EU gives final approval to VAT in the Digital Age package: What it means for businesses and how to prepare

The European Commission has officially adopted the VAT in the Digital Age (ViDAViDA or 'VAT in the Digital Age', is an EU initiative proposed by the European Commission that seeks to modernise and harmonise VAT processes for member states, by embracing new technologies. It is aimed at updating processes for the management of VAT, and reduce the VAT gap and fraud. The proposal also aims to address challenges in the area of VAT raised by the development of the platform economy.) package following re-consultation with the European Parliament.

This landmark reform aims to modernise the EU’s VAT system by leveraging digital tools, increasing efficiency, and enhancing fraud prevention mechanisms.

Key changes and implementation timeline

The ViDA package introduces significant changes that will impact businesses operating within the EU. The rollout will take place in several stages:

Immediate changes (Upon entry into force in 2025):

• Member States can introduce mandatory e-invoicingElectronic invoicing - widely referred to as e-invoicing - is the exchange of a digital document between a supplier and a buyer. E-invoices are issued, transmitted and received in a structured data format that enabled automatic and electronic processing. They contain data in a machine-readable format so that an AP system can read an invoice without manual data entry, leading to faster and more efficient invoicing., making digital invoices the norm for cross-border transactions under specific conditions.
• Import One-Stop-Shop (IOSS) enhancements will strengthen controls and reduce VAT fraud.

From 1^st January 2027:

• Businesses using the One-Stop Shop (OSSOSS (One-Stop Shop): An EU VAT system allowing businesses to report and pay VAT for cross-border sales in a single EU member state.) and IOSS schemes will experience minor legislative clarifications to simplify compliance.

From 1^st July 2028:

• Online platforms facilitating short-term accommodation rentals and passenger transport will be required to comply with new ‘deemed supplier’ obligations, meaning platforms may need to collect and remit VAT on behalf of their users.
• Single VAT Registration reforms will simplify VAT compliance, reducing administrative burdens for businesses operating in multiple Member States.
• A mandatory reverse chargeWhen the Reverse Charge (mechanism) is in effect, the recipient of goods or services assumes responsibility for reporting both the purchase and the supplier’s sale in their VAT return. mechanism will be implemented for transactions involving non-identified suppliers, shifting VAT obligations to the customer.

From 1^st July 2030:

• Businesses engaged in cross-border B2B transactions must comply with new Digital Reporting Requirements (DRR), ensuring real-time or near-real-time VAT reporting for improved tax compliance and transparency.

By 1^st January 2035:

• Member States with existing domestic digital real-time reporting obligations must align their systems with EU standards, ensuring a harmonized approach across the EU.

What this means for businesses

The ViDA package represents a major shift in how VAT is reported and managed, introducing digital-first tax compliance.

Businesses operating across EU borders will need to adapt to a more automated, real-time VAT reporting system. The main implications include:

• E-invoicing mandates: Companies will need to implement e-invoicing systems to ensure compliance with new rules.
• Increased platform accountability: Online marketplaces, particularly those in the accommodation and transport sectors, may need to adjust their VAT collection and reporting processes.
• Simplified VAT registration: Businesses selling across multiple EU countries will benefit from streamlined VAT obligations, reducing compliance costs and administrative burdens.
• Real-time VAT reporting: Companies will need to upgrade their financial systems to meet new digital reporting requirements and avoid penalties for non-compliance.

How tax teams can prepare

To ensure a smooth transition, tax professionals should take proactive steps, including:

1. Assess current VAT processes: Conduct a VAT compliance audit to identify areas that need updates, particularly around e-invoicing and reporting.
2. Upgrade digital infrastructure: Implement or enhance e-invoicing and tax reporting software that aligns with new EU requirements.
3. Monitor regulatory updates: Stay informed about country-specific implementation timelines and requirements to ensure compliance.
4. Train tax and finance teams: Educate teams on new VAT rules, digital reporting obligations, and compliance strategies.
5. Engage with technology providers: Work with ERPEnterprise resource planning (ERP) is a type of software that organisations use to manage main business processes. and tax automation providers to integrate real-time reporting solutions ahead of the 2030 deadline.

A digital-first future for VAT compliance

The adoption of the ViDA package underscores the EU’s commitment to modernising tax administration, reducing fraud, and creating a more business-friendly VAT system.

While the transition requires investment in digital solutions, businesses that prepare early will gain efficiency benefits and ensure full compliance with evolving regulations.