EU's VAT in the Digital Age (ViDA) proposal approved

The VAT in the Digital Age (ViDa) proposal was approved on November 5, 2024, by the Economic and Financial Affairs Council (ECOFIN) among the 27 EU member states. It will initiate notable changes starting from the first half of 2025.

ViDa is an important milestone in the EU's efforts to enhance digital transition and competitiveness. The aim is to improve the functionality of the system for businesses by simplifying and clarifying VAT regulations. At the same time, ViDa fights against VAT fraud and addresses the challenges of VAT taxation in the platform economy.

The set of proposals can be divided into three main areas:

1. E-invoicing and digital reporting

• The EU's invoicing rules will be amended so that electronic invoicing becomes mandatory for intra-community sales and EU service sales, and member states will no longer be allowed to permit paper invoices. A draft version of the EU Invoicing Directive is expected to be available in the summer of 2025.
• Starting from July 2030, electronic invoices must be in a structured electronic format for automatic processing. Non-structured formats, such as PDF or JPEG files, will no longer be acceptable.
• The ViDa package includes a requirement for near-real-time invoice data reporting to tax authorities, which will replace the current summary declaration. The reporting period has been extended from "2 working days" to "10 days" from the issuance of the electronic invoice. Additionally, the buyer will also report corresponding information within 5 days of receiving the invoice.
• Member states have the option to mandate digital reporting for national transactions, which aligns with ViDa's cross-border standards. These standards must be implemented by 2035 in member states that already have real-time reporting systems in place.

2. VAT Taxation of the Platform Economy

• Starting from January 2030, the tax liability of platform operators will be expanded to include sales made through the platform, and they will always be liable for accommodation or passenger transport services sold through their platform, for example, when the actual seller of the service is a private individual. Voluntary tax liability will be possible starting from July 2028.
• The goal is to ensure a uniform approach across all member states and help balance competition with traditional short-term accommodation and transport service providers.

3. Expansion of the Special VAT Scheme and Reverse Charge Mechanism

• From July 1, 2028, the use of the VAT special scheme OSS (One Stop Shop) is intended to be expanded to cover practically all consumer sales. The scope of distance selling rules will also include goods subject to margin taxation and the sale of goods that are installed.
• The special scheme will also cover the transfer of own goods from one EU state to another, including transfers to call-off stock, starting from July 2028. In this context, the simplification rules for call-off stock will also be removed.
• The scope of the reverse charge mechanism is intended to be expanded to apply to almost all local sales when the seller is a foreign company not established in the respective state and the buyer is VAT registered in that state.
• As a result of these changes, situations where businesses are required to register as VAT liable in other EU countries will decrease significantly, although they will not be eliminated entirely.

The ViDa proposal signifies a substantial change in the EU's VAT system towards a more efficient and digital framework, promising significant benefits despite initial challenges and adjustments required from businesses. The changes will necessitate significant modifications to systems and processes, and companies will need to update their invoicing and VAT reporting procedures. This also presents opportunities for businesses to develop and automate their own processes and reporting practices.

It is advisable for businesses to stay informed about the individual implementations by member states and to begin preparing for upcoming changes on time.