The rise of the digital economy has presented new challenges to traditional VAT systems. To address these challenges, the EU has introduced VAT in the Digital Age (ViDA), a new initiative that aims to ensure fair and efficient collection of VAT for businesses selling goods or services online to customers in the EU. We have previously covered ViDA, and in this article, we'll provide an overview and answer some common questions about this important topic.
Quick answers:
Why is the VAT in the Digital Age EU initiative necessary?
Who does the ViDA initiative apply to?
What changes will VAT in the Digital Age bring to invoices?
Does ViDA only affect cross-border transactions?
VAT in the Digital Age timeline
What are the key benefits of the ViDA proposals?
How to select a service provider with ViDA requirements in mind?
What is ViDA?
VAT in the digital age (ViDA) is a set of regulations introduced by the EU Commission to update the current VAT system to adapt it for the digital age. It aims to ensure that VAT is collected fairly and efficiently for businesses that sell goods or services online to customers in the EU, regardless of whether they are based within or outside the EU.
Why is the VAT in the Digital Age EU initiative necessary?
The current VAT system was designed for traditional businesses and does not adequately address the challenges of the digital economy. Moreover, VAT return reports are currently prone to criminal VAT fraud, as the data for the intra-EU trade transactions is inspected months after their occurrence, which makes it too slow for Member States to keep up with tax evasion. ViDA seeks to ensure fair and efficient VAT collection within the EU.
Who does the ViDA initiative apply to?
ViDA applies to businesses that sell goods or services to customers in the European Union, regardless of whether they are based within or outside the EU. This includes online marketplaces, platforms, and intermediaries that facilitate sales between sellers and buyers.
What changes will VAT in the Digital Age bring to invoices?
Under ViDA, businesses will need to include additional information on their invoices to comply with the new regulations. This includes the VAT identification number of the supplier and the customer, the place of supply, and the VAT rate applied. In addition, businesses that use online marketplaces or platforms to sell their products or services will need to ensure that the correct VAT is charged and collected by the platform.
In addition to a landmark reform of e-invoicing, the Commission also proposes a unified Digital Reporting Requirements (DRR) schema, which will become mandatory for intra-Community and optional for domestic transactions as of 2028.
Want to learn more about ViDA?
Does ViDA only affect cross-border transactions?
No, ViDA applies to all sales of goods or services to customers in the EU, whether they are crossborder or not. This means that businesses that are based in the EU and sell to customers in their own country will also be affected by the new regulations.
Member States will be given the option to introduce DRR for transactions not covered by the intra-Community DRR (i.e., domestic supplies of goods and services). Domestic DRR systems’ features should be aligned with this for intra-Community DRR. As each Member State will have to implement a DRR system for intra-Community transactions, we anticipate that many, if not all, will want to leverage this investment and extend its applicability to domestic transactions, too.
Will the ViDA proposal change current CTC models in the countries that implemented the e-invoicing mandate?
The short answer is yes, but it will depend on the current status and implementation of e-invoicing/DRR. Each Member State must ensure that the implementation aligns with the ViDA proposal.
In our whitepaper, we present a high-level overview of the EU Member States with e-invoicing and DRR-like requirements, and provide a prediction as to how these countries may be affected by VAT in the Digital Age initiative.
VAT in the Digital Age timeline
Here are some key milestones and important dates related to the ViDA initiative:
December 2022: The European Commission (EC) published the VAT in the Digital Age (ViDA) proposal.
January 2024: Step 1: Mandatory e-invoicing possible without EU approval.
January 2028: Step 2: DRR becomes mandatory for intra-EU transactions and optional for domestic transactions.
What are the key benefits of the ViDA proposals?
By the year 2025, predictions indicate that nearly 80% of organizations across the globe will need to switch to electronic invoicing, either due to legislative mandates or as necessitated by their business partners. With the forthcoming mandates in countries like France, Poland, and Spain, this trend is evident.
But where does ViDA fit into this evolving landscape, and what implications does it have for businesses both in the immediate and distant future?
A closer look at the ViDA specifications reveals three primary advantages for businesses:
Transitioning to instantaneous digital reporting has the potential to significantly reduce instances of criminal VAT fraud.
The initiative stands to expedite the embrace of digital technology, unlocking the inherent benefits of digital transformation like enhanced operational processes, heightened productivity, and reduced operational expenses.
The implementation of a unified VAT registration platform negates the necessity for multiple registration channels.
It's crucial for businesses to weave the ViDA proposal into their digital evolution plans. Otherwise, they might find themselves lagging and facing challenges in staying competitive when the proposal takes effect.
How to select a service provider with ViDA requirements in mind?
As the ViDA-driven changes loom on the horizon, businesses can adopt multiple strategies. Yet, the most significant benefits likely come from collaborating with a service provider proficient in supporting their clients in all impacted regions using adaptable technology. This not only ensures operational consistency but also leverages expertise in global regulatory compliance.
Thus, key financial decision-makers, be it CFOs, Heads of Finance, or Tax Managers, should ponder: is there a single service provider adept at navigating the intricate requirements of ViDA and other global mandates?
How can Pagero help?
Through Pagero’s open network, we’ve helped businesses streamline their order-to-cash, purchase-to-pay and transport management processes while ensuring we meet global requirements when it comes to compliant transactions of documents, unlocking the full potential of accurate and reliable business data. This is achieved regardless of location, industry, size or ERP landscape through a single, scalable connection.
For businesses keen on understanding how to align with ViDA requirements and ensuring preparedness against a surge in global e-invoicing mandates, we invite you to connect with us. If you're in the midst of strategizing a transformational project, our team of in-house experts is here to guide.
More detailed information regarding important dates can be found in the whitepaper.
Conclusion
In conclusion, the ViDA initiative is a crucial step towards adapting the current VAT system for the digital age. By ensuring that VAT is collected fairly and efficiently, the initiative helps to level the playing field for businesses and prevent revenue loss for governments. It is important for businesses that sell goods or services online to customers in the EU to understand the implications of VAT in the Digital Age and ensure compliance to avoid potential penalties.
This text was originally published 11 April 2023 and last updated 15 November2023.
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