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The European Union (EU) has reached a significant milestone with the adoption of 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.) reform package, marking a decisive shift in the way VAT will be applied across the bloc.
At an ECOFIN meeting last week, EU finance ministers gave the green light to the ViDA scheme; albeit with an amended timetable of implementation. The three pillars of ViDA will now come into effect on the following dates:
- July 2028: Single VAT registration
- January 2030: Platform economy
- July 2030: Digital reporting & 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.
The ViDA proposal will now be sent back to the EU Parliament for its approval.
The comprehensive reform, set to modernise VAT rules for the digital economy, addresses long-standing challenges arising from online transactions, cross-border trade, and the rise of digital platforms.
As digital commerce continues to reshape global trade, the new ViDA package seeks to create a more efficient, transparent, and fraud-resistant tax system to better serve both businesses and public finance systems across the EU.
Components of the ViDA proposal
One of ViDA’s core components is the mandatory introduction of e-invoicing. Starting in 2030, all cross-border business-to-business (B2B) transactions will be required to use e-invoices, shifting away from the traditional ‘recapitulative statements’ that businesses currently submit periodically.
These statements have been a significant loophole in the VAT system, limiting tax authorities’ access to real-time data and creating opportunities for VAT fraud. With e-invoicing, tax authorities will immediately access accurate VAT data, enabling faster detection of irregularities and reducing fraudulent activities.
The transition to a digital reporting system will replace manual invoicing processes, providing tax administrations across the EU with near-instantaneous updates of business transactions. By aligning all member states to a common e-invoicing standard, the ViDA reform aims to significantly improve VAT collection and increase the speed and accuracy of tax compliance.
Another pivotal aspect of ViDA is the focus on the platform economyThe platform economy is built upon the growing tendency for businesses - especially retailers - to use digital platforms and marketplaces to sell goods or services. Such platforms are underpinned by computer systems and allow companies to more easily reach and connect with prospective consumers with the intention of completing sales.. Digital platforms, such as those providing services like short-term accommodation or passenger transport, have traditionally not been required to collect VAT from individual service providers. This has resulted in lost tax revenue and created competitive disparities between traditional service providers and those operating online.
Under the new ViDA framework, digital platforms will assume the role of VAT collectors, a model known as the ‘deemed supplier’ approach. This means that when service providers are not VAT-registered, platforms will collect and remit VAT on their behalf. This reform is expected to close tax gaps in the booming platform economy, ensuring that small businesses and freelancers are taxed fairly and consistently with larger enterprises.
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.) for VAT, a system that allows businesses to manage VAT obligations across multiple EU countries through a single online portal, will also undergo significant expansion.
Initially limited to certain cross-border sales, the OSS will now cover a broader range of transactions, including business-to-consumer (B2C) sales within the EU.
This extension will help simplify VAT compliance for businesses and small and medium-sized enterprises (SMEs) by reducing the administrative burden and enabling them to avoid the complexities of managing multiple country-specific VAT registrations. Companies selling goods such as electricity or gas in other EU member states can now use the OSS to handle VAT obligations seamlessly.
What does this mean for businesses?
Businesses operating across borders will benefit from a simplified, harmonised VAT system that reduces administrative costs and barriers to trade. However, they must adapt to new digital reporting requirements, including e-invoicing and the expanded OSS system, which may require upgrades to their financial systems and processes.
For SMEs, in particular, the ViDA package promises to ease the burden of navigating complex VAT obligations across multiple jurisdictions. The new rules are designed to provide greater clarity and transparency, making it easier for businesses to comply with VAT laws and for tax authorities to monitor transactions.
As the rules begin to roll out in 2025, the EU is poised to improve VAT transparency. It will make it easier for businesses to operate across borders while ensuring that tax revenues are fairly collected and distributed. The ViDA reform is a crucial step in the EU’s broader efforts to modernise its tax system and position itself for the future of the global economy.
