VAT in Digital Age and VAT OSS 2.0

VAT in Digital Age – the Package that SMEs Across Europe Are Waiting For

Simply put, VAT in Digital Age (ViDA) is the European Commission’s proposal to change VAT regulations. It will enable EU member states to use technology to improve the current VAT system and better prevent tax fraud.

After the regulations gradually enter into force in 2024-2028, there will be significant changes in settling VAT in EU countries. It’s one of the key regulations within the EU’s strategy to introduce the Digital Single Market in the coming years.

How the e-commerce package currently works and how it will change after the introduction of ViDA

SME companies can already successfully develop cross-border sales, taking advantage of the facilities introduced under the e-commerce package in 2021. That includes, among others, settling VAT on cross-border sales to private individuals without the need to register for VAT in all countries where the product is purchased (VAT One-Stop Shop – OSS mechanism).

Unfortunately, VAT One-Stop Shop still does not cover entrepreneurs – VAT payers – who store goods in another Member State for resale. It’s a common market practice, especially in e-commerce. It is intended to shorten delivery and reduce the costs of orders for foreign consumers.

However, favourable changes are to come with the new provisions of the ViDA package. It will significantly influence the removal of barriers to cross-border sales by Polish companies, including SMEs. We recommend getting familiar of them already, starting with our article.

The ViDA package includes three areas of improvements that will be implemented gradually, i.e.:

• Introduction of single VAT registration for the entire EU (SVR), including the extension of the OSS system,


• Modernization of reporting rules. I.e. the DRR (Digital Reporting Requirements) mechanism. It will introduce, among others, the obligation to settle transactions in real time via e-invoices,


• New obligations for digital platforms, tightening the collection of VAT, including, among others, the extension of the scope of transactions requiring VAT settlement by digital platforms.

Uniform VAT registration for sales throughout the EU, i.e. VAT OSS 2.0

Introduction of the European Commission’s proposal for uniform VAT registration for the EU would be a huge step forward. Imagine you could sell cross-border via digital sales platforms or your own online store to all EU countries. Moreover, that you could also store your products in warehouses located in several EU countries. All this without the need for VAT registration in each of these countries. Registration would take place using only one online form in your native language and would cover all EU member states. Yes, this is the solution proposed by the European Commission.

Documentation

According to the Ecommerce Europe’s analysis, EU entrepreneurs must submit around 13 documents to complete one registration procedure. They also must submit up to 60 forms per year in a given country. This is an average value; the amount of documentation differs in each EU country. Obtaining a VAT number in some countries is time-consuming; it may take up to 100 days. The costs of operating this system for one entrepreneur per country of registration are estimated at up to EUR 8,000.

VAT OSS 1.0

A great progress has been made thanks to the VAT One-Stop Shop (OSS) mechanism. However, VAT OSS 1.0 – the current system for settling VAT on cross-border sales – could still be more friendly for small and medium-sized enterprises. The implementation of new solutions for uniform registration for VAT settlement purposes will remove a strong barrier to intra-Community trade.

In the ViDA package, the European Commission has proposed extending the VAT OSS (VAT OSS 2.0) procedure, to:

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• a construction of a transfer module for cross-border movement of own stocks throughout the EU. This concerns the movement of goods to warehouses without selling them,
  
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• domestic B2C sales from distribution hubs,


• distance sales of second-hand goods, works of art, collectors’ items and antiques,


• introduction of an EU harmonized reverse-charge mechanism for B2B sales for the purposes of settling transactions carried out by a seller who does not have a VAT registration in another EU country, when the buyer does have such a registration there,

As a result, One-Stop Shop 2.0 will enable entrepreneurs to have a single EU VAT registration. And to settle VAT via a single portal in the entire logistics chain within the Community. All this including procedures from supply and placement of stocks to sale to end consumers. Changes in this area are planned to be implemented from 1 January 2025.

How VAT in Digital Age can facilitate cross-border trade for SMEs

The VAT OSS 2.0 system would bring benefits such as:

enabling businesses selling remotely to have a single EU VAT registration and report all VAT via a single digital VAT portal throughout the entire EU logistics chain. From ordering and placing stock in foreign warehouses to sales to consumers,

contributing to VAT compliance by offering a simple solution to easily report and control all cross-border flows of goods in a single one-stop shop,

supporting businesses – especially small businesses, which are the backbone of the EU economy. This is to gain better access to intra-EU trade. Also, to become more competitive in an increasingly globalised and multichannel retail environment.

Extending the EU VAT One-Stop Shop system to all transactions will benefit both businesses and consumers. Customers will be able to benefit from a wider range of products available from different EU markets. And therefore from more competitive prices and a better shopping experience when shopping online.

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