While value-added taxes (VATs) are absent from U.S. legislation, they are shared globally, with nearly every national government implementing some form of general tax consumption. These taxes are assessed based on the relative increase in worth experienced by a particular good or service at each stage of its production lifecycle. In the modern economy, properly assessing, managing, and paying these taxes has only grown more complicated.
The European Union (EU) published its VAT in the Digital Age (ViDA) initiative in December 2022 to help update — and hopefully streamline — the management of VAT by individual businesses. In this article, we’ll explore ViDA in more detail, including what it means, who it affects, what value it offers, and how you might prepare your business for its inevitable arrival.
What is ViDA, and what businesses are affected by these new regulations?
In more detail, ViDA reflects a collection of regulations addressing the tax challenges posed by digitalization and global e-commerce. It establishes clear guidelines that help clarify outstanding VAT burdens for any business selling to customers residing within EU member nations, regardless of whether or not the company is located within the EU. In addition, the initiative promotes using technology to improve tax administration. It enacts an e-invoicing mandate — initially planned to take effect January 1, 2025 — for all business-to-business (B2B) transactions within the region.
So, if you make sales to individual consumers or companies in Europe, you’ll want to ensure that your operations are ViDA compliant.
Why were the ViDA regulations passed?
ViDA was enacted primarily to promote compliance with VAT guidelines by simplifying administration and combating fraud. Previous tax administration and reporting processes were overly complex and often relied on manual processes, inviting potential error and underreporting. At the same time, the EU estimates that roughly one-quarter of missing VAT revenue among member nations is due to fraud connected with global trade.
By establishing universal tax administration, electronic invoicing, and real-time digital reporting requirements (DRR), national governments are expected to capture an additional €18 billion in revenue each year and save regional businesses roughly €4.1 billion in tax compliance costs over the next decade.
What does the new ViDA initiative mean for the rise of global e-invoicing?
A collection of broad-reaching government mandates will prompt organizations to accelerate their shift to global e-invoicing. However, ViDA presents significant opportunities for tax functions and business beyond mere compliance. By leveraging live, granular transaction data, organizations can track performance and leverage analytics to improve general cash management and overall business development.
As e-invoicing regulations evolve globally, companies will need to focus more on ensuring data quality, as incomplete or inaccurate records will ultimately lead to penalties and general inefficiencies. Additionally, these organizations will face unprecedented demand for effective enterprise resource planning (ERP) integration, liberating operational data from current data silos.
How does ViDA impact your processes, and what opportunities does it create for your business?
As businesses adapt to the evolving landscape brought on by ViDA, they are presented with new opportunities to refine their processes and improve accuracy. This transformation compels organizations to rethink their approach to data management, from capture to reporting. By embracing these changes, you can unlock efficiencies and insights that will ultimately enhance your business performance.
Accurate data capture
ViDA will likely compel you to rethink how you manage, process, and dispense with sales and revenue data. In particular, most organizations will need to put in place more rigorous controls to ensure high levels of accuracy when collecting information, including validation and verification mechanisms that can also serve as anti-fraud measures. This enhanced accuracy is vital not only for compliance but also for effective forecasting and performance tracking, which will empower you to make better-informed business decisions.
Integration of e-invoicing systems
As previously mentioned, sharing data between e-invoicing platforms and existing back office systems—something that can be performed seamlessly with our Accounts Receivable Automation software—can streamline your billing processes and eliminate errors caused by manual transcription. Further, this integration will allow you to quickly adapt to ViDA requirements, ensuring that invoices are compliant while facilitating faster processing and payment cycles, ultimately improving cash flow.
Tax reporting and compliance
To align with ViDA guidelines, you’ll likely need to overhaul your existing tax reporting efforts, shifting to a real-time reporting framework. As such, you’ll be in a better position to manage your tax position, making it possible to identify and respond in the moment to potential savings while optimizing your overall tax strategy. And by supplementing your reporting efforts with advanced analytics, you’ll also unlock insights that stretch across historical data.
Global transaction handling
Most companies will need to formalize their processes for managing global payments to ensure compliance with the varying VAT regulations across jurisdictions. The simplest method to achieve this task will be to leverage financial software that can automate the necessary compliance checks. Doing so can significantly reduce the administrative burden associated with global transactions, enhance operational efficiency, and mitigate the potential financial risks of non-compliance in different markets.
Audit trail and transparency
ViDA will significantly enhance the transparency of your financial transactions, as you must maintain detailed records of all the data you’ll routinely submit to tax authorities. This consistent, formalized reporting will help facilitate smoother audits and establish a robust document trail that will make it easier to identify discrepancies or inefficiencies within your processes.
What you should do to prepare
Recognizing the far-reaching technology and infrastructure investments required to make ViDA a reality, various mandated components of the initiative have been pushed back — with the bulk of requirements now arriving in 2030. However, several member nations have already begun pressing forward with their national e-invoicing and VAT management regulations. So, it’s wise as a business to start accommodating this impending legislation sooner rather than later.
As a first step, we recommend that you conduct a thorough, detailed analysis of your VAT management and administration processes, identifying any gaps between what you can currently do and what the proposed guidelines will require. After all, if you want to comply with upcoming regulations, knowing what changes you need to make will be helpful. An e-invoicing solution can be a powerful tool in this transition, providing the necessary automation and integration to help bridge those gaps, streamline your processes, and ensure that your operations are aligned with the new guidelines.
As it presently stands, the ViDA timeline dictates:
- By January 2026: For global business-to-consumer (B2C) transactions, any EU business with annual sales over €10,000 will need to collect a VAT associated with the buyer’s country, while those with less than €10,000 in sales will collect a VAT based on the seller’s country.
- By July 2030: All global transactions with a customer in the EU must be reported to the appropriate tax authorities via DRR, and mandated e-invoicing for all B2B purchases will also be in place.
- By January 2035: Any existing domestic e-invoice reporting schemes must align with ViDA guidelines.
Given that the ViDA timeline will likely be disrupted more before the initiative is finalized, you should monitor the news to stay informed of any changes. You might also routinely check in with regional tax authorities to ensure that you are aware of current requirements well ahead of any impending deadlines.
How Invoiced simplifies e-invoicing for seamless compliance
With Invoiced’s AR automation software, e-invoicing is a breeze. You can easily set up your exchange framework or the network of businesses you regularly trade with. Once a customer or vendor is registered within your network, you can use our solution to quickly and easily transfer invoice records back and forth with them. Critically, this framework enables straight-through processing — the automated exchange of invoice, payment, and remittance data from start to finish. This streamlined approach enhances efficiency, minimizes errors, and supports compliance with evolving regulations, ensuring accurate tax reporting.
Our platform offers broad integration support to facilitate this seamless information, fitting effortlessly with the most popular ERP solutions. To encourage smoother data sharing and streamlined workflows, we also open up application programming interface (API) access to our system, allowing you to integrate our automated accounting and reporting functions directly within your existing dashboards, promoting smoother data sharing and streamlined workflows.
Streamline e-invoicing with Invoiced today.
As the upcoming ViDA regulations approach, transitioning to an e-invoicing strategy will be essential for your business to ensure compliance and efficiency. This approach can help you accelerate payment cycles, reduce errors, and simplify billing management. Our Accounts Receivable Automation software seamlessly integrates these capabilities, optimizing your billing processes for domestic and global transactions.
Discover how Invoiced, a Flywire company, can enhance your payment experience through our electronic invoicing capabilities. Schedule a demo today to see the benefits firsthand.
