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What is ViDA (VAT in the Digital Age)?
ViDA is a legislative package proposed by the European Commission to modernize the VAT system for the digital age. It addresses the key challenge of VAT fraud by enabling e-invoicing, digital reporting and real-time transaction visibility.
According to the VAT Gap Report, the European VAT gap is as high as €93 billion, and this proposal allows to eliminate the complexity of cross-border tax reporting and taxation of the platform economy. ViDA promotes fairer and more efficient VAT collection in the EU.
As more EU countries introduce mandatory e-invoicing for B2B transactions (Italy, France, Germany, Poland, Romania, Spain and more), ViDA will secure the place of e-invoicing by making it a must across the European Union.
I am part of a large organization, is ViDA relevant to us?
Yes, ViDA (VAT in the Digital Age) is very likely relevant to your large organization, especially if you operate within the European Union (EU). Here's why ViDA is significant:
- ViDA introduces mandatory electronic invoicing with the standardized EN-16931 format. This means your organization will need to be able to generate, send, and receive invoices electronically in this specific format.
- ViDA proposes a Single VAT Registration system, potentially simplifying VAT administration for organizations operating in multiple EU member states. This could streamline your VAT administration tasks.
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Streamlined e-invoicing with potential real-time VAT reporting (planned for a later stage) could automate processes and improve data quality, leading to more efficient VAT compliance for your organization.
Consider these additional factors when assessing the impact of ViDA on your organization:
- For organizations engaging in frequent cross-border transactions within the EU, adopting e-invoicing with the EN-16931 format will be crucial. It ensures smooth data exchange and potentially reduces errors in cross-border VAT calculations.
- The impact of ViDA will likely be more significant for organizations with a high volume of invoices or a complex supply chain with cross-border transactions.
How might ViDA impact SMEs?
The new system is expected to reduce administrative and compliance costs for EU traders, which could be particularly beneficial for SMEs, scale-ups, and companies operating cross-border.
My business has offices in different countries, how does ViDA impact me?
If you operate across EU member states, ViDA has significant implications. The proposal brings harmonization and simplifies compliance tasks across borders. It introduces the Single Value Added Tax (VAT) Registration, with the purpose of reducing VAT compliance obligations for businesses by allowing for a single VAT registration in a Member State. From January 1, 2026, the on-demand storage simplification will no longer be available.
This One Stop Shop (OSS) scheme will be extended to cover the movement of one's own goods. The OSS will also be extended to all types of B2C sales and to cross-border sales of second-hand goods. The application of the local reverse charge should be optional for non-established businesses. They should be allowed to register and account for local VAT if they wish so.
To sum up, if your business already works in many countries, the ViDA proposal should simplify you administrative registrations bringing a unique identifier.
Why would I take action if the law is not there yet?
While not yet finalized, ViDA is expected to be implemented in 2028. Proactive awareness is crucial. Understanding the potential impact allows you to assess changes, update systems, and prepare for smooth compliance when the law comes into effect. Good news is; e-invoicing has many advantages, it saves money, protects data in the supply chain, and with ViDA, it will also simplify administrative tasks for VAT payments.
While there is still time until January 1, 2028, it is essential not to delay taking action. Merely having digital internal processes and the ability to receive electronic invoices does not guarantee compliance. To exchange invoices in a legally compliant manner, the entire invoicing process must be seamlessly digital and must follow standards. Many organizations need time and effort to understand the current state of affairs in this area and adjust their invoicing processes accordingly.
In a word, companies must assess their current situation and determine how they can best adapt their processes. Is their ERP able to issue e-invoices in a specific standard? Do they have an EDI provider who’s international, or even better, a Peppol access point? The earlier those questions are answered, the smoother the transition will be for a full compliance on the D Day.
My country has already implemented e-invoicing, why should I bother?
As we mentioned, many countries in Europe are already enforcing e-invoicing. While e-invoicing at your country level is the first step, there might be some changes in the ways you already do e-invoicing. By staying updated, you might discover that another model is going to be used, and some adjustments on your side might be needed.
A good example is the one of Italy, who has implemented a CTC model, while ViDA advocates for a decentralized model.
What is a CTC model VS Decentralized (DCTC) model?
In a nutshell, the Continuous Transaction Controls implies that all e-invoices go through a tax authority to be controlled. Some countries, such as Italy, are using this model to control their VAT.
On the other hand, the decentralized model brings an intermediary, meaning that the issuer of the invoice will be able to send the e-invoice directly to the receiver, while also sending the relevant information to the tax authorities.
It has been supported by the likes of Peppol and GENA (previous EESPA) as the new way of doing e-invoicing. By bringing a new intermediary, it will help having interoperability between companies, automating all exchanges, as the e-invoice’s path won’t be stopped at the tax authorities’ doorstep.
