The fol­low­ing part­ner insight was authored by Fil­ip­pa Jorn­st­edt, VP, Reg­u­la­to­ry Analy­sis & Design at Sovos.

The Euro­pean Union (EU) is about to upend how busi­ness­es han­dle its val­ue-added tax (VAT) sys­tem, and the changes will impact many com­pa­nies head­quar­tered far beyond the EU’s bor­ders. Mem­ber states cur­rent­ly lose €50 bil­lion year­ly to VAT fraud, loss­es that ulti­mate­ly lead to high­er com­pli­ance bur­dens and stricter scruti­ny for all busi­ness­es. VAT in the Dig­i­tal Age (ViDA) will accel­er­ate the intro­duc­tion of manda­to­ry e‑invoicing even before the reg­u­la­tions come into effect.

To address this, ViDA brings a few major changes to VAT in Europe: 

• A strict real time report­ing rule for each intra-EU cross-bor­der trans­ac­tion is replac­ing month­ly and quar­ter­ly reca­pit­u­la­tive state­ments. Tax author­i­ties can now spot prob­lems in real time; busi­ness­es that miss this win­dow risk sub­stan­tial penal­ties and increased reg­u­la­to­ry oversight.

• The EU is also fix­ing the reg­is­tra­tion headache. Rather than forc­ing com­pa­nies to reg­is­ter for VAT sep­a­rate­ly in each coun­try, they’re expand­ing the exist­ing sin­gle reg­is­tra­tion point, the One-Stop Shop (OSS), to include a new range of sce­nar­ios. The OSS lets busi­ness­es file a sin­gle VAT return for all their EU activities.

• Dig­i­tal mar­ket­places face their own dis­rup­tion. These plat­forms will be required to track and report VAT for all their sell­ers rather than leav­ing sell­ers to han­dle tax mat­ters them­selves, unless they declare that they will do so. Under ViDA, plat­forms like Airbnb and Uber will be tasked with col­lect­ing and remit­ting VAT for spe­cif­ic trans­ac­tions, ensur­ing con­sis­tent tax treat­ment across the EU.

While the EU-wide rules on dig­i­tal report­ing don’t ful­ly kick in until 2030, wait­ing until then is ill-advised. It is expect­ed that EU Mem­ber States will be free to intro­duce e‑invoicing man­dates as ear­ly as 2025, under ViDA. Sev­er­al coun­tries are already on the move, with Ger­many imple­ment­ing changes in Jan­u­ary 2025, Bel­gium in Jan­u­ary 2026 and France fol­low­ing suit in Sep­tem­ber 2026. This stag­gered roll­out means busi­ness­es need to stay alert to vary­ing dead­lines across dif­fer­ent countries.

Updat­ing SAP for ViDA isn’t sim­ple. These sys­tems were built when tax report­ing hap­pened month­ly or quar­ter­ly — not in real-time. 

Yet across Europe, devel­op­ers at tax soft­ware com­pa­nies like Sovos are find­ing ways to extend SAP’s capa­bil­i­ties to meet new demands for glob­al enter­pris­es. Com­pa­nies using these new tools report faster pay­ment cycles and clear­er cash flow vis­i­bil­i­ty once sys­tems are installed. 

As for PEP­POL, think of it as the email pro­to­col of invoic­ing. Just like email lets Gmail users write to Yahoo users with­out think­ing about it, PEP­POL lets dif­fer­ent invoic­ing sys­tems com­mu­ni­cate with each oth­er. This inter­op­er­a­ble approach is becom­ing the default way to han­dle e‑invoices in Europe, as well as Aus­tralia and Japan. 

The tech­ni­cal chal­lenges of ViDA are sig­nif­i­cant, but they’re man­age­able with prop­er plan­ning. Prepar­ing for ViDA demands a cross-func­tion­al effort. While IT depart­ments tack­le SAP upgrades, finance teams must rethink their process­es as orga­ni­za­tions adjust to a much faster pace. Suc­cess requires unprece­dent­ed coor­di­na­tion between tax, finance, IT, and oper­a­tions teams, as these changes touch every aspect of the busi­ness cycle.

Many busi­ness­es are already work­ing with providers like Sovos to pre­pare their SAP sys­tems. These part­ner­ships prove ben­e­fi­cial, con­sid­er­ing get­ting ViDA right means under­stand­ing both the nuts and bolts of the soft­ware and the com­plex rules behind it.

While ViDA’s require­ments might feel like a bur­den, they’re push­ing com­pa­nies to fix tax sys­tems that should have been updat­ed long ago. Moti­vat­ed com­pa­nies will use this dead­line to build some­thing bet­ter than the bare min­i­mum need­ed for compliance.

Fil­ip­pa Jorn­st­edt is VP, Reg­u­la­to­ry Analy­sis & Design at Sovos.