What’s Changing Before 2028 And What Won’t Be Fixed

The Future of VAT in the EU: Understanding the ViDA Proposal and Its Impact

Introduction: The Dawn of a New Era in VAT Compliance

On March 11, 2025, the Council of the European Union officially adopted the VAT in the Digital Age (ViDA) proposal, marking a significant step towards modernizing the VAT system across the EU. This landmark decision followed nearly three years of negotiations that began with the initial proposal on December 8, 2022. ViDA is designed to streamline VAT compliance, particularly for businesses involved in cross-border transactions, by introducing digital real-time reporting, e-invoicing, and a single VAT registration system. While the full implementation of ViDA is scheduled for 2028 and 2030, businesses must stay informed about the immediate changes and persistent challenges they will face in the coming years.

Immediate VAT Changes: What’s Coming Before 2028?

The rollout of ViDA provisions will be gradual, with some key reforms taking effect as early as 2025 and 2027. One of the first changes will be related to e-invoicing. Just 20 days after ViDA is published in the Official Journal of the European Union, member states will be able to mandate e-invoicing for domestic transactions without needing approval from the European Commission. This change will empower countries to require businesses to issue, receive, and process electronic invoices as soon as their national regulations are ready. However, widespread adoption is unlikely to happen quickly due to the complexity of adapting IT systems and ensuring interoperability. Businesses should anticipate a gradual transition rather than an immediate shift.

More Clarity for Low-Revenue E-Commerce Sellers

In 2027, a minor but significant change will provide clarity for small e-commerce businesses. The current simplification rule, which allows businesses with cross-border sales below €10,000 annually to apply the VAT rate of their home country, has been ambiguous regarding goods shipped from warehouses outside the seller’s country of establishment. ViDA clarifies this by stipulating that the simplification applies only when both the seller and goods originate from the same member state. If goods are dispatched from a different country, VAT must be based on the customer’s location. This clarification will help small businesses better navigate cross-border VAT compliance.

E-Mobility and Simplified VAT Reporting

Another important change set for 2027 is the expansion of the One-Stop Shop (OSS) scheme to cover intra-EU B2C supplies of electricity, gas, heat, or cooling energy. This reform is particularly relevant for businesses operating electric vehicle (EV) charging networks. Currently, EV charging service providers must register for VAT in every EU country where they operate, leading to high compliance costs. With ViDA, these businesses will be able to use the OSS system to declare and pay VAT through a single registration, reducing administrative burdens and making cross-border operations more efficient.

VAT After ViDA: Compliance Challenges That Remain

While ViDA promises significant simplifications, several compliance challenges will persist. One major issue is the patchwork of VAT compliance rules. Although ViDA will standardize e-invoicing and digital reporting for cross-border transactions, member states will still maintain their own domestic reporting requirements. This means businesses will need to navigate a mix of EU-wide and country-specific rules, leading to increased complexity and costs. Additionally, ViDA does not address transmission protocols or technical specifications for submitting data to tax authorities, adding another layer of complexity.

VAT Refunds and OSS Limitations

ViDA also fails to address the long-standing problem of cumbersome VAT refund processes. The OSS system simplifies VAT reporting but does not provide a mechanism for deducting input VAT on expenses incurred in other member states. Businesses are still required to navigate separate, often slow, refund procedures, which can lead to cash flow issues. Furthermore, the EU operates three separate OSS schemes for B2C sales, adding complexity for businesses managing multiple transactions. While ViDA expands the Union OSS to cover more B2C transactions, it does not extend to B2B transactions, meaning many businesses will still need multiple VAT registrations.

VAT Number Verification: A Critical Weakness

Under ViDA, distinguishing between business and consumer transactions becomes even more crucial. Businesses must verify customers’ VAT identification numbers (VAT-ID) using the VAT Information Exchange System (VIES), which has proven unreliable. Issues like downtime and lack of real-time updates can lead to incorrect tax reporting and penalties. Enhancing VIES with features like bulk validation via APIs and improved reliability could streamline verification processes, but there are no concrete plans for such improvements, leaving businesses to rely on an inadequate system.

The ViDA Transition: Time to Get Ready

ViDA represents the most significant VAT reform in decades, promising simplifications but also major implementation challenges. Businesses are expected to invest €11.3 billion to comply with new Digital Reporting Requirements, while tax authorities face additional costs of €2.2 billion. Despite the 2028 and 2030 deadlines, businesses must start preparing now to adapt to the new regulations. Procrastination can lead to missed deadlines and penalties, as immediate VAT compliance challenges must be balanced with future reforms. Businesses that begin their preparations early will be better positioned to thrive in the new VAT landscape.

Conclusion: Navigating the Future of VAT in the EU

The ViDA proposal is a step towards modernizing VAT compliance in the EU, offering improvements like e-invoicing, OSS expansion, and a single VAT registration system. However, businesses must remain vigilant about persistent challenges such as fragmented compliance rules, inefficient VAT refund processes, and unreliable VAT-ID verification. By understanding these changes and challenges, businesses can take proactive steps to ensure compliance and minimize disruption. The road ahead is complex, but preparation is key to navigating the evolving VAT landscape successfully.