The EU’s sweeping VAT in the digital age (Vida) regulations are set to take effect in 2024 and will significantly alter how cash flows for companies doing business with customers or vendors located in the EU. Finance departments need to get ahead of these changes now to prevent delays and capitalise on opportunities.
Sweeping changes are being made to invoicing and reporting for businesses operating in the EU
In 2020, the EU VAT gap (the difference between expected revenue and the amount actually collected) amounted to €93bn. In response, the European Commission has introduced Vida to manage digital transactions better and combat VAT fraud. As a result of this move towards greater accountability, sweeping changes are being made to invoicing procedures and reporting for businesses operating within the EU market.
Vida, which will be adopted first by France and Spain in mid-2024, will have far-reaching effects on invoicing. And it will not just affect the EU states but the rest of the world too. US and UK accounting teams must be prepared to adapt their invoicing systems and processes to comply with the new regulations so they can continue doing business with vendors and customers in the EU.
To streamline and safeguard their accounting processes, businesses must adhere to the Vida regulations for digital invoice transmission and reception. Full compliance requires customers and suppliers to send their digital invoices electronically in a recognised format and be able to process invoices sent by the other party. This essentially turns the e-invoice process into the front door of accounts receivable (AR) and accounts payable (AP), opening opportunities for digital transformation across the finance department.
To ensure Vida compliance and to capitalise on opportunities, finance teams should begin preparing now. Companies must understand the European Commission’s requirements as well as assess their current invoice creation and delivery system. Accounting departments will undergo a major transformation as a result. For some companies, this will present a daunting challenge but it is one that also offers an unprecedented opportunity to improve efficiency and working capital.
To meet the requirements of Vida, your enterprise resource planning (ERP) software needs to support electronic invoice transmission, receipt and processing. If it does not, then identifying an appropriate ERP system or partner solution along with tools such as shared accounting inboxes and AR/AP automation can put you on a course towards full compliance.
E-invoicing improves the cycle time of payments, which can be incredibly beneficial for businesses
Digital transformation promises the elimination of manual processes and paper-related delays, replacing them with streamlined workflows. E-invoicing ultimately leads to fewer manual communications and follow-ups, as data entry errors become things of the past. Companies also get rapid access to information, without any hassle or need for extra effort from staff members of either trading partner.
In short, accounting teams will be able to ditch archaic practices in favour of efficient and improved customer service. In addition to the time saved, e-invoicing improves the cycle time of payments. This can be incredibly beneficial for businesses, as it improves their working capital. What’s more, e-invoicing provides near real-time visibility into the timing of cashflow, so financial decisions can be made with accurate and reliable data.
Non-compliant businesses may face fines and lose key trading partners
Ignoring Vida can have far more severe consequences than most companies realise. As well as being subject to continued inefficiencies, non-compliant businesses may face fines and lose key trading partners. Competitors with Vida-compliant systems will be able to gain an edge, with customers switching to vendors that are easier to work with. If you do business in the EU but lack e-invoicing capabilities, then your bottom line could suffer substantially.
Companies striving to stay ahead in the international market need to make sure their invoicing system follows Vida standards. Upgrading now will facilitate successful transactions and lay a good groundwork for future growth. Finance teams should take the necessary steps to ensure they are fully compliant with Vida regulations and evaluate their current invoice development and distribution process.
With the right technology, finance teams can embrace the digital transformation of their processes, which will improve customer service, streamline processes, reduce manual effort and boost working capital. Not only will it keep businesses compliant, but by unlocking the power of electronic financing they will also be able to make more informed financial decisions, leading to improved performance.
The Vida regulations
In December 2022, the European Commission published its proposed Vida reforms to the EU VAT system. The proposals are designed to reduce the EU’s VAT losses and to make the VAT system more efficient for businesses. Vida has three main elements:
- Real-time, transaction-based digital reporting for VAT purposes is to be introduced, based on e-invoicing for businesses that operate cross-border in the EU.
- Operators of short-term accommodation rental and passenger transport e-platforms are to be deemed responsible for collecting VAT where the service providers do not.
- EU registration requirements are to be reduced by expanding the scope of the VAT One Stop Shop regime and applying the reverse charge for B2B transactions.