EU approves VAT in the Digital Age (ViDA) package

On November 5, 2024, the Economic and Financial Affairs Council (ECOFIN) of the European Union finally approved the long-awaited VAT in the Digital Age (ViDA) package. This landmark decision comes after nearly two years of negotiations and marks a significant step towards modernizing the EU’s VAT system. Now it only needs to go to Parliament to get final approval.

The ViDA package will have far-reaching implications for businesses operating in the EU. Companies will need to adapt to new e-invoicing and real-time reporting requirements by July 2030.

Online platforms facilitating certain services, such as short-term accommodation rentals and passenger transport, will become responsible for collecting and remitting VAT on behalf of non-registered service providers. This change aims to level the playing field between traditional service providers and those operating through digital platforms.

VAT compliance will also be simplified for some businesses operating across multiple EU countries.

Key changes and compromises

The ViDA package, initially proposed in December 2022, focuses on three main areas:

• Pillar 1: Digital Reporting Requirements (DRR) – This pillar introduces a new real-time reporting system for VAT transactions across the EU allowing them to immediately address instances of VAT fraud. It also includes mandatory e-invoicing, in a standardized format.
• Pillar 2: Updated Platform Economy rules – This pillar addresses the growing platform economy and its implications for VAT collection. VAT rules need updating, so platform economy operators will be deemed responsible for collecting VAT when service providers do not, and for remitting this to tax authorities.
• Pillar 3: Single VAT Registration – This pillar aims to simplify VAT compliance for businesses operating across multiple EU countries. Specifically, allowing businesses that want to sell to consumers in another Member State to register only once for VAT purposes for the entire EU and fulfill their VAT obligations in one language, via a single online portal.

The final compromise introduces significant changes as a reaction to the opposition of Estonia on the second pillar, primarily extending deadlines and allowing greater flexibility for member states.

The package also abolishes ESL returns, and the Digital Reporting Requirements will become mandatory for B2B intra-Community sales and purchases. Member states may extend these to domestic sales if aligned with EU standards. Businesses will have two working days to issue e-invoices for intra-Community supplies, and two more days to report them.

The deadline for implementing the deemed supplier rule for platforms has been postponed. EU countries must start applying this rule from July 2030, but can voluntarily implement it from July 2028. The deemed supplier model is extended to online platforms offering accommodation and passenger transport services. The deadline for extending the One-Stop Shop (OSS) has also been delayed.

Extended implementation timeline

The new implementation dates are as follows:

• Pillar 1: Digital Reporting Requirements (DRR)
  • Early 2025: From ViDA’s entry into force, Member States can implement e-invoicing without prior EU authorization.
  • July 2030: Mandatory digital reporting and e-invoicing. For intra-EU transactions. Full harmonization of new e-invoicing systems introduced after Jan 2024.
  • January 2035: Member States with existing digital real-time transaction-based reporting systems in place on January 1, 2024, need to converge to the new EU model (Italy, France, Poland, Germany, Romania and Belgium).
• Pillar 2: Platform Economy
  • July 2028: Voluntary implementation
  • July 2030: Mandatory deemed supplier rule for platforms (Platform Economy compliance)
• Pillar 3: Single VAT Registration
  • January 2027: OSS extended to cross border energy supplies (natural gas, electricity, heating, and cooling).
  • July 2028: Mandatory with extended OSS coverage. Includes all B2C supplies of goods and services and intra-EU stock transfers.
  • July 2028: Reverse charge requirement extension, applied when a foreign seller sells to a VAT-registered customer.

Flexibility for Member States

Member states now have the option to exempt small and medium-sized enterprises (SMEs) from the deemed supplier regime. This flexibility was crucial in gaining Estonia’s support, as it addresses concerns about the impact on VAT recovery for smaller businesses.

Post-clearance

The Commission’s proposal adopts the post-audit method, aligning with the European standard for electronic invoicing. Countries currently using the clearance model for e-invoicing will need to transition to the post-audit method by January 1, 2028, to harmonize with the digital reporting system.

In the post-audit (or post-clearance) method, the invoice is exchanged directly between the seller and the buyer. It is only after delivery to the customer that the tax authorities review the invoice.

Read now → How e-invoicing can benefit your business [ Blog ]

Next steps

Although ECOFIN has approved the package, a consultation with the European Parliament remains necessary due to substantial revisions from the initial proposal. Businesses should begin preparing for these changes, which will be phased in over the next few years. It’s important to remember that these dates await final approval and could still be modified.

Wrapping up

The approval of the ViDA package represents a major overhaul of the EU VAT system, aimed at enhancing compliance, preventing tax fraud, and adapting regulations to the digital age. As implementation dates approach, businesses operating in the EU should stay informed about these changes and begin planning for the necessary adjustments to their VAT processes and systems.