VAT in the Digital Age: what you need to know
VAT in the Digital Age: what you need to know
On 11 March 2025, the European Parliament formally adopted the ‘VAT in the Digital Age package’ (VIDA) – all eyes will now turn to how and when each EU member state will implement the rules.
What is VAT in the Digital Age?
In late 2022, the European Commission launched its long-awaited proposals to modernise VAT rules within the EU, collectively known as the ‘VAT in the Digital Age package’ (VIDA). They will have a significant impact on businesses trading inside and outside the EU, including the UK.
The VIDA proposals consist of three key Pillars, commonly referred to as:
- Digital reporting and E-invoicing
- The Platform economy
- The Single VAT Registration
What has happened since 2022?
After the initial launch of the proposals, there were numerous attempts to achieve unanimous agreement amongst the 27 member states to the entire package. In May 2024, a compromise proposal was rejected due to one member state refusing to agree – related to concerns over the impact of the platform economy changes on SME's.
However, in early November 2024, member states agreed to a further compromise package, and this has now been formally adopted. The package will be introduced in stages, with most changes coming between 2027 and 2030, with a final alignment of E-invoicing and reporting standards scheduled to occur in January 2035.
How will VIDA be implemented?
There three key ‘pillars’ of the VIDA package are to be phased in by member states in the following order:
1 January 2027
- Reporting of B2C supplies of electricity, gas, heating and cooling through the One Stop Shop will be possible.
1 July 2028
- Online platforms will become responsible for the payment of VAT on short-term accommodation rentals and passenger transport by road in circumstances where the underlying supplier does not remit VAT directly through their own VAT registration. Under the compromise position agreed in November 2024, Member States can postpone this obligation until 1 January 2030. Member States can also choose to disapply this provision if the underlying supplier uses the exemption for SMEs. Platforms must also record (and provide data on request) about transactions they facilitate in this sector if they are not liable to remit the VAT on these transactions.
- A new place of supply rule will apply to B2C platform facilitation services. These services will be subject to VAT at the place where the underlying service is subject to VAT.
- The number of required VAT registrations of businesses within the EU will decrease because of a new set of rules: (1) extension of the One Stop Shop (OSS) regime, (2) extension of the mandatory reverse charge mechanism and (3) a special (separate) regime for the transfer of own goods.
1 January 2030
- Member states that postponed the obligations on platforms to become responsible for the payment of VAT on short-term accommodation rentals and passenger transport by road if the underlying supplier does not remit VAT directly through their own VAT registration must make the change by this date.
1 July 2030
- E-invoicing (using an EU standard) and digital reporting obligations in cross-border transactions are introduced. This relates to intra-Community supplies and acquisitions, supplies of goods and services on which VAT is reverse-charged and transfers of own goods. For the supplier, the deadline for issuing an e-invoice and reporting the data to the local tax authorities is ten days after the taxable event. The customer must also report data on the transaction to the local tax authorities, within five days after the receipt of the invoice. The EC Sales Listing or recapitulative statement will be abolished.
- EU Member States will be able to introduce digital reporting and e-invoicing obligations for domestic transactions, but this is not mandatory. If they do so, it should be possible to use the EU format. Member States that already have a domestic real-time reporting system in place (or have been authorized to introduce it by the European Commission) on 1 January 2024, will have until January 2035 to adapt their system to the EU standard.
As of 1 January 2035
- All Member States must have adapted their domestic digital reporting system to the EU format by this date.
Impact on UK businesses
The rules will impact businesses outside the EU where they make supplies inside the EU for consumers and businesses. Certain matters will ease compliance costs, like the extension to the 'reverse charge', 'One Stop Shop' and call off stock rules given the reduced requirements for overseas VAT registrations.
Other measures have the potential to create additional compliance burdens for UK businesses, and you should closely monitor the e-invoicing and digital reporting requirements being introduced by VIDA.
Although current timescales for implementation have been agreed, we expect more developments regarding VIDA during the coming months and years as member states implement the new rules. Your business will need to prepare for these new rules in advance to avoid supply disruption and other issues. Please bookmark this page to keep up to date.
If you have any queries on cross-border VAT issues, please contact Richard Hogg or Stephen Kehoe.