SER Blog  Information Governance

VAT in the Digital Age (ViDA) 

What businesses today should already know

VAT in the Digital Age (ViDA) is modernizing the VAT system in the European Union. The initiative aims to set up a secure electronic VAT system that minimizes the risks of fraud. Basically, it changes the way businesses report and process B2B sales. 

In this article, you can find an overview of ViDA and learn what the VAT reform means for your business.

What does ViDA stand for?

ViDA stands for “VAT in the Digital Age.” It is the EU Commission’s package of measures designed to reform the Value Added Tax Directive (VAT Directive 2006/112/EC). The directive widely standardizes the European VAT system. It is based on the EU standard CEN 16931, which the European Commission initially developed for public service contracts but today it is defining the standards for eInvoicing in Germany. 

Background about ViDA 

With advances in digitalization over recent years, new business models have developed that the old VAT system directive does not cover. At the same time, it is not yet focused on digital processes. The European Commission sees a risk, as the current VAT system “limits the collection and monitoring of VAT.” As a result, it is not possible currently for EU member states to effectively prevent tax fraud. 

The European Commission also argues that the current VAT system is outdated and complicates processes for companies. ViDA is intended to change the following: the reforms will modernize the VAT system by using state-of-the-art technology to reduce costs and administrative workloads for all those involved.

The EU Commission’s package of measures: These are the objectives 

The EU Commission’s package of measures refers to all amendments resulting from the VAT Directive (2006/112/EC), Council Implementing Regulation (EU) no. 282/2011, and Council Regulation (EU) no. 904/2010 on administrative cooperation. 

The EU Commission is pursuing three objectives with its package of measures: 

  1. Modernizing VAT reporting requirements for sales through mandatory digital reporting 

  1. Updating and clarifying VAT rules to address unequal treatment between platform operators and traditional providers 

  1. Creating a single VAT registration form by using a standardized template for all member states 

1. Mandatory digital reporting 

Based on electronic invoicing, ViDA is intended to modernize reporting requirements. For businesses, this means reporting will occur in real time. In order to do this, the reporting system will have to report sales in a structured and standardized electronic format. Thanks to real-time transmission, the time taken to issue invoices for intra-community deliveries and services is also reduced to just a few days after receipt or sending. As a result, individual reports will replace collective reports to the authorities. 

The European Commission believes the reform will have the following two major benefits: 

  • It will minimize tax fraud and thus result in higher revenues for all member states. 

  • At the same time, it will reduce administrative costs for businesses. 

The latter is achieved by modernizing reporting requirements and harmonizing national reporting systems: businesses will submit their reports using a standardized template that is binding for all member states. 

2. Platform economies 

The VAT reform is intended to promote equal treatment of platform economies – multi-sided sales models in which at least three or more user groups are involved, in addition to the online platform. The problem is that platform economies have created a situation in which VAT-registered companies are competing with persons who provide VAT-exempt services via a platform. 

The measures apply mainly to the following: 

  • Developing the VAT directive consistently for all member states, in order to avoid double taxation and non-taxation. 

  • Requiring platforms to maintain easily accessible documents and information about B2C services, in addition to information on B2B services. 

  • Using the deemed supplier/service provider model to solve unequal treatment by requiring platforms to pay VAT, if the private individual is not liable for VAT. 

3. VAT registration 

Multiple VAT registrations will no longer be necessary thanks to ViDA. A one-time VAT registration at EU level reduces the costs and related workload for businesses. Companies should also be able to centralize their tax matters in an online portal and with a user-defined language. 

Recently, OSS (One Stop Shop) and IOSS (Import One Stop Shop) regulations have simplified VAT registrations. For example, since IOSS is a voluntary solution, it only provides limited protection against multiple VAT registrations. The REFIT initiative “VAT in the Digital Age” aims to expand the OSS and IOSS schemes, and reform VAT rules for tax authorities and the private sector with regard to digital technologies. 

The current status of ViDA

For the ViDA initiative to come into force, all 27 EU member states have to agree to the legislative proposals. So far, the ECOFIN Council has not reached an agreement. It is expected that the regulations once approved will differ somewhat from the draft law. For example, businesses might not be required to issue electronic invoices for certain cross-border sales until July 1, 2030, rather than January 1, 2028, as proposed. 

Currently, the following proposals diverge from the original draft law: 

  • Electronic invoicing for certain cross-border sales: Postponed from January 1, 2028 to July 1, 2030. 

  • Invoicing for certain cross-border sales: Within ten days instead of the proposed two. 

  • Mandatory digital reporting for certain cross-border sales: Within five days instead of the proposed two. 

Further drafts are expected before the ViDA initiative is ready for adoption. What is certain, however, is that the new law will change invoicing and tax processes in the B2B sector. Businesses have to ramp up their technology to prepare for these reforms – starting with the electronic invoice or eInvoice.

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Mandatory eInvoicing as preparation for ViDA

An invoice is electronic when it is a structured, machine-readable XML data set. The task of invoice processing is then carried out – from issue to payment – entirely electronically. 

Starting on January 1, 2025, eInvoicing will be mandatory for all B2B invoices in Germany. Public authorities have been required to issue invoices electronically since November 27, 2020. As a result, Germany is taking the lead among EU member states when it comes to eInvoicing. 

The following transitional rules show when companies will have to finally switch from paper-based invoices to eInvoicing: 

  • By December 31, 2025: All B2B companies

  • By December 31, 2026: Invoice issuers who have permission from the invoice recipient and whose total sales during the previous year did not exceed 800,000 euros.

  • Sales between January 1, 2026 and December 31, 2027, which are grandfathered for the use of the EDI process. 

  • For an indefinite period: All small-value invoices under 250 euros can still be issued as “other invoices” in accordance with Section 33 of the German Sales Tax Implementation Ordinance (UStDV-E).

Preparing for mandatory eInvoicing is preparing for ViDA

Regardless of the legal situation, it can be worthwhile in advance for businesses to set up invoices electronically and to establish processes that align with the changed invoice models at EU level – starting with the search for suitable ERP systems. 

System requirements 

Businesses need an ERP system that creates eInvoices in a valid invoice format. Currently, the most common invoice formats are XRechnung and ZUGFeRD. 

In addition to an ERP system, businesses need to have an invoicing solution and a document management system (DMS) that are able to capture and process eInvoices when mandatory eInvoicing takes effect. If you use Doxis as a DMS, you also get an audit-proof archive. This enables you to manage documents such as invoices and sales tax receipts from creation to deletion in a legally compliant manner. 

Automatic reports for authorities 

When it comes to mandatory reporting, it is important for a DMS to maintain invoice data in a consistent manner. An interface to the ERP system further ensures that you do not miss reporting deadlines. Normally, the ERP system reports invoices to the relevant tax authority in real time. 

Summary: Set up processes today for eInvoicing and ViDA

Invoicing processes will change fundamentally for businesses nationally and across the EU in the coming years. Before the ViDA reform of VAT, eInvoicing will be mandatory for all companies in Germany from 2025. In order to prepare today for the changes of tomorrow, businesses, in particular, should look at their technology-driven processes or – if none exist yet – set them up for the first time. Companies absolutely need the following: an ERP system, a DMS, and invoicing software that complies with ViDA and eInvoicing requirements.

FAQs about technical documentation

What is ViDA?
ViDA stands for “VAT in the Digital Age” and refers to the EU Commission’s package of measures designed to reform the Value Added Tax Directive (VAT Directive 2006/112/EC). It modernizes the VAT system at EU level.
What is the ViDA package of measures?
The ViDA package of measures drawn up by the European Commission aims to harmonize and modernize the European VAT system. The focus is on digital reporting requirements for sales in real time, a one-time and Europe-wide VAT registration, and a change to the way the platform economy is treated in VAT law.
Who does ViDA applied to?
ViDA applies to all businesses that sell goods or services in the EU. This includes national and intra-community deliveries and services.

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