EU adopts VAT in the Digital Age package
On 11 March 2025, the European Union formally adopted the ViDA (VAT in the Digital Age) package, which aims to digitise the EU’s VAT system. The EU’s VAT reform came into force on Monday, 14 April, the 20th day after its publication on 25 March 2025. The changes will be phased in gradually between 2025 and 2035, but the new provisions also require timely digital, IT and financial planning from the businesses.
Background
According to the 2023 VAT Gap Report, EU countries lost €99 billion in VAT revenues in 2020. EU quoted conservative estimates suggest that one-quarter of the missing revenues can be attributed directly to VAT fraud linked to intra-EU trade. In addition, VAT arrangements in the EU can still be burdensome for businesses, especially SMEs, scale-ups and companies operating cross-border. Key actions proposed under ViDA are aimed at helping EU countries collect up to €18 billion more in VAT revenues annually (€11 billion as a result of anti-fraud measures) while helping businesses, including SMEs, to grow.
On 5 November 2024, the 27 EU Member States reached a unanimous political agreement on the VAT in the Digital Age (“ViDA”) proposal that has been formally adopted on 11 March 2025 and came into force on 14 April.
VAT in the Digital Age
The package consists of three well-defined pillars that should serve as an answer to the indirect tax challenges of the digital age:
(1) E-invoicing and Digital Reporting – under the new regime, (i) a real-time digital reporting system is set up for cross-border business-to-business transactions through (ii) e-invoices to replace the former periodical reporting (recapitulative statements). E-invoicing will also be harmonized based on the existing European standard for e-invoicing in the area of public procurement, and sharing the e-invoice data will be ensured by the national tax administrations.
(2) Platform Economy - under the new regime, a ‘deemed supplier’ model is introduced to ensure that platform economy operators collect and account for VAT, in cases where their service providers do not pay VAT themselves. For short-term rental of accommodation and passenger transport services, it is the platform, as deemed supplier, who is responsible for collecting the VAT directly from the customers and paying it to the tax authorities. However, the platform’s tax obligation remains ancillary: the original supplier should still account for VAT – under the general rules - if provides its VAT identification number (effective in the Member State where the VAT is due) to the platform operator and declares to the platform operator that it will account for VAT on that supply (or is relieved from the obligation of the underlying supplier opts for the preferential SME VAT regime itself).
(3) Single VAT registration – the already existing ‘one-stop shops’ system – single VAT registration for multiple EU Member States – for business-to-business (B2B) transactions will be extended to – some – business-to-consumer (B2C) transactions as well, including sale of electricity or gas or cross-border movement of stock (own goods) for direct sale to consumers. Also, in order to avoid multiple registration obligations, B2B transactions will, as a general rule, shift from optional to mandatory, fall under the reverse charge mechanism (where the supplier is not established where the VAT is due).
Further steps and implementation milestones
April 2025 - Immediate changes after adoption
- Voluntary introduction of e-invoicing - Member States may introduce mandatory e-invoicing at a national level.
- Import One-Stop Shop (IOSS) control framework to be strengthened.
- Separate proposals ‘quick fixes’ to the existing e-commerce VAT rules and processes have been moved back into the 2028 EU Customs reforms.
1 January 2027 - First legislative clarifications
- Specific legislative changes affecting users of OSS and IOSS will enter into force; i.e. update to the tax point rules; cross-border supplies of natural gas, electricity, heating and cooling energy; B2C deemed supplier obligations.
1 July 2028 – Single VAT registration
- Platforms will be responsible for paying VAT as a so-called "deemed supplier". For short-term accommodation and passenger transport services, Member States may postpone the introduction of this until 1 January 2030.
- The extension of the OSS return to e-commerce and own stock movements across EU borders.
- Single VAT administration reform: extension of the OSS with new IT developments - new own-account system -, extension of reverse charge to B2B transactions (e.g. for real estate services).
1 July 2030 - Launch of Digital Reporting Requirement (DRR)
- DRR applies to cross-border B2B transactions, and each Member State will be free to develop its own reporting protocols and technical specifications.
- DRR makes ESL reporting obsolete, and VIES is to be supplemented with DRR data.
- Mandatory introduction of e-invoicing - for cross-border B2B transactions subject to DRR, an e-invoice must be issued according to a single EU standard (EN 16931 standard format), regardless of the consent of the customer.
- Mandatory application of the „deemed supplier” scheme for platforms
1 January 2035 - Final phase
- All domestic Digital Reporting Requirements (DRRs) must align with ViDA standards - Member States that have already introduced real-time digital reporting before 2024 will be required to align their systems with EU standards.