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Brussels, November 5, 2024 – In a major step toward modernizing the European Union’s Value-Added Tax (VAT) framework, the European Union has officially adopted the VAT in the Digital Age (VIDA) package. This set of measures aims to make the VAT system more efficient for businesses, enhance fraud prevention, and adapt to the rapid growth of the platform economy.

The EU’s VAT system has faced significant challenges in recent years, with Member States losing an estimated €93 billion in VAT revenue in 2020 alone. Roughly a quarter of these losses are attributed to VAT fraud related to intra-EU trade, placing a strain on public finances at a critical time as EU countries grapple with the effects of rising energy costs and the ongoing war in Ukraine.

NEW DELAYS TO SINGLE VAT REG & PLATFORM ECONOMY PILLARS:

• January 2025: E-invoicing derogation requirement removed

• January 2027: E-commerce package updates

• July 2028: Single VAT Registration; voluntary Platform Economy

• January 2030: Mandatory Platform Economy

• July 2030: Digital Reporting & e-invoicing

• January 2035: Harmonizing domestic e-invoicing to the EU

KEY MEASURES TO COMBAT VAT FRAUD AND SUPPORT BUSINESSES

The VIDA package includes several high-impact measures expected to help Member States recover up to €18 billion in VAT annually while simplifying processes for businesses across the EU, particularly small and medium-sized enterprises (SMEs). The main components are:

1. Real-Time Digital Reporting and E-Invoicing:
   The new framework introduces a real-time digital reporting system for cross-border businesses based on e-invoicing. This innovation aims to provide Member States with crucial, timely information to combat VAT fraud, including the notorious carousel fraud, potentially reducing fraud losses by up to €11 billion each year. Moreover, this digital shift is projected to save EU businesses over €4.1 billion annually in administrative and compliance costs by streamlining VAT reporting.

2. Revised VAT Rules for the Platform Economy:
   VIDA also addresses VAT collection for passenger transport and short-term accommodation platforms. Under the new rules, platform operators will assume responsibility for collecting and remitting VAT when service providers do not, for instance, if they are small businesses or individual providers. This change will bring consistency across Member States, create a level playing field for traditional and digital services, and alleviate compliance burdens for SMEs.

3. Single VAT Registration for EU-Wide Operations:
   Expanding on the existing "VAT One Stop Shop," the new package allows businesses selling to consumers in other Member States to register for VAT only once, using a single online portal in one language for the entire EU. This simplification is expected to save EU businesses approximately €8.7 billion in registration and administrative costs over the next decade. Additionally, the package mandates the "Import One Stop Shop" for certain platforms to streamline VAT collection on consumer imports.

The adoption of VIDA marks a significant step forward in enhancing the EU’s tax system. By embracing digital solutions and updating VAT policies, the European Commission aims to tackle fraud effectively while supporting the growth and competitiveness of European businesses.

SOURCES/ RECOMMENDED READ: 

• VAT in the Digital Age (ViDA) - European Commission

• EUR-Lex - 2022_407 - EN - EUR-Lex