ViDA: How the EU is reinventing VAT for digital commerce

On November 5, 2024, the European Union adopted a long-awaited reform: “VAT in the digital age” (ViDA). This decision marks a turning point for European taxation in the face of the growing challenges of online commerce. The aim is to modernize a system that has become obsolete, and simplify tax rules to better adapt to new digital realities. ViDA is based on three key objectives: to ensure a more efficient and fairer tax system for the digital economy; to combat tax fraud, particularly across borders; and to facilitate compliance for businesses, particularly those operating on a European scale. 
The reform is designed to cut red tape for businesses, while ensuring more transparent and uniform VAT collection across all EU member states.

What is ViDA?

The ViDA (VAT in the Digital Age) project is a European Union initiative aimed at modernizing the VAT system to better meet the challenges of digital commerce. The project aims to adapt taxation to new market realities, by simplifying tax rules for companies selling goods and services online, while ensuring better VAT collection.

The 3 pillars of this reform : 

1. Electronic Reporting Requirements (DRR)

   The electronic reporting requirements are at the core of the ViDA reform. They aim to promote the adoption of electronic invoicing and create harmonized electronic reporting systems across the EU. These measures aim to facilitate the exchange of tax information between Member States while ensuring greater transparency.

   The implementation of standardized processes for electronic invoicing will enable more efficient VAT management and contribute to the reduction of tax fraud. By unifying procedures, these requirements aim to simplify business compliance, especially for companies operating across multiple Member States.

2. Platform Economy
   The platform economy refers to sectors such as accommodation rental or passenger transport, where transactions often occur between individuals through digital platforms like Airbnb or Uber. Currently, these platforms are not responsible for collecting VAT for services provided by these individuals.
   With the ViDA reform, platforms will now be required to collect VAT on these transactions and remit it to the tax authorities, even if the suppliers are not VAT-registered. This ensures that VAT is paid correctly and helps reduce the risk of fraud.
    
3. Single VAT Registration
   The ViDA project introduces a single VAT registration (One Stop Shop - OSS), a key measure to simplify tax management for businesses operating in multiple EU countries. Currently, businesses often have to register in each country where they make sales, which can become a significant administrative burden.
   With the OSS, a business will now be able to manage all its VAT obligations in the EU through a single registration. This reduces administrative tasks, lowers compliance costs, and simplifies VAT management across any European jurisdiction.

What Will Change:
The ViDA reform will transform VAT management in the EU. Here is an overview of the key differences before and after the implementation of these new rules.

Before ViDA	After ViDA
Invoicing: Non-unified invoicing process, often manual, with significant variability between Member States.	Electronic Invoicing: Mandatory implementation of electronic invoicing across the EU, ensuring more efficient and transparent management.
Platform Responsibility: Digital platforms are not responsible for collecting VAT for individuals or small businesses not registered for VAT.	Platform Responsibility: Digital platforms (e.g., Airbnb, Uber) will be required to collect VAT for non-registered suppliers and remit it to tax authorities.
Tax Management for Businesses: Businesses operating in multiple EU countries must register and comply with VAT in each country individually.	One-Stop Shop (OSS): Businesses will be able to manage all their tax obligations through a single registration in the EU, simplifying compliance.
Tax Audits: Complex tax audits and exchanges of tax information, often sources of fraud and non-compliance.	Improved Controls and Transparency: Tax information exchanges will be simplified, allowing for better transparency and reducing fraud risks.

How to prepare for change

The ViDA reform will transform the tax system within the European Union, and it is essential that businesses start preparing now. It foresees many changes by 2035. Here are the key dates to remember and the actions to take to comply with the new tax requirements:

1. January 1, 2027: Expansion of the OSS
   On January 1, 2027, the One-Stop-Shop (OSS) system will be expanded to include supplies of electricity, gas, and heating.
   What to do?
   Businesses operating in these sectors must prepare to report VAT through the OSS system, ensuring that their systems are ready to handle this new extension.

2. July 1, 2028: Single VAT Registration (Extension of the OSS)
   Starting July 1, 2028, the single VAT registration will be extended to all B2C supplies, intra-EU stock transfers, and the mandatory application of the reverse charge mechanism. This date will also mark the voluntary implementation of the "presumed supplier" rule for accommodation and mobility platforms (such as Airbnb or Uber).
   What to do?
   Businesses will need to adapt their systems to ensure single VAT registration in the OSS, and digital platforms will need to prepare their systems to collect VAT for non-registered users.

3. January 1, 2030: Extension of Obligations for Digital Platforms
   Starting January 1, 2030, digital platforms (such as those used for accommodation or mobility) will be required to collect VAT and remit it to tax authorities, as part of the mandatory implementation of the "presumed supplier" rule.
   What to do?
   Platforms need to adapt their processes and systems to ensure the collection and remittance of VAT on transactions carried out by non-registered suppliers.

4. July 1, 2030: Electronic Reporting Obligations for Intra-EU B2B Transactions
   Starting July 1, 2030, electronic reporting obligations (DRR) based on electronic invoicing will apply to intra-EU B2B transactions and transactions subject to reverse charge. National electronic invoicing systems will also need to be harmonized with EU standards (except for those existing before 2024).
   What to do?
   Businesses must comply with European standards and update their electronic invoicing systems to ensure they meet the new reporting requirements.

5. January 1, 2035: Harmonization of Electronic Invoicing Systems
   By January 1, 2035, all domestic electronic invoicing systems that were established before 2024 will need to be harmonized with EU standards.
   What to do?
   Businesses must ensure that their electronic invoicing systems, especially those set up before 2024, are compliant with EU standards.

These dates provide an overview of the timeline, but they are still subject to change. The EU will provide more details as time goes on, and some things may evolve. Businesses will therefore need to remain attentive and be prepared to adapt as necessary.

The ViDA reform is a major turning point for the European tax system, aiming to adapt it to the challenges of the digital economy. With significant changes ahead, it is essential for businesses to prepare now. Closely following key dates and European Union guidelines will help anticipate the necessary adjustments. This reform presents both challenges and opportunities, and those who adapt early will come out ahead. Stay informed and ready to evolve with this new fiscal era.