Considered to be the biggest VAT reform since the introduction of the single market, VAT in the Digital Age (ViDA) aims to help combat VAT fraud and ease administrative obligations for businesses.
The plan was originally presented by the European Commission on 8 December 2022. After several delays and changes in the original scope, the Member States have finally reached an agreement and the implementation can now go ahead. The first measures will be in force in 2025, and the final proposed changes will be implemented in 2035.
According to the ViDA report, among other benefits, the reform will result in:
- an increase in tax collection from EUR 135 billion to EUR 177 billion
- a reduction in compliance costs by EUR 4.3 million
- a reduction in tax fraud.
The reforms will have a substantial impact on businesses that have a presence in, or trade with, the EU. The ViDA package is centered around three pillars:
- E-invoicing and digital reporting
- Platform economy
- Single VAT registration
E-invoicing and digital reporting
The introduction of e-invoicing and digital reporting obligations for businesses is designed to help EU Member States exchange tax information between themselves. The ultimate purpose of this pillar is to help facilitate a reduction in tax fraud on cross-border transactions. The e-invoicing and digital reporting changes will be implemented in three stages.
First half of 2025
The EU Member States will have the right to introduce e-invoicing regimes without seeking any formal approval from the European Commission through derogations. Member States will be able to mandate customers receiving e-invoices from this date. This is likely to result in more Member States gradually implementing mandatory e-invoicing before July 2030.
July 2030
From July 2030, for cross-border business-to-business (B2B) and business-to-government (B2G) supplies, e-invoices will have to be raised, processed, transmitted, and stored in a prescribed format (generally in compliance with the EU standards – EN16931), and they'll have to be issued no later than 10 days following the time of supply. This will include supplies of goods from businesses in Northern Ireland to businesses in the EU.
This will coincide with the introduction of Digital Reporting Requirements (DRR) and the removal of the EC Sales List, given that data from the e-invoice will be digitally-reported to the tax authorities by the supplier at the time of raising the e-invoice.
Member States may also require the business or government customer to digitally-report the data from the e-invoice within five days of it being received.
January 2035
All e-invoicing and digital reporting obligations (including those for domestic transactions) across the EU must align from January 2035 with EU standards.
Platform economy
From January 2030, pillar two of ViDA introduces a 'deemed supplier' obligation for digital platforms acting as an intermediary in the supply of short term (30 consecutive nights or less) accommodation rentals and passenger transport (by road only). In these instances, the digital platform will become the deemed supplier and will be responsible for the collection and remittance of VAT on behalf of the underlying supplier. The European Commission has indicated that Member States can implement this from the earlier date of July 2028.
The deemed supplier obligation won't apply if the underlying supplier provides their VAT number and declares to the digital platform that it will take responsibility for collecting and remitting the VAT due. Furthermore, if the underlying supplier is below the VAT registration-threshold in the Member State where the VAT is due, that Member State may choose to not make the digital platform the deemed supplier.
Single VAT registration
The final pillar of ViDA will expand the scope of the One-Stop Shop (OSS) VAT registration. From July 2028, the new regulations will broaden the scope of the OSS to include business-to-consumer (B2C) sales of certain items, such as supply of goods with installation or assembly, and the supply of goods on board ships, aircrafts, or trains. This expansion covers the scenario where companies move their own stock to another Member State to sell directly to their costumer at a later-date-call-off stock simplification. Supplies of electricity, gas, and other energy-related supplies will be able to be included within the OSS return from January 2027.
Furthermore, the final pillar will expand the reverse-charge mechanism for B2B supplies. It will include more supplies within the reverse charge, such as domestic supplies of goods and services related to immovable property, where the supply is from a non-established trader to an established VAT-registered trader.
The purpose of the changes to the OSS registration is to minimise compliance obligations for businesses and reduce the scenarios under which businesses are required to register for VAT in a Member State they're not established in.
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How businesses can prepare
While ViDA is an EU VAT reform, it will have a huge impact on UK businesses that trade with, or have a presence in, the EU, and those who trade from Northern Ireland.
Fully understanding their EU presence and supply chain
It's important for businesses to fully understand their presence and supply chain in the EU. This involves determining where the business has business establishments and fixed establishments in the EU, and where it has non-established VAT registrations.
Assessing the impact of ViDA reform on their EU VAT reporting
Once a business fully understands their EU presence and supply chain, they'll be able to determine the impact that ViDA reform will have on their EU VAT reporting. It's important that stakeholders who are involved in such transactions are informed. Furthermore, the changes around e-invoicing and DRR will involve systems and data challenges, so it's important that your IT department is involved in this process.
For more insight and guidance, get in touch with George Williams.
