A New Era for VAT: The ViDA Package Explained

A New Era for VAT: The ViDA Package Explained

With the recent approval of the ViDA package by EU finance ministers, major changes to the VAT system are now confirmed and set to roll out gradually over the coming years. Focused on digitalisation, simplification, and enhanced transparency, these reforms will impact businesses across all Member States, including Malta. From mandatory e-invoicing to a broader One-Stop Shop framework, Maltese businesses trading within the EU will need to prepare for a new, more unified VAT environment. Understanding what is ahead is key to ensuring smooth compliance and identifying opportunities.

The Future of VAT: What’s Ahead for Malta Under ViDA

After almost two years of negotiations, the council reached an agreement on the VAT package. On 05/11/2024, the EU finance ministers approved the ViDA proposal, however with a revised implementation timetable.

The agreement covers three different aspects of the VAT system:

1. Directive
2. Regulation
3. Implementing regulation

The agreement will be resubmitted to the European Parliament for revalidation due to substantial differences between the European Commission’s initial proposal and the ECOFIN Council’s agreed text. However, this step is expected to be a formality given the extended timeline. Subsequently, the European Council must formally accept the agreement, with initial measures expected to take effect in early 2025.

Revised implementation timetable is as follows:

• 2025 (20 days after the formal ViDA adoption) – approval from the European Commission for domestic e-invoicing will no longer be required.
• 1 January 2027 – Updates to the e-commerce package; expansion of OSS to include supplies of electricity, gas, and heat.
• 1 July 2028 – Single VAT Registration (OSS extension to all B2C supplies, stock transfers, and mandatory reverse charge mechanism); optional application of the deemed supplier rule for accommodation and mobility platforms.
• 1 January 2030 – Platform Economy – mandatory application of the deemed supplier rule for accommodation and mobility platforms.
• 1 July 2030 – Digital reporting & E-invoicing – Mandatory Digital Reporting Requirements (DRR) based on e-invoicing for B2B intra-EU transactions and transactions subject to a mandatory reverse charge; harmonization of domestic e-invoicing systems (excluding those in place before 2024) with EU standards.
• 1 January 2035 – Harmonization of domestic e-invoicing systems implemented before 2024 with EU standards.

Digital VAT Reporting

The Council has now agreed that a real-time digital reporting system will be set up for VAT purposes through e-invoices. This will replace the old VAT recap system which is currently lacking in providing complete and real-time data.

Businesses will be required to issue e-invoices for cross-border B2B transactions and automatically report the data to their tax departments. This will be based on the existing European standard for e-invoicing in the area of public procurement. National tax administrations will then share the data through a new IT system that will be capable of providing analyses of suspicious activities.

A framework at national level will ensure the quality of the data included in electronic invoices, with flexibility for member states in the operationalisation of that framework. This will provide member states with quick and complete information on cross-border transactions, which in turn can be used to fight VAT fraud.

Invoices must be issued within 10 days of the supply of goods or services (or upon payment, if made earlier). This replaces the two-day timeframe initially proposed in the ViDA initiative.

The Council agreed that the EU system should be in place in 2030 and that all existing national systems should become interoperable with the EU system by 2035.

VAT for the Platform Economy

Under the new rules, platform economy operators will be responsible for collecting and remitting VAT, in cases where their service providers do not pay VAT themselves (under the so-called ‘deemed supplier’ model). The platform will collect the VAT directly from the customer and remit it to the tax authorities.

The proposal to make the of use of of the Import One-Stop Shop IOSS single return for B2C imported sales mandatory the use has been dropped from ViDA. Call-off stock will also be withdrawn as traders will be able to use OSS, there no new call off stock arrangements may be used from 1 July 2028 (Article 17a). Goods already transferred prior to this date, and still not released, conditions will cease to apply on 30 June 2029.

However, the proposed extension of marketplace ‘deemed supplier’ to include EU merchants’ sales will not happen. Marketplaces already carry this responsibility for non-EU sellers. This followed canvassing from platforms that the administrative burden would hinder new or existing small marketplaces developing. Also, enforcement would become more difficult when switching collections from EU established merchants to non-EU established marketplaces. The European Commission is to perform an evaluation of the deemed supplier rules by 2033 with a view to its full extension. In particular, monitor the use by non-EU established merchant of sham fixed establishments (shell EU companies) to sidestep the existing deemed supplier rules. It also agreed not to change the rules on works of art and antiques.

The Council provided member states with greater flexibility by expanding the definition of short-term rental of accommodation for tax purposes. The Council also agreed on a short transition period for applying the deemed supplier rules and to give member states the possibility to exempt small and medium-sized enterprises (SMEs) from the deemed supplier rules and

One-stop Shop for VAT registration

Currently, the system of ‘one-stop shops’ allows businesses to declare and remit the VAT due on their sales of goods and services to consumers from one EU country to another, through one member state’s administration and in one language. However, companies that want to sell goods to consumers within a member state other than their own (i.e. from a warehouse or a weekly market in that member state) still need to register for VAT purposes in that member state, meaning that the company would have more than one VAT number.

The new rules will now extend the scope of the existing ‘one stop shops’ to business-to-consumer sales of certain items, like electricity or gas, which are conducted within a member state other than their own – not just cross-border supplies. Cases where a company wishes to move its own stock to another member state in order to sell it in that member state directly to consumers will also be covered. In this manner, the extension of the one-stop shop will allow even more businesses to fulfil their VAT obligations via a single VAT registration, using a single online portal and in one language.

The Council also agreed to shift the liability for the payment of VAT in the case of business-to-business transactions from the supplier to the buyer if that supplier is not established in the member state where the VAT is due (under the so-called ‘reverse charge mechanism’), thus implementing a reverse charge mechanism for non-established suppliers. This was already possible in some situations, but will become mandatory in the future.

Brief points

• Member States will implement a reverse charge mechanism for non-established suppliers.
• New rules will expand the scope of the One-Stop Shop system to include:
  • B2C sales of products like electricity or gas within a Member State.
  • Stock movements within the EU intended for direct sales to consumers at a later stage.

Who will be affected by the new regulations?

The new system will not only impact the companies that are subject to VAT in the above mentioned cases, but also to all Member States. They will be required to transpose the new European measures into their national legislation (and ultimately update their tax systems) but also ensure that a national system is in place to meet the new e-invoicing obligations and take measures to audit these electronic invoices.

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