Under the title ‘VAT in the Digital Age’ (ViDA), the European Commission is strongly committed to a digital transformation and harmonisation of the European VAT system in the coming years. There are far-reaching plans in place that member states are currently working on. Laurens Voogt of 4apps notices similarities between the way the introduction of ViDA is progressing and the energy transition: “It is important to start preparing now, otherwise you’ll be left out later.”
A single digital European VAT system. New European VAT regulations. One standard for VAT registration and remittance by businesses selling to consumers across Europe. The European Commission announced these measures in December 2022 in order to reduce VAT fraud and help businesses increase their cross-border sales. The reason? The European Commission’s VAT Gap Report 2022 shows that EU member states collectively lost around €93 billion in VAT revenue in 2020. And in a post-pandemic era, these revenues are badly needed to revive economies.
The report identifies five causes:
- Corporate insolvency
- Corporate failures
- VAT fraud or avoidance
- Inadequate registration and administrative processes
- A jumble of (often clumsy) systems to collect VAT from member states.
Towards a new reality
The announced digitisation puts a huge time pressure on national governments and companies to move towards this new reality. Similar to the energy transition, a delay could lead to several problems. For example, take the Dutch government’s campaign to reduce fossil fuel consumption. Subsidy measures are encouraging businesses and consumers to switch to sustainable forms of energy. In fact, from 2026 onwards, homeowners are required to switch to a hybrid heat pump or a connection to the heat grid when replacing their central heating boiler. This is causing pressure among heat pump and solar panel suppliers, as well as installers. As a result, it can take a very long time before it’s your turn; delivery times of more than a year are no longer an exception. Indeed, in this case 2026 no longer seems that far away.
Start preparing now for ‘VAT in the Digital Age’
Laurens Voogt foresees a similar bottleneck in the implementation of ViDA: “If companies wait too long to prepare for the digitisation of the European VAT system, they will quickly pay the price. After all, their processes and systems will not be ready in time.
For example, take the requirement to declare (cross-border) invoices based on e-invoicing near real-time as the basis for VAT declaration, which is intended to become the standard for B2B transactions within Europe from 1 January 2028. This requires national governments and companies to start preparing their systems and processes for these profound changes right away.”
How to optimally prepare your business
Even though the European Commission and EU member states are still working hard to make ViDA possible, there are plenty of things you can do now to prepare your business. First ask yourself what your organisation needs in order to comply with the new laws and regulations. This may be more than you initially think. By starting on time, you can be sure that your business will be prepared and avoid having to pay a high price in the future – just like with the energy transition.
In our next blogs, we will focus on specific topics that you can start to address within your organisation. For example, consider optimising and digitising your financial business processes and adapting your systems accordingly. Or start implementing a tool that automatically collects VAT data by country and submits it to the national tax authority. At 4apps, we are eager to devise solutions together with you, so that your company can be well prepared for the future.
If you’d like to know more about how 4apps can help you preparing for VAT in the Digital Age, please contact us today.
