Preparing for VAT in the Digital Age (ViDA)

What is ViDA?

The VAT in the Digital Age (ViDA) Directive, officially adopted on March 11 2025 by the Council of the EU, is the biggest VAT reform since the EU single market. ViDA aims to introduce standardized protocols and encourage the use of digital technologies to streamline tax compliance processes, reduce errors, enhance transparency, and ultimately make the VAT system more efficient for businesses.

The move to e-invoicing and e-reporting

While the latter two pillars are aimed at specific sectors, the first pillar will have an impact on every company doing business in the EU. Digital reporting and e-invoicing standards for both domestic and cross-border transactions will be phased in by 2030. Some countries will need to adapt existing e-invoicing mandates, while others will use ViDA as a foundation for new regulatory initiatives and preparation for future digital reporting requirements.
 

Benefits and challenges of VAT reform

Wide adoption of e-invoicing and e-reporting has multiple advantages. As a step towards real-time reporting, it is designed to maximize transaction visibility and fight tax evasion, reducing VAT fraud by up to €11 billion a year and lowering annual administrative and compliance costs for EU traders by more than €4.1 billion over the next ten years, according to the EC. The shift encourages eventual EU-wide convergence of existing national systems and paves the way for EU countries wishing to introduce national digital reporting systems for domestic trade.

DRR can help tax authorities to automate audits, detect non-compliance, and levy more accurate and timely penalties, as needed. For businesses, e-invoicing can accelerate the billing cycle, improve efficiency, and help to automate tax and finance processes. Electronic formats and automated workflows can minimize errors, reduce disputes, and improve the accuracy of tax and financial data. DRR can also improve compliance with tax and regulatory requirements and facilitate data retrieval and audit preparation.

While the potential benefits are impressive, companies will face challenges preparing their systems, people, and business partners for the changes. As it stands, the ViDA package will result in multiple reforms in EU member states, at different times and without uniform requirements. To create the most value while remaining compliant, businesses will need to plan carefully, modify existing processes, and adopt new technology – all while avoiding costly duplication of efforts.
 

Domestic invoicing and e-reporting obligations

The EU’s vision for ViDA was to standardize and harmonize invoicing and reporting among EU member states. Unfortunately, it has not entirely met that goal, saddling businesses operating in the region with a fragmented landscape until at least 2035. Member states – including Germany, Belgium, Poland, France, and Spain – have e-invoicing mandates in progress, many of them launching in 2026 or 2027. For these countries, formats and transmission protocols are different, creating difficulties for businesses active in multiple jurisdictions.
 

Cross-border transactions

In this area, the focus is on intra-EU transactions – all goods and services (intra-EU supplies) bought and sold among EU member states in a B2B context. The intent is to oblige companies to issue e-invoices for cross-border transactions, all of them digitally reported to tax authorities. Even non-EU companies with operations in the EU must comply. This real-time DRR will give member states information they need to step up the fight against VAT fraud.

With the adoption of ViDA, EU countries will need the infrastructure to collect intra-EU transactional data by 2030. This deadline is likely to increase national e-invoicing and e-reporting mandates in the coming years within the EU.

The EU obliges all 27 member states to accept a common e-invoice format (EN 16931). But while ViDA focuses on standardizing e-invoice formats, it does not include any recommendations for data transmission. How will data be transferred from companies to tax authorities, or between suppliers and customers? Amid the uncertainty, member states are free to choose from a variety of transmission protocols (Peppol, EDI, email, etc.). For the next few years at least, businesses operating in multiple countries must still cope with a complex web of different transmission requirements and government platforms. This lack of harmonization creates an uncertain, constantly evolving, regulatory landscape that requires an ongoing, often costly, response.

Laying the groundwork in your business

There is no one-size-fits-all answer here. Each organization must find solutions that align with its specific needs, existing IT architecture, and future IT investments. Even without clear insight into the future of ViDA, there are actions you can take now to prepare:

Tactical preparation for ViDA

Whether you work with a consultant or go it alone to prepare for ViDA, consider these four practical steps:
 

1. Discovery and strategy

Identify and understand upcoming e-invoicing and e-reporting obligations. Analyze affected processes, systems, data needs, and pain points. Present solution options, guide discussions, and create a strategic plan outlining next steps and desired outcomes.

2. Feasibility and vendor selection

Evaluate solution compatibility with current systems and processes. Choose the right vendor for the job. Draft a high-level implementation plan and roadmap.

3. Implementation

Develop a detailed implementation plan that includes key milestones, timelines, data mapping, and resource allocation. Analyze business requirements and integrate components with tax, accounts payable/accounts receivable, and other processes. Perform end-to-end user acceptance testing.

4. Continuous monitoring

Monitor changing regulations. Regularly update stakeholders on industry-effective practices and recommendations. Offer assistance and timely support for issues and questions. Conduct periodic reviews.