Upcoming Changes and Unaltered Issues in VAT and ViDA by 2028
Reboot: Ready for the VAT Revolution in the EU?
The Council of the European Union officially adopted the VAT in the Digital Age (Vida) proposal on March 11, 2025, marking the beginning of a significant transformation in the EU's VAT system. Following the initial proposal in December 2022, Vida represents a significant step toward modernizing VAT compliance, particularly for businesses engaged in cross-border transactions.
Vida focuses on three principal pillars: digital real-time reporting and e-invoicing, revised VAT rules for the platform economy, and a single VAT registration system to simplify compliance for businesses operating in multiple EU member states. This article sheds light on impending changes expected before 2028 and persistent VAT challenges businesses will continue to face even after full Vida implementation.
The Changing VAT Landscape: What's Next Before 2028?
Vida provisions will roll out in stages, with the platform economy and single VAT registration reforms coming into effect on July 1, 2028, and digital reporting and e-invoicing measures following on July 1, 2030. However, some changes will be implemented earlier, in 2025 and 2027.
Say Goodbye to the Wait: E-Invoicing Unleashed
One of the first Vida provisions to take effect will focus on e-invoicing. Two decades after Vida's publication in the Official Journal of the European Union, member states will gain the ability to mandate e-invoicing for domestic transactions without needing European Commission approval. Member states can enforce this change as soon as they implement national regulations.
While a rapid wave of e-invoicing mandates across the EU is uncertain, a gradual transition is a more plausible outcome. France and Spain have experienced significant delays in e-invoicing rollouts due to the complexity of adapting business and governmental IT systems, staff training, and ensuring smooth interoperability.
Clearer Guidelines for Small Businesses
A noteworthy change coming into effect in 2027 will target small businesses engaged in cross-border e-commerce. Currently, the EU allows businesses with occasional cross-border sales under €10,000 per year to use a simplification rule, charging VAT based on their home country.
Vida clarifies this ambiguity by stating that the simplification will only apply when both the seller and the goods originate from the same member state. If the goods are dispatched from a warehouse in another country, the seller must charge VAT based on the customer's location.
EV Charging Network Simplification
Another essential change, taking effect in 2027, will extend the One-Stop Shop (OSS) scheme to cover intra-EU B2C supplies of electricity, gas, heat, or cooling energy. This development is particularly relevant for businesses operating electric vehicle (EV) charging networks across Europe.
Under current VAT rules, electricity is taxed where it is consumed, resulting in EV charging service providers needing to register for VAT in every EU country where they operate charging stations. Vida will eliminate the need for multiple VAT registrations, reduce compliance costs, and lighten administrative burdens for companies expanding their charging networks across multiple EU countries.
VAT Beyond Vida: Enduring Challenges
Compliance Complexity: A Mutli-layered Mockery
Although Vida aims to harmonize e-invoicing and digital reporting rules across the EU, the fate of existing domestic compliance obligations remains unclear. Vida prevents member states from introducing additional transaction-based reporting requirements for cross-border sales covered by the new Digital Reporting Requirements (DRR). However, domestic VAT reporting obligations, such as SAF-T and real-time reporting, may continue.
This means businesses will need to navigate both EU-wide and country-specific rules, creating a complex compliance landscape. Moreover, each member state will develop its own technology for real-time reporting of cross-border transactions, potentially leading to increased compliance costs as businesses integrate with multiple reporting systems.
Unresolved VAT Refund Hurdles
While Vida expands the OSS system to simplify VAT reporting, it does not solve the cumbersome VAT refund process. Businesses must still go through separate, often slow and bureaucratic, refund procedures for VAT paid abroad. Introducing an input VAT deduction mechanism within OSS could streamline the process, but this idea presents political and fiscal challenges.
VAT Symphony of Separate OSS Schemes
The EU currently operates three separate OSS schemes for VAT reporting on B2C sales: the Union OSS, the non-Union OSS, and the Import One-Stop Shop (IOSS). With Vida, the Union OSS will expand to cover more B2C transactions, but it does not extend to B2B transactions, meaning that businesses must maintain multiple VAT registrations for compliance purposes.
A Reliable VAT Number Verification: A Future Wish
Under Vida, businesses will need to verify their customers' VAT identification numbers (VAT-IDs) to determine whether they're businesses or private individuals. Currently, VAT number validation depends on the VAT Information Exchange System (VIES), which has reported inconsistent reliability.
To function effectively, enhancements to VIES would be beneficial, improving the system's overall reliability and encapsulating features like bulk validation via APIs and real-time updates. Enhanced VIES could streamline the VAT-ID verification process, but there are currently no concrete plans to upgrade the system.
Preparing for Vida: A Timely Transition
Vida is expected to impose significant costs on businesses, with the European Commission estimating that companies will need to invest approximately €11.3 billion in complying with the new DRR rules. However, these figures may not capture the full extent of financial and operational adjustments businesses will need to make, and many immediate compliance challenges still exist.
Benjamin Franklin once said, "By failing to prepare, you are preparing to fail." Despite the core Vida measures not taking effect until July 2028 and July 2030, businesses should start assessing the impact now. The clock is ticking, and companies that begin preparing now will find themselves in a stronger position when Vida takes full effect.
However, despite the pressing need for preparation, many businesses are still grappling with current VAT compliance challenges. The immediate hurdles before 2028 may seem daunting, but businesses should remember that a solid foundation always leads to a better future. Embrace the upcoming changes, and don't let tomorrow's VAT revolution catch you unprepared.
The opinions expressed in this article are the author's own and do not necessarily reflect the views of any organizations with which the author is affiliated.
Enrichment Data:The VAT in the Digital Age (Vida) proposal, adopted by the EU Council on March 11, 2025, introduces significant changes to enhance VAT compliance and efficiency across the EU. Here's an overview of the immediate changes expected before 2028 and their impact on businesses:
Immediate Changes:
- E-Invoicing:
- Member States can impose mandatory e-invoicing for domestic transactions without needing European Commission approval.
- EU-standard (EN 16931) will be the European standard for e-invoicing, ensuring structured formats for automatic processing.
- IOSS Framework Enhancements:
- Tighter controls on the Import One-Stop-Shop (IOSS) framework to improve compliance and reduce fraud.
Impact on Businesses
- Digital Transformation: Businesses will need to invest in digital systems to comply with e-invoicing and reporting requirements, which can lead to improved operational efficiency but also significant upfront costs.
- Compliance Complexity: Companies operating in multiple EU member states will need to adapt to different national implementations of e-invoicing and VAT compliance measures, potentially increasing administrative burdens.
- Platform Economy: Vida does not directly affect the platform economy before 2028, but businesses should prepare for future deemed supplier rules that will impact platforms facilitating short-term accommodation and passenger transport services.
Preparation Before 2028
- IT Infrastructure: Businesses should upgrade their IT systems to accommodate e-invoicing and digital reporting requirements.
- Legal and Tax Consultation: Consulting with tax experts can help businesses understand the implications of Vida on their operations and ensure compliance with evolving VAT regulations.
Overall, while the most substantial changes are scheduled for after 2028, businesses should begin preparing now to ensure a smooth transition and compliance with the new VAT regulations.
- The Council of the European Union's VAT in the Digital Age (Vida) proposal, adopted in 2025, focuses on the issue of assessing interoperability as a key factor in ensuring the smooth functioning of e-invoicing across member states.
- The European Union's Vida proposal, set to roll out in stages, requires businesses operating in multiple EU member states to register in a single VAT registration system, which could help in assessing the administrative burden on such companies.
- As part of the Vida provisions, e-commerce businesses will be required to assess the VAT identification numbers (VAT-IDs) of their customers to determine whether they are businesses or private individuals, emphasizing the importance of an efficient VAT-ID verification system for smooth operations.
