TLDR: ViDA, which is an acronym derived from “VAT in the Digital Age”, is the latest European Commission initiative for modernising the EU’s VAT collection system. It will specifically apply to cross-border transactions. Domestic transactions will not be regulated under ViDA.
This definition of ViDA, which relates to VAT compliance, modernisation and e-commerce across the EU, is completely different to the ViDA acronym for Variable Recurring Payments API (VRP) and Delegated Authentication related to open banking.
What will change under ViDA?
Aimed at enhancing VAT compliance and reducing fraud, ViDA will make e-invoicing and Digital Reporting Requirements (DDR) mandatory for intra-community transactions. This is in contrast to the existing directive, which is based on consensual reception of e-invoices.
ViDA will replace the current system for intra-community reporting. Individual countries may also take the opportunity to partially periodic VAT reporting with real-time reporting to the tax authorities.
Another change will be the requirement for digital platforms (e.g. e-commerce and gig economy) to collect VAT on behalf of their users.
ViDA e-invoicing brings business advantages
Within this administration overhaul, there are several advantages of VIDA e-invoicing for businesses.
Its unified standard for digital invoice processing across the EU will improve efficiency through more streamlined operations, while bringing cost savings and error reduction. What’s more, companies operating in multiple EU countries will only be required to have a single registration for the whole trading block.
Current and past digital invoicing regulatory standards for cross-border EU transactions
Since the EU VAT system was introduced in the 1960s, various initiatives have been implemented to simplify its cross-border administration and close loopholes to non-compliance and fraud.
Predecessors to ViDA include the Mini One-Stop-Shop (MOSS), which was introduced in 2015 to simplify VAT reporting for businesses supplying digital services across borders, by allowing reporting and payment in one member state rather than registering in each country.
From 2017 to 2020, the EU continued work on simplifying VAT rules for cross-border trade as part of the VAT Action Plan. New measures aimed at reducing fraud and improving VAT collection were introduced, alongside efforts to better integrate VAT with new digital business models.
In 2021, the EU implemented the One-Stop-Shop (OSS), an expanded version of MOSS, which allowed cross-EU VAT reporting for a broader range of goods and services.
The ViDA proposal builds on MOSS and OSS by leveraging digital invoicing to combat VAT fraud more effectively, clarify the platform economy’s VAT collection responsibilities, promote real-time VAT reporting and simplify VAT registration.
Reasons for introducing ViDA’s new e-invoicing standards
A combination of errors and fraud are contributing to an ever-increasing VAT gap (the difference between expected VAT revenue and what is actually collected) which, as far back as 2020, was costing EU governments a collective annual total of 93 billion euros. A 9.1% shortfall on expected returns.
The situation is exasperated by the increasing prevalence of digital economy business models such as online platforms, e-commerce, and cross-border digital services, which are not sufficiently covered by existing e-invoicing regulations. Bringing these businesses into line requires tax regulations to be updated. The introduction of legal requirements based on e-invoicing systems is a practical enforcement solution.
Through a combination of tightened requirements, simplified administration and mandating a standardised transition to e-invoicing, ViDA will help prevent billions of euros leaking out of the European tax system every year.
What ViDA means for different businesses and authorities
ViDA will impact a broad range of sectors and stakeholders, introducing both obligations and benefits.
ViDA e-invoicing adoption will be a necessity for all kinds of Small and Medium-sized Enterprises (SMEs), e-commerce companies and digital service providers engaged in cross-border trade. The same goes for platform-based businesses, who will have a new obligation to collect VAT on behalf of the sellers who use them. This applies both to EU-based businesses doing cross-border trade and to businesses based outside of the EU who sell to customers within the EU.
On the plus side, ViDA will reduce administrative burdens by simplifying VAT registration for businesses operating in multiple EU countries.
When it comes to procurement, public sector entities may also be impacted by the shift to mandatory ViDA e-invoicing, particularly when dealing with businesses providing goods and services to government. Compliance with new reporting standards may require government agencies to upgrade their procurement systems and processes to VIDA e-invoicing technology.
Along with this, tax professionals such as VAT Advisors, Accountants, and Compliance Service Providers
will experience increased demand for their services as businesses adapt to the new requirements under ViDA.
Software companies who provide accounting, tax compliance and e-invoicing solutions will also need to update their products. ViDA e-invoicing software is a fantastic opportunity for providers of tax technology (TaxTech).
Tax authorities in EU Member States will need to adopt new digital infrastructures to facilitate ViDA e-invoicing compliance requirements. This will require investment in modern technology to handle the increased volume of data and benefit from improved fraud detection.
When will ViDA come into force?
At the time of writing in September 2024, ViDA has not yet been agreed by all member states. The current proposed timeline for ViDA implementation is as follows:
1 January 2026
The current OSS regulation, which allows VAT transactions to be reported and paid in one member state rather than registering in each country, will expand to cover
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- cross-border supplies of natural gas, electricity, heating, and cooling
Learn more: Belgium is set to introduce mandatory B2B e-invoicing by 2026.
1 July 2027
OSS will further expand to cover
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- Transfers of own goods between member states
- B2C sales of goods with installation or assembly
- B2C sales of goods on board ships, aircrafts and trains
- Domestic B2C sales of goods taking place within a different country from where the seller is established
- Certain zero-rated transactions
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1 July 2030
e-invoicing and digital reporting become mandatory for
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- Intra-EU sales of goods
- Intra-EU acquisitions of goods, except transfers of own goods (member states may opt out of this requirement)
- Taxable sales of goods and services for which the customer is liable under the reverse charge mechanism
- Taxable purchases of goods and services for which the customer is liable under the reverse charge mechanism (member states may opt out of this requirement)
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How can ERP and software companies prepare for VIDA?
ViDA’s focus on e-invoicing, real-time reporting, platform economy regulation, streamlined VAT processes and fraud prevention presents a range of areas for ERP and software companies to work on.
E-invoicing and real-time digital reporting: systems will need to be able to handle real-time data exchange and comply with e-invoicing requirements.
Platform economy regulation: e-commerce platforms will need to be updated to handle VAT collection and payment to tax authorities.
Single VAT registration: take advantage of the simplified single-country registration allowed under ViDA to streamline VAT processes.
Enhanced compliance and fraud prevention: invest in compliance tools and fraud detection systems to align with new regulations.
E-invoicing and real-time digital reporting, which are cornerstones of ViDA’s administrative process, require connection into an approved e-invoicing network, such as Peppol. Peppol meets ViDA’s requirements and is therefore a safe choice when preparing for ViDA integration with ERP systems and VIDA e-invoicing in different countries.
Peppol ensures standardised and secure invoice data interchange across borders, providing a reliable infrastructure for the timely exchange of e-invoices and related documents. Accurate recording and reporting of all transactions is another Peppol capability which enhances resilience to fraud and helps compliance with ViDA reporting requirements.
Connection into Peppol can be achieved via various routes, such as e-invoicing platforms, document service providers or a software developer’s own access point. But the most advantageous way is through direct API integration between an organisation’s CRM/ERP system and the Peppol e-delivery network, as this is a seamless solution that also avoids additional costs for potentially unnecessary third-party services.