Ina Reese Tax & Legal Practice – Flensburg | Harrislee

Limitation period at the end of the year

Law & Taxation Reese Flensburg
22.10.2026
General information
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On 31 December 2026, many outstanding invoices that fell due in 2023 will become time-barred. Sending a reminder will not extend the time limit. We explain what really helps and what you need to bear in mind regarding VAT.

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

Sort open items by the year in which they arose. All receivables due in 2023 should be included on a separate list.
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.
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.
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.
Have the documents ready. The invoice, delivery note or acceptance certificate, together with the correspondence to date, form the basis for every subsequent step.
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