January 30, 2023
The intentions of the European Commission to bring Union-wide changes have been a subject of discussions for a long time. Finally, at the end of last year, the European Commission brought some clarity with an outline of the proposed EU VAT regime changes connected to the VAT in the Digital Age direction.
A quick reminder: VAT in the Digital Age stands for VAT regulations aimed at e-commerce and SMEs operating in the digital environment. Currently, the VAT regime overlooks some of the areas of mostly online economic activities. It is expected that European countries will collect more taxes with the help of a fairer VAT regime for all businesses — traditional and digital alike. The forecasted increase in taxes is estimated at approx. €18 billion.
Up until now, the upcoming changes were based on expert predictions and public discussions or consultations within the EU institutions. The most recent announcements from the European Commission have brought clarity to three areas of the VAT regime updates. Among them are digital reporting, VAT registration, and platform economy for hospitality changes.
New digital reporting rules are to be expected in the EU. With the aim of fighting VAT fraud, real-time digital reporting will be made mandatory via e-invoicing adoption in the EU member countries. Currently, only a small share of the EU has e-invoicing requirements in place. With the more widespread approach, VAT fraud is estimated to shrink by €11 billion a year in addition to lowered administrative and compliance costs.
Businesses will have to expect mandatory electronic invoicing for intra-community supplies and B2B intra-community digital reporting requirements for all companies, including non-residents.
Read more about electronic invoicing here.
The success of the One-Stop-Shop regime for electronic sellers has led to the decision to bring a similar single VAT registration model to other B2C companies. As with the OSS system, the companies will be able to register in one EU member state for VAT and submit single VAT returns via this single registration. This change would bring long-awaited clarity to the businesses that work internationally and save up to €8.7 billion of businesses’ costs spent on the administration of VAT compliance in different countries.
As of now, platform economy operators within the travel and accommodation sectors are not fully liable to collect and report VAT to tax authorities — which sometimes results in double or no taxation. With the updated VAT regime, deemed supplier rule will be extended to include these platforms. They will have to take on the sellers’ VAT obligations, allowing the sellers to simplify their VAT compliance across the EU. It is expected that the change will also have a spillover effect on other areas of the sharing economy where platforms exist. The estimated effect of this update is €480 million saved per year.
If you are not sure how these changes will affect your business, 1StopVAT’s experts will be glad to help you figure out the best way to navigate the updated EU VAT regime. We have vast experience working with companies in the EU and abroad. Let’s talk!