The term ‘retention period’ is closely linked to the archiving of documents and defines which documents or which types of documents must be kept in the company for how long. More specifically, the retention periods describe which legal requirements for archiving exist for certain business documents. Accordingly, everything revolves around the question: How long do which documents have to be archived in the company?
The legislator has clearly regulated and precisely defined requirements as a basis for the length of time records must be stored. These archiving periods are set out in writing in the Fiscal Code of Law (AO) and in the Commercial Code (HGB). The AO deals with the tax law aspect, while the HGB covers commercial law. Particularly noteworthy are, on the one hand, § 147 of the AO and, on the other, § 257 of the HGB.
According to the legislator, all entrepreneurs who are required to keep records under tax or commercial law must also comply with the retention periods. They are subject to the so-called retention requirement. However, according to § 140 of the AO, ‘other laws’ must also be observed insofar as they are relevant for taxation, for example the Value Added Tax Act (UstG). Depending on the profession and activities, there are various recording and accounting obligations.
In general, the obligation to store records and thus also to comply with the retention periods applies to large corporations as well as to small companies. Even professionals who do not belong to a commercial company, such as farmers and foresters, are obliged to store records under certain conditions. However, certain turnover and profit limits must be exceeded: Professionals who generate more than €60,000 in profit or €600,000 in sales per year are required to store records.
In some cases, private individuals are also subject to the retention requirement. In most cases, this period is two years and primarily applies to tax-relevant invoices and payment receipts.
As previously mentioned, the legislator differentiates between the retention periods under tax law (Section 147 AO) and commercial law for merchants (Section 257 HGB).
According to tax law (§ 147 AO), the following business records must be stored in an orderly manner:
The commercial law for merchants (section 257 of the German Commercial Code (HGB)) stipulates a retention requirement for the following business documents:
Not all documents generated by a company are subject to retention. For example, certain internal records, such as work reports or calendars, do not have to be submitted and can therefore be disposed of promptly.
The retention periods for business records are generally between six and ten years. The following is a non-exhaustive list of the records that have to be kept for six or ten years:
A detailed overview of the main types of written records and their retention periods can be found here: Hamburg Chamber of Commerce – ABC of Retention Periods
As with all obligations that the legislator imposes on companies, there are also consequences for non-compliance. For example, failure to comply with the retention periods is considered a violation. This can be either the deletion of documents that are subject to retention, even though the period has not yet expired, or the concealment, destruction or damaging of the documents. Even if documents are not stored at all, this constitutes a violation of the accounting or recording obligation.
According to case law, the taxpayer generally has the burden of proof. If the documents required for the tax office are not available or are only available in a damaged, incomplete form, the tax office can estimate the tax liability. This can then be significantly higher than it would normally have been. In addition, the following sanctions can be expected in the event of a breach of the retention obligation:
This means that a court can impose not only fines but also tougher measures for tax evasion and tax fraud. In the worst case, even imprisonment is possible.
In general, the retention period begins at the end of the respective calendar year in which the document requiring retention was created.
Example ‘annual financial statements’:
The annual financial statements for 2021 for the company K. Automobile were prepared in June 2022. Accordingly, the starting point for the retention period is at the end of 2022 or on January 1, 2023, since the document was only created in the calendar year 2022, although it is a financial statement from 2021. The end of the retention period for annual financial statements is 10 years, in our example December 31, 2032. Thus, the records may be destroyed on January 1, 2033.
Exceptions exist, for example, if the documents are still relevant for tax calculation. For example, if Mr K. of K. Automobile prepared an income tax return from 2021 in 2022 but did not submit it to the tax office until 2024 due to special circumstances, the period is also postponed by two years. In this case, the start date is January 1, 2025, and the end date is December 31, 2034.
Please note: There are special regulations regarding the retention period for some types of contract. For example, in the case of rental contracts, the starting point for the deadline is only after the end of the contract period and not when the rental contract is concluded.
In the course of digitalisation, the way many companies archive their data has changed. Instead of mountains of analogue paper and a physical archive, the trend is increasingly towards digital files. However, the specific duration of the retention periods does not differ from analogue to digital. But the basis for assessment is different in each case. While the GoB (German principles of proper accounting) apply to physically existing documents, the GoBD (German principles of proper management and storage of books, records and documents in electronic form, as well as data access) apply to digital documents. These principles thus expand the GoB to include the digital component.
The GoBD are particularly relevant when it comes to the topic of ‘audit-proof archiving’. Since this topic is very complex and follows precise rules, we have written a separate article on the subject of ‘archiving’. Among other things, we discuss what archiving actually means, how digital archiving works exactly, and how Microsoft 365 can help you with archiving and complying with retention periods.
Read our guest article by Markus Olbring, managing director of comdatis it-consulting GmbH & Co. KG, to find out how audit-proof archiving works with Microsoft 365 and SharePoint Online.
The information contained in this article is for informational purposes only. They do not constitute legal advice. In particular, it cannot replace individual legal advice that takes into account the specifics of each case. Where we report on cases, in particular court decisions, their outcome should not be taken as necessarily indicating a similar outcome in other cases.
We endeavour to select the information provided in this article with care and to update or supplement it as necessary. However, we cannot guarantee that the information in this article is up-to-date, complete or accurate. This applies in particular to changes in legislation or case law.
Patrick Carl
Chief Sales Officer
Email: info[at]portalsystems.de
