The EU VAT in the Digital Age Changes have been agreed

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). These will have a significant impact on businesses trading across the EU and also businesses 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 have now agreed to a further compromise package. Following consultation with the EU Council, this package will be introduced in stages, with most changes occurring in the period 2027 - 2030, with a final alignment of E-invoicing and reporting standards scheduled to occur in January 2035.

What are the details of the VIDA package?

The package comprises three separate pillars. These are the pillars, in implementation order.

The changes do not seek to apply a single VAT status or a single place of registration. The aim is to reduce VAT compliance costs and the administrative burden of cross-border trade within the EU in 3 key areas.

Reverse charge extension (2028)

There will be a mandatory reverse charge rule for supplies of goods and services for all intra-Community B2B supplies where:

  • The supplier is not established in the Member State in which the VAT is due, and
  • The purchaser/recipient is VAT registered in that latter Member State, and
  • The supplies do not fall within a margin scheme

One Stop Shop (OSS) extension (2027 and 2028)

The OSS allows EU and non-EU suppliers of many consumer services to register in one member state to declare VAT, based on the rate applicable in the customer’s member state. The OSS is to be extended under VIDA in 2 phases to cover B2C-supplies of:

  1. 2027: gas, electricity, heating and cooling
  2. 2028: goods, including domestic B2C supplies, installation or assembly supplies, supply of goods on board of ships, aircrafts or trains.

Movement of own goods ‘special scheme’ (2028)

Call-off stock arrangements at present causes difficulties – placing stock within a member state prior to the goods being sold. In many cases, a VAT registration is needed to acquire the goods and then invoice and report the eventual sales.

From 2028 there will be a separate ‘special scheme’ which will replace other measures such as the current call-off stock rules. The new measure should allow many businesses to reduce the number of VAT registrations they require, and the scheme will be applicable to all goods where there would be full VAT recovery for the buyer, including movements of capital goods.

There will be transitional arrangements until June 2029 for existing call off stock goods.

A deemed supplier rule

There will be a new "deemed supplier" rule introduced for two types of supplies to consumers that are commonly made by platforms acting as agent – short term visitor accommodation (30 days) and passenger transport (excluding ride sharing arrangements).

Under this new rule, the underlying supplier who is 'facilitating' the supplies for a non-VAT registered underlying supplier would be deemed to supply (VAT exempt, with no right to reclaim input tax) to the platform and then the platform would be deemed to be the supplier to the consumer, accounting for VAT. 'Facilitation' will not include payment providers, those purely listing or passing on bookings.

There will be an exclusion for supplies subject to a Tour Operators Margin scheme where existing rules will remain.

The compromise arrangements agreed in November 2024 will provide for the rules to be adopted voluntarily from July 2028 with all member states being required to apply the rules in 2030. However, member states are able to exclude SME’s from the deemed supplier rules for a period of 10 years if it can be shown this will not lead to a distortion of competition.

Facilitation fees

Platforms charge facilitation fees to businesses and consumers and the VAT position of these will be amended for all supplies (i.e. not just the new deemed supplier arrangements). When supplying business customers, VAT will be due in the Member State of the customer, with the customer declaring VAT under a reverse charge. For private customers, VAT will be due in the country where the underlying transaction takes place.

E-invoicing

The new rules will create mandatory e-invoicing for all intra-Community B2B supplies to help reduce missing trader intra-Community (MTIC) VAT fraud. This will include cross-border transactions such as supplies of goods and services on which VAT is reverse-charged and transfers of own goods.

An e-invoice must be to the EN 16931 standard (in place since 2014).

Digital reporting

Those issuing e-invoices will need to file a digital report within 10 days of the taxable event taking place. Similarly, recipients will need to file a digital report within 5 days of receiving the e-invoice. Member states are free to introduce local reporting requirements - in some cases this may require same day reporting. SAF-T and other arrangements can be retained.

The new rules start in July 2030 but in January 2035 existing domestic e-invoice reporting regimes must harmonise to the ViDA standard.

VIES (VAT Information Exchange System)

A new central VIES system for intra-Community transactions will be set up, which will provide information on a transaction-by-transaction-basis. Taxable persons must report on the transaction using this central system within a specified number of days of issuing the e-invoice to their domestic Tax Authority.

If the data is not transmitted or does not contain the correct information, the exemption with credit/zero rating for intra-Community supplies cannot be applied.

The information collected by the domestic Tax Authority must be transmitted within prescribed time limits after the collection to the central VIES system.

The rules will impact businesses outside the EU including the UK where they make supplies in the EU to consumers and businesses. Certain matters will ease compliance costs such as 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 many organisations will wish to 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. Businesses will need to be prepared for these new rules in advance to avoid supply and other issues. Please bookmark this page to keep up to date.

If you have any queries on cross-broader VAT issues, please contact Richard Hogg or Stephen Kehoe.