On December 8, 2022, the European Commission (EC) published the Directive on electronic invoicing and reporting of value-added tax (VAT). This proposal, also known as ViDA (VAT in the Digital Age), will significantly impact businesses operating within the European Union (EU).
The reform is expected to combat VAT fraud and recover up to €11 billion in lost revenues annually. Despite the high implementation costs, the proposed changes will benefit businesses through increased efficiency and transparency.
The Directive is still a proposal, allowing an 8-week public consultation period expiring in early February. Various stakeholders can ask questions, make suggestions, or provide comments on the Directive during this period.
This article will discuss the VAT in the Digital Age directive and what it means for businesses throughout the EU. We will examine how it will affect your company and how to comply with the new e-invoicing requirements.
What is the VAT in the Digital Age package, and what does it propose?
The Digital VAT package proposes to shift the way businesses report their VAT. It's a series of VAT measures to modernize and digitalize the process for compatibility with today's business methods.
The package consists of several proposals:
Real-time digital reporting for businesses operating within the EU
The European Commission aims to modernize tax reporting by introducing Digital Reporting Requirements (DRR) that will require businesses involved in intra-EU trade to report tax information in real time.
This means local tax authorities can receive digital tax declarations and returns on time. This will enable them to promptly identify tax fraud and ensure proper tax payments.
The current system of sales tax returns will be replaced by a system where all taxable businesses will need to report their intra-EU transactions electronically.
Businesses must present tax information digitally to tax authorities within two days after the issuance of the invoice.
Updating VAT rules for operators running platforms
Currently, most passenger transport and short-term rental platforms transactions are outside VAT compliance. Under the Digital VAT package, platform operators must register with tax authorities and report tax information.
This proposal targets platform operators in the passenger transport and short-term rentals sector. The EC aims to level the playing field for platform operators and traditional service suppliers.
They also need to ensure that all suppliers registered on their platform are tax compliant. They must facilitate tax authorities in auditing and recovering tax from suppliers in their platform.
Expansion of the single VAT registration framework and changes to reverse charges
The current One Stop Shop (OSS) system requires businesses to register in every EU country they transact in and submit separate electronic VAT returns. ViDA proposes to expand the OSS system by introducing a single electronic application process to register for multiple jurisdictions.
Companies will be able to apply for multiple VAT registrations in all EU countries from one electronic portal. This will reduce the time and cost for companies to comply with numerous tax registration requirements.
The package also proposes changes to the rules regarding reverse charges. There will be a mandatory reverse charge for domestic supplies from a foreign supplier to a local customer.
The current EU VAT directive has made the implementation of the reversal charge optional. The Digital VAT package seeks to make this mandatory to avoid VAT registrations for non-national businesses in some instances.
What does the introduction of a single VAT registration across the EU mean?
Introducing the single VAT registration across the EU Member States is one of the major steps to improve efficiency and digitalize tax reporting processes. It will make it easier for businesses to comply with tax requirements across the EU.
The electronic invoicing and digital reporting requirements introduced by the package are also key steps in streamlining VAT compliance for businesses.
They will make it easier for businesses to submit electronic tax returns and digital declarations, allowing them to keep up with the changing business environment.
The current OSS system makes businesses liable for VAT in the country of supply and where the customer is located. They have to register for VAT in each country and submit electronic returns.
Expanding the OSS system will not only reduce the time and cost involved in complying with VAT regulations, but it will also ensure that businesses comply in all countries they transact in.
It will also ensure businesses can easily access electronic invoicing, digital reporting, and e-invoicing services. They will stay compliant and keep up to date with the ever-changing business environment.
How will the proposed changes affect your company?
The reforms proposed by the Digital VAT package will majorly impact businesses operating across the EU. The impact should be highly positive unless your company is part of the small minority that does not already comply with VAT regulations.
The changes will affect businesses across the EU in the following ways:
1. Businesses will have a two-day window to submit VAT declarations
Companies will be required to submit their electronic VAT declarations to local tax authorities. They will have two days from the date of the electronic transaction to complete and submit their electronic tax return.
When local tax authorities receive the digital tax declaration, they will assess the accuracy of the submitted VAT. They will then take appropriate action to collect the correct amount of VAT.
2. No submission of summary electronic invoices
Companies that issue electronic summary invoices for a calendar month must submit electronic invoices for each electronic transaction. Summary invoices will not comply with the new system's electronic invoicing requirements.
For example, if a company makes ten VAT-taxable digital transactions in a given month, it must submit digital invoices for each digital transaction.
Every electronic invoice must include all the necessary information and VAT amounts for each transaction.
3. Easy compliance with VAT regulations
The electronic application process for multiple VAT registrations will make it easier for businesses to comply with tax requirements across the EU.
They can quickly submit electronic tax returns and comply with electronic invoicing and digital reporting requirements from one electronic portal.
4. Reduced costs
Unless you are trying to evade paying VAT, ViDA should help you save time and money by streamlining your electronic invoicing and VAT reporting processes.
The new measures proposed by the Digital VAT package should make electronic invoicing and digital reporting easier and more efficient.
It will benefit businesses operating across the EU by enabling them to comply with electronic tax requirements quickly and reducing compliance costs.
5. Improved data accuracy
The electronic invoicing and digital reporting requirements will ensure faster, more accurate collection of tax data across the EU. Each Member State's tax authority will store the data in a central database, allowing them to easily monitor and analyze data from across the region.
Since the new directive will also introduce mandatory e-invoicing, companies will be able to provide digital proof of their transactions more efficiently.
It will improve the accuracy and reliability of digital records, reducing the chances of tax errors and improving customer experience.
How to comply with the new e-reporting and e-invoicing requirements in the EU?
As businesses across the European Union prepare for the digital VAT package, they must adjust their digital invoicing and reporting processes accordingly.
Even though the directive is yet to be fully enforced, it is important to understand the new digital invoicing and reporting requirements. This way, you can start preparing for the changes.
The following are the steps companies should take to ensure they are compliant with the requirements when the digital VAT directive comes into effect:
Have a comprehensive e-invoicing system in place
Businesses must have a comprehensive e-invoicing system before the e-reporting, and e-invoicing requirements come into effect. The e-invoicing system should be able to process e-invoices in the correct format, with accurate VAT amounts included.
It should also be able to store e-invoices in the correct format for easy access when submitting e-tax returns. It should ensure business owners can submit VAT returns on time and in the correct format.
Submit electronic invoices on time
Due to the time limit on submitting an electronic invoice and the VAT returns, businesses must ensure they send e-invoices and e-tax returns on time. This will help them avoid penalties for late payments and stay compliant with the e-invoicing and e-reporting requirements.
A comprehensive e-invoicing system will help businesses ensure they submit every electronic invoice on time. The more efficient the e-invoicing system, the easier it is to comply with the set requirements.
Make sure e-invoices contain all required information
The new e-invoicing and digital reporting requirements require e-invoices to include details such as the identifier of the bank account, identification of the initial invoice for invoice corrections, and detailed payment data.
Companies will avoid penalties and make e-invoicing and e-reporting easier if they submit e-invoices with all the required information.
They must also ensure they are in the correct format, as specified in the e-invoicing and e-reporting requirements.
Register at a reliable e-invoicing solution
Sometimes, businesses may not have adequate resources or capacity to develop their own e-invoicing and e-tax return systems. In this case, it is best to sign up with a reliable e-invoicing solution.
Certified service providers can help your businesses ensure your e-invoices are in the correct format and contain all required information. They help you comply with the European Standard e-invoicing and e-reporting requirements easily.
Takeaway: Prepare your business for the digital VAT package
The introduction of e-invoicing and e-reporting requirements in the EU will bring more efficient tax administration. Businesses must start preparing for the directive as soon as possible to ensure they comply when the digital VAT package comes into effect.
Businesses should sign up for a reliable e-invoicing solution provider like Storecove to make e-invoicing and e-reporting easier. Storecove’s e-invoicing solution helps business owners comply with e-invoicing and e-reporting requirements quickly and easily.
Start now to stay compliant and make e-invoicing and e-reporting simpler for your business.
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