VAT CHANGES IN THE EU:

1 JANUARY 2025
Significant and wide-ranging VAT (Value Added CURRENT TREATMENT
Tax) changes are to be introduced in the EU in 2025,
with the intention of modernising and simplifying Currently, businesses providing virtual events (for
procedures for cross-border transactions. Although example, a UK business providing live online cooking
this is quite a way off, businesses are going to have to classes where the participants can interact with the
consider how best to accommodate these changes, in instructor in real time) have three UK/EU rules they
order to take advantage of potential efficiencies. need to think about:

Overall, the changes mean that transactions are 1. The basic rule: B2C supplies of services are taxed
going to be taxed where the customer belongs, and where the supplier belongs.
that brings the requirement of potential local VAT 2. The electronically supplied services (ESS) rule: B2C
registrations, filing and payment obligations in other electronically supplied services are taxed where the
countries. consumer belongs.
3. The ‘where performed’ rule: B2C supplies of
BACKGROUND entertainment, education or similar events are taxed
where the event takes place.
On 8 December 2022, the European Commission
launched the long-awaited proposals to modernise
the VAT rules within the EU, and these are referred to PROPOSED CHANGES
as “VAT in the Digital Age package” (ViDA).
From the start of 2025, when these services are
streamed or made available digitally, they will become
WHAT DOES THIS MEAN FOR ME? subject to VAT where the consumer resides.

Despite Brexit, UK businesses will be affected by Whilst B2C ESS services are already taxed where the
the forthcoming changes, and will need to adapt consumer belongs, the immediate impact is that UK
procedures and systems to remain compliant and businesses providing non-ESS services to EU-based
take advantage of the available simplification consumers, will also trigger the requirement for a VAT
opportunities. The final details of the changes are, registration in the countries where their customers
however, still to be agreed by the EU. are based.
The place of supply will be where the customer
belongs; the EU applies a nil turnover registration
threshold for non-established businesses, so there is
no turnover threshold.

PLACE OF SUPPLY CHANGES

There are changes being introduced at the start of
2025 to update the place of supply rules in respect of
business-to-consumer (B2C) these services refer to
virtual events, education, entertainment and similar SIMPLIFICATION MEASURE
activities. However, the One Stop Shop scheme (OSS) allows
businesses to set up a simplified VAT registration
with their EU tax authority of choice, and to report
VAT CHANGES IN THE EU: 1 JANUARY 2025

certain sales in all EU member states through a single charge VAT (e.g., because the supplier is not registered
quarterly filing. for VAT).
SINGLE VAT REGISTRATION IN THE EU The proposed rules aim to level the playing field
between platforms offering services and other
Coinciding with the place of supply changes
traditional suppliers that are registered for VAT and
mentioned above, is the introduction of a new VAT
those who are not. For example, private individuals
reporting scheme (to operate in parallel with the One
letting their properties on a short term “holiday let”
Stop Shop (OSS)) and EU domestic reverse charges).
basis.
These changes aim to reduce the administrative
Under the proposals, platform operators in the short-
burden of trading in the EU by reducing the number
term accommodation rental and passenger transport
of separate VAT registrations that a business will be
sectors will be required to charge and account for VAT
required to have, with a view to increasing compliance
on transactions where the underlying supplier does
overall.
not charge VAT. The platform operator will be deemed
to make the supplies to customers and to receive the
supplies from the supplier.
DOMESTIC REVERSE CHARGE: B2B
Whilst B2B transactions are excluded from the
remit of the new single VAT registration reporting
schemes, January 2025 should also see the mandatory
introduction of domestic reverse charges across the
EU.
Although removing the need to be VAT-registered
in these member states will reduce the compliance
ADDITIONAL FUTURE CHANGES
burden for the UK business, it also removes the main
mechanism by which input tax can be recovered. Further ahead, wider e-invoicing and digital reporting
requirements are due to come into effect from the
In the absence of a VAT registration, input tax would
start of 2028.
need to be recovered by making refund claims directly
to the relevant tax authority, where there will be a
greater delay between paying VAT to a supplier and
receiving the repayment.

2025 CHANGES TO THE PLATFORM

ECONOMY
There are several features of the EU proposals relating CONCLUSION AND TAKE AWAYS
to the platform economy. These are set out below. Businesses trading within the EU should expect
The “deemed supplier” rule, which has applied to significant changes in the coming years, as the EU
digital platforms and marketplaces selling goods in Commission looks to modernise its VAT system whilst
the EU since 1 July 2021, will be extended to apply to simultaneously tackling non-compliance. However, the
platform operators in the short-term accommodation developments outlined above, although significant,
rental and passenger transport sectors. This will be are only part of the bigger picture, as the single VAT
in situations where the underlying supplier does not registration proposals go hand in hand with wider
e-invoicing and digital reporting requirements which
will come into effect from the start of 2028.

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