To promote the digitization and transparency of tax processes, the European Commission decided on a comprehensive reform of the value-added tax (VAT) system in 2024: VAT in the Digital Age (ViDA). This set of reforms affects many organizations and requires adjustments to administrative tasks. There are also potential benefits, however. In this article, you will learn what ViDA is, what measures the initiative includes, and the European Commission’s intentions. We also explain who is affected, what impacts companies can expect, and the advantages of ViDA.

What’s in this article?

• What is ViDA?
  
• What measures does ViDA include?
  
• When does VIDA come into effect?
  
• What are the European Commission’s intentions with ViDA?
  
• Who does ViDA affect?
  
• What impact does ViDA have?
  
• What are the benefits of ViDA?
  

What is ViDA?

The abbreviation ViDA stands for “value-added tax in the digital age.” ViDA is an initiative of the European Commission to modernize the current European VAT system. It is a package of measures to amend the existing VAT Directive (Council Directive 2006/112/EC).

The European Commission proposed ViDA on December 8, 2022. After almost two years of negotiations and some substantive adjustments, the European Council adopted this package of measures on November 5, 2024. It includes a directive, a regulation, and an implementing policy scheduled for rollout from 2025 to 2035.

What measures does ViDA include?

As outlined by the European Commission, ViDA will regulate three areas in particular:

• Digital reporting obligations
  
• The platform economy
  
• Expansion of the one-stop shop system
  

Digital reporting obligations

In the future, companies that function across borders will have to report transactions to the tax authorities in a standardized manner and in real time. This makes auditing easier for officials and increases transparency for these entities. The foundation of digital on-the-spot reports is electronic invoicing, which allows organizations to document individual operations instead of submitting collective ones to the authorities. All sales must be reported in a standardized electronic form. The real-time transmission also shortens the obligation to issue invoices for intracommunity supplies and other services within a few days after receipt or dispatch.

The platform economy

Platform economies are digital marketplaces where operators provide the infrastructure to bring companies together with potential customers. ViDA changes the VAT rules for systems that offer passenger transport and short-term accommodation services.

Before ViDA, those subject to VAT competed on these platforms with persons providing VAT-exempt offerings. It will help reduce both double taxation and instances of non-taxation. To create fair, competitive conditions in the future, platforms will have to collect and pay VAT from private individuals who are not subject to it. In addition, platform operators must keep information on B2B and B2C solutions easily accessible.

Expansion of the one-stop shop system

The EU operates three so-called one-stop shop (OSS) systems for central sales reporting to private individuals within the European Union. ViDA includes an expansion of OSS that enables more companies to process their sales taxes through a single online portal and in one language. For example, the EU has approved documenting sales of certain items for the OSS procedure—including gas and electricity. ViDA also makes it possible to report warehouse movements to other EU member states via OSS. Affected companies only have to register for VAT once.

Additionally, the European Council decided that liability in B2B transactions will transfer from suppliers to buyers if the latter are in another member state. This was already possible in some cases before ViDA and is rapidly becoming the standard.

When does ViDA come into effect?

The individual measures will come into effect between 2025 and 2035, and ViDA on the 20th day following the initiative’s publication in the Official Journal of the European Union; the EU has planned publication for 2025.

As of 2025

• Member states can require companies to use electronic invoicing for domestic transactions without prior approval from the European Commission.
  
• Companies must accept electronic statements when the EU introduces a national electronic invoicing system.
  

As of January 2027

• Through the use of OSS, companies can also document cross-border deliveries of natural gas, heating, and cooling energy.
  
• The uniform delivery threshold of €10,000 applies exclusively to goods shipped from the seller’s country. Up to this revenue limit, suppliers can offer goods to private customers in another EU member state without becoming liable for VAT in the destination country of the goods.
  

As of July 2028

• Platforms that broker passenger transport and short-term accommodation services must collect and pay VAT themselves from providers not subject to it. The regulation will be optional from July 1, 2028, and mandatory as of July 1, 2030.
  
• The EU has expanded the OSS to include the company’s inventory movements across EU borders.
  

As of 2030

• Electronic invoicing is becoming the standard for cross-border transactions. However, companies can still use paper statements for domestic deliveries, provided customers accept them.
  
• Companies must issue electronic invoices no later than 10 days after the dispatch or receipt of the goods.
  
• Collective invoices for sales in the same calendar month are permitted if the company issues them no later than 10 days after the end of the month. But, EU member states might, at their discretion, exclude specific fraud-prone sectors.
  

As of January 2035

• National digital reporting systems already in effect or approved by the EU before January 1, 2024, must be compatible with the ViDA regulations.
  

What are the European Commission’s intentions with ViDA?

The primary goal of ViDA is the digitization and modernization of the existing VAT system. With the obligation to e-invoice and real-time documenting, companies can, for instance, transmit their tax data digitally and in a standardized manner. This not only benefits organizations but also makes audits easier for tax authorities.

ViDA improves the transparency and traceability of financial operations by introducing digital reporting obligations, among other things. Specifically, this helps combat carousel tax evasion, in which dishonest parties commit VAT fraud through fictitious cross-border dealings. According to the 2023 VAT Gap Report, EU countries lost €61 billion in VAT revenue in 2021. Based on estimates by the European Commission, around a quarter of the lost earnings is due to VAT fraud in connection with intracommunity trade. The measures planned with ViDA could help EU countries generate up to €18 billion in added VAT returns each year.

Nevertheless, the potential additional yields does not result exclusively from more effective measures against tax fraud. Another aim of ViDA is to provide company growth and increase sales and tax revenues. The planned new regulations can reduce bureaucratic burdens, particularly for small- and medium-sized enterprises (SMEs). For example, uniform registration reduces administrative effort and saves costs.

Who does ViDA affect?

ViDA affects all actors in the European internal market, from cross-border companies to SMEs, platforms, and tax authorities.

• Companies with cross-border activities: Many that offer goods and services within the EU must prepare for digital reporting obligations. They will document transactions to the tax authorities in real time and issue electronic invoices in a standardized format. The only exceptions are those that make intra-European sales to private individuals.
  
• Small- and medium-sized enterprises (SMEs): These new policies also affect smaller operators that might previously have only been active in national markets. These smaller companies must adapt their internal processes to the latest electronic statements and reporting obligation regulations.
  
• Platform operators: In the future, online marketplaces and brokerage platforms for short-term rentals and passenger transport will be more responsible for collecting and paying sales tax. They must ensure that they correctly tax their sales.
  
• Tax authorities of the EU member states: ViDA also affects tax authorities. They benefit from the new digital reporting requirements because real-time data gives them a better overview of transactions and enables them to combat tax fraud more effectively.
  
• Customers: Customers will also notice the impact of ViDA. On the one hand, they will increasingly receive standardized digital invoices that comply with the new reporting requirements. On the other hand, they could pay higher prices on short-term rental services such as Airbnb or passenger transportation services such as Uber.
  

What impact does ViDA have?

ViDA has a particular impact on companies regarding invoicing, reporting, VAT registration, and auditing.

Invoicing

The European Commission has set out to ensure that most European firms issue electronic invoices by 2030. Therefore, German companies must also change their administrative workflows and modernize their IT infrastructure. In Germany, B2B entities must comply with the Growth Opportunities Act and can handle and receive statements digitally as early as 2025. From 2028, they might only issue e-invoices. It is advisable to switch administration to electronic billing formats as early as possible. Electronic invoices for cross-border transactions must be issued no later than 10 days after the taxable event. Stripe Invoicing helps you do this through app partners such as Billit.

Reporting

The reporting obligations planned as part of ViDA stipulate that European companies operating across borders must report invoice data from July 2030. The supplier must report the invoice data in real time, i.e., at the time of invoicing or billing. However, in situations of self-billing or reporting by the buyer, the buyer must provide the information no later than five days after the invoice is issued. This new transactional reporting obligation replaces the previous recapitulative statement.

Auditing

Tax authorities have direct and timely access to transaction records by introducing on-the-spot reporting using electronic statements, meaning that they can instantly check invoice formats for accuracy. Based on immediate statistics, officials can respond quicker and conduct more targeted audits. Companies must, therefore, digitize their internal compliance and review protocols and prepare their employees to deal with electronic audits. Manual invoice verification and paper–based workflows will no longer be necessary.

Companies must ensure that their electronic bills are correct and complete. This requires greater integration of IT systems for capturing, verifying, and storing billing information. The systems must also meet the new requirements for data integrity and security standards to withstand regulatory assessments.

What are the benefits of ViDA?

ViDA mainly offers advantages for companies when it comes to simplifying tax processes and modernizing business practices.

Lower administrative burden

The planned central VAT registration can significantly reduce bureaucratic workflows. Instead of reporting sales in several countries and seeking communication with different regulators, companies only have to document via a portal. Another advantage is that they can use a uniform template for reports.

Cost savings

Since ViDA means that companies will probably only have to register once for VAT purposes across the EU, they can avoid double registration costs. Introducing electronic bills in a uniform, standardized format reduces transaction handling costs. Electronic statement processing is automatic, eliminating manual work steps. Furthermore, live information transfer minimizes the risk of penalties and fines because errors can be corrected promptly. This leads to further savings on costs arising from late or incorrect tax returns. Companies save working time through standardized procedures, which also means cost savings.

Error reduction

Reporting transactions through a single portal can reduce data entry errors. What’s more, the instant transmission of billing information allows firms and tax authorities to identify inconsistencies early before they have a major financial impact. Companies benefit from immediate feedback, which helps them to make corrections swiftly. Additionally, the digitization of invoices and the automation of transmission methods reduces dependence on manual checks.

Increased efficiency

Companies can process their VAT returns more efficiently as they are no longer faced with distinct requirements from different member states. They can also promptly issue invoices electronically. By standardizing and automating workflows, enterprises can fundamentally optimize their internal practices. At best, this reduces manual effort and leads to more efficient administration.

Real-time data transmission also enables comprehensive information analysis. Companies can quickly capture and evaluate key business metrics, leading to more informed decisions and better strategic planning. New digitized systems would allow them to respond more effectively to changes in tax requirements as well. The digital infrastructure facilitates flexible adaptation to new regulations, making organizations more agile and better able to adapt to dynamic market conditions.

With Stripe Revenue Recognition, companies can automate their accounting processes in accordance with ViDA. This system automatically posts transactions and billing terms periodically. You can also easily configure sales reports, enabling accurate, auditable financial documents that provide a comprehensive overview of corporate finances.

Fair competition

The ViDA initiative aims to contribute to standardization in the platform economy by avoiding double taxation and non-taxation.

In addition, strict digital reporting requirements and instant data transmission can help curb tax fraud. This prevents tax-evading entities from gaining an unfair competitive advantage over those that pay their taxes properly. Since ViDA makes all market participants equally verifiable, this greatly increases transparency.

Enterprises can use Stripe Radar to detect and prevent fraud attempts. Radar is based on machine learning and is continually refined using data from millions of companies worldwide. It is integrated into Stripe; anyone can use it without programming experience.