­ted if the impair­ment is expec­ted to be per­ma­nent (Sec­tion 6(1)(2) of the Inco­me Tax Act (EStG)). The enforcea­bi­li­ty of the cla­im and any impen­ding limi­ta­ti­on peri­od must the­r­e­fo­re be taken into account when pre­pa­ring the annu­al accounts.

Anyo­ne who cal­cu­la­tes their pro­fit using the cash basis method has never paid tax on the out­stan­ding pay­ment as inco­me. The non-pay­ment the­r­e­fo­re has no effect on the pro­fit. Court and legal fees incur­red in enfor­cing busi­ness claims are busi­ness expen­ses in both cases.

Checklist for the coming weeks

  1. Sort open items by the year in which they aro­se. All receiv­a­bles due in 2023 should be included on a sepa­ra­te list.
  2. Check for spe­cial cases. In the case of pay­ment for work per­for­med, it depends on accep­tance and the final invoice. Claims for which a court order has been obtai­ned are secu­re; howe­ver, inte­rest acc­ruing from the court order beco­mes time-bar­red after three years, at the end of the year.
  3. Tar­get cus­to­mers who are wil­ling to pay. A signed state­ment of account or an inst­al­ment pay­ment agree­ment ack­now­led­ging the debt will restart the time limit.
  4. Don’t lea­ve pay­ment demands until the very last day. Appli­ca­ti­ons should be sub­mit­ted by ear­ly Decem­ber to allow time for the court to rai­se any queries. Appli­ca­ti­ons sub­mit­ted by post using a bar­code will take lon­ger to process.
  5. Have the docu­ments rea­dy. The invoice, deli­very note or accep­tance cer­ti­fi­ca­te, tog­e­ther with the cor­re­spon­dence to date, form the basis for every sub­se­quent step.
  6. Sort out the tax aspects. For receiv­a­bles that can no lon­ger be reco­ver­ed, the VAT adjus­t­ment and wri­te-off should be car­ri­ed out in the cor­rect finan­cial year.

Legal and tax services under one roof

Whe­ther a receiva­ble can still be reco­ver­ed is a legal ques­ti­on. The cost of its wri­te-off is a tax issue. In many busi­nesses, the­se two issues are dealt with sepa­ra­te­ly, and the VAT adjus­t­ment is not made until years later – or not at all.

Ina Ree­se is a soli­ci­tor, a spe­cia­list in tax law and a tax advi­ser. As part of our Debt manage­ment We check which claims are due to beco­me time-bar­red at the end of the year, app­ly for orders for pay­ment and con­ti­nue the pro­cee­dings through to enforce­ment. For claims that can no lon­ger be reco­ver­ed, we cla­ri­fy, as part of our Tax advice VAT adjus­t­ments and depre­cia­ti­on. We deal with gene­ral issues rela­ting to con­tracts and pay­ment claims in the gene­ral civil law.

Frequently asked questions about the limitation period

Is a reminder sent by registered post sufficient to stop the limitation period from running?

No. A remin­der places the deb­tor in default, but does not sus­pend the limi­ta­ti­on peri­od. To do so, a pay­ment order, legal pro­cee­dings, docu­men­ted nego­tia­ti­ons, an ack­now­led­ge­ment by the deb­tor or an agree­ment regar­ding the limi­ta­ti­on peri­od is required.

Can I still apply for a payment order on 31 December?

In prin­ci­ple, yes. If the appli­ca­ti­on is recei­ved by the court hand­ling the order for pay­ment by mid­night and the order for pay­ment is sub­se­quent­ly ser­ved prompt­ly, the sus­pen­si­on of the limi­ta­ti­on peri­od appli­es retroac­tively from the date of receipt. An appli­ca­ti­on with a bar­code sent by post must have rea­ched the Schles­wig Local Court by then. If the appli­ca­ti­on con­ta­ins errors or the cla­im is not cle­ar­ly spe­ci­fied, the­re will be no time left to cor­rect it. We recom­mend sub­mit­ting appli­ca­ti­ons by the begin­ning of December.

How much does a payment order cost?

The court fee is based on the amount of the cla­im. It amounts to half the fee spe­ci­fied in the Court Cos­ts Act, sub­ject to a mini­mum of 38 euros. The cos­ts of the order for pay­ment pro­cee­dings are included in the order for pay­ment and are to be bor­ne by the deb­tor if the cla­im is valid.

Do I have to pay VAT on an invoice that was never paid?

Under the accru­al basis of taxa­ti­on, VAT ari­ses when the sup­p­ly is made and must be paid initi­al­ly. If the debt beco­mes irre­co­vera­ble, the VAT can and must be adjus­ted. Under the cash basis of taxa­ti­on, VAT only ari­ses upon payment.

In summary

  • Claims ari­sing in 2023 will gene­ral­ly beco­me time-bar­red at the end of 31 Decem­ber 2026.
  • A remin­der con­sti­tu­tes default and gives rise to inte­rest on arre­ars, but does not sus­pend the limi­ta­ti­on period.
  • A pay­ment order and legal pro­cee­dings sus­pend the limi­ta­ti­on peri­od; an ack­now­led­ge­ment of the debt or a par­ti­al pay­ment cau­ses it to start run­ning again.
  • The appli­ca­ti­on for a pay­ment order must spe­ci­fy the cla­im in detail and should not be recei­ved on the very last day.
  • Bad debts result in a VAT adjus­t­ment, which must be made in the cor­rect finan­cial year.
  • Doubtful debts must be writ­ten down in the annu­al accounts.

Do you have any out­stan­ding debts from 2023? During an initi­al con­sul­ta­ti­on las­ting around 15 minu­tes, we will estab­lish which claims are at risk and what still needs to be done befo­re the end of the year. Get in touch now

Sources

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