Three Key Changes and What They Mean for Businesses
On March 11, 2025, the Economic and Financial Affairs (ECOFIN) Council gave the final green light to a package of laws to make EU VAT rules fit for the digital age. The adopted package includes a directive, a regulation and an implementing regulation, and makes changes to three key aspects of the current EU VAT system. These reforms, designed to enhance competitiveness and reduce administrative burdens, will impact businesses operating across the EU.
The new rules will:
– fully digitise VAT reporting obligations for businesses selling goods and services to other EU member states by 2030;
– require online platforms to pay VAT on short-term accommodation rentals and passenger transport by road, in cases where individual service providers do not charge VAT themselves
– improve and expand online VAT one-stop shops so that businesses do not have to register for VAT separately in each member state in which they operate.
Here are the three most significant changes and their potential effects on companies.
- New VAT Rules for the Digital Economy
One of the most impactful changes is the revision of VAT rules to align with the digital age. The new framework introduces a Union-wide digital reporting system that will require businesses engaged in cross-border transactions to provide transaction-level reporting. Additionally, electronic invoicing will become the default system, reducing opportunities for VAT fraud and streamlining compliance for businesses operating in multiple member states.
Impact:
- Businesses will need to adapt their invoicing and reporting systems to comply with new real-time VAT reporting obligations.
- Companies selling goods or services across EU borders will face stricter data-sharing requirements with tax authorities.
- While administrative burdens may initially increase, long-term benefits include reduced VAT fraud and more efficient tax administration.
- Expansion of the One Stop Shop (OSS) Scheme
To further reduce the need for multiple VAT registrations across the EU, the reforms expand the OSS scheme, which currently simplifies VAT compliance for e-commerce businesses. The new rules will allow more types of transactions to be covered, including business-to-consumer (B2C) sales of goods within the same country if facilitated by an electronic platform.
Impact:
- Companies selling directly to consumers in multiple EU countries may avoid registering for VAT in each jurisdiction.
- Digital platforms facilitating sales of goods and services will take on greater VAT responsibilities, potentially simplifying compliance for small businesses using their services.
- Businesses should assess whether their transactions qualify under the expanded OSS scheme to optimize their VAT compliance strategy.
- Stricter Rules for Online Platforms
New VAT obligations will be imposed on digital platforms that facilitate short-term accommodation rentals and passenger transport services, being the largest sectors in the current platform economy. Under the “deemed supplier” model, platforms involved in passenger transport by road and short-term rental services will be responsible for collecting and remitting VAT when their underlying suppliers are not VAT-registered businesses.
Impact:
- Businesses in the platform sharing economy should review their VAT obligations and seek guidance to avoid unexpected liabilities.
- Digital platforms will need to implement systems to determine the VAT status of their users and collect VAT where necessary.
- Small service providers using these platforms may see an indirect increase in their costs as VAT is applied to more transactions.
Next Steps for Businesses
The Council has urged the European Commission to develop an action plan by autumn 2025, with further stakeholder consultations expected. Businesses should start preparing now by:
- Reviewing internal VAT reporting and invoicing systems to ensure compliance with upcoming digital reporting requirements.
- Assessing whether they can benefit from the expanded OSS scheme to reduce VAT registration burdens.
- Monitoring developments in platform taxation and adjusting pricing models accordingly.
These reforms mark a significant step toward a more streamlined and fraud-resistant EU VAT system. Companies operating within the EU should take proactive measures to ensure compliance and avoid potential risks. The first changes should be applicable from January 1, 2027. The changes should be fully adopted and enforceable on businesses by 2030.
If you have any questions about how these changes may affect your business, consulting with a tax professional is highly recommended. Please contact Richard Meerstra or Martijn Jaegers if you would like to receive further information.