VAT in the Digital Age (“ViDA”): prepare your Hotel, Hospitality and Leisure business

The European Union’s VAT in the Digital Age initiative (“ViDA”) reached a political agreement on 5 November 2024. Significant changes to the EU VAT rules are on the horizon, including new rules for online platforms facilitating short-term accommodation rentals. It is crucial for the hotel, hospitality and leisure sector to understand these changes and begin preparations now.

What is ViDA?

ViDA is a set of tax reforms that will change how VAT works in the EU, and will be introduced from 2025 to 2035. ViDA is the biggest change to the EU VAT rules since the introduction of the EU’s single market in 1993. It aims to combat EU VAT revenue loss and to modernize the EU VAT system by making it simpler, more efficient and fit for the digital age. 

What is the key change for the hotel, hospitality and leisure sector?

The key change is the introduction of a new so-called deemed supplier rule under the “Platform Economy pillar” of ViDA. This rule will apply to online platforms operating a business model where they facilitate short-term accommodation rentals between hosts and guests.

Currently, in this business model, hosts are responsible for VAT on short-term rentals, while platforms provide intermediary services only. Under ViDA, platforms will, under specific conditions, be deemed to purchase and resell accommodation rental, thus becoming responsible for VAT. These rules must be implemented by each EU Member State by 1 January 2030, with an opt-in available from 1 July 2028.

Why is this change needed?

The change addresses unclear current rules, enforcement challenges and disparities between traditional and online sales. For example – what the threshold would be for a host to act as a business responsible for VAT. After researching multiple policy options, the deemed supplier rules were considered most effective by the EU VAT policymakers in addressing these issues.

How will the new rules work?

Online platforms facilitating short-term rentals in the EU – uninterrupted to the same customer for up to 30 nights – will be subject to these rules, with several conditions and exceptions:

• The rules do not apply if the host provides a valid VAT identification number and commits to charging VAT.
• EU Member States may require online platforms to validate VAT numbers of the hosts.
• Supplies under the small business scheme may be excluded, and those under the Tour Operators Margin Scheme (TOMS) must be excluded.
• EU Member States may classify certain rentals as hotel-like, excluding them from VAT exemptions for property leases (or not).
• Any separate B2C facilitation services will be subject to VAT in the EU Member State of the underlying supply (in principle the EU Member State of the accommodation).

Impact on the sector 

Online platforms in the sector may need to manage different VAT rules across business models in parallel. However, they may still be able to strategize effectively, as the rules come with several conditions and exceptions. For example by onboarding VAT registered sellers only or by applying a TOMS business model, a platform should fall outside the scope of the new rules. 

We expect there to be challenges in implementation that could lead to uncertainty in the sector. These include a different application of the VAT rules across EU Member States and a lack of clarity on the applicability of the new rules to certain business models, including travel APIs. Also, the rules do not distinguish between B2B and B2C scenarios, and new record keeping requirements add to the existing compliance burden, including potentially DAC7 and CESOP requirements.

What key changes are introduced by the other ViDA pillars?

E-invoicing and digital reporting

From 1 July 2030, businesses must issue a machine-readable structured file (“e-invoice”) for cross border B2B and B2G supplies in the EU. The e-invoice should in principle be issued within 10 days after the supply and in accordance with the European e-invoice standard EN16931, allowing for automatic processing in ERP systems. The e-invoice data should in principle be reported digitally by the supplier and the customer to the EU tax authorities in (almost) real-time. This allows the EU tax authorities to cross-check transactional data, to identify potential VAT non-compliance and VAT fraud in (almost) real-time. 

This pillar is important for businesses that operate cross border in the EU, which may for example include international hotel chains that source furnishings, amenities and IT-services from suppliers cross border. This may also cover their accommodation services to corporate clients across multiple EU countries. 

That said, from early 2025, EU Member States may already mandate B2B e-invoicing for domestic supplies without further EU approvals or derogations. Several EU Member States have already implemented mandatory B2B e-invoicing (e.g. Italy and Germany) with others set to follow (e.g. Belgium and France in 2026). This may, for example, impact local hotels that frequently host business travelers from within their country.

Single VAT Registration (“SVR”)

The goal of SVR is allowing businesses to VAT register in only one EU Member State and to manage their VAT obligations across the EU through a single portal. To achieve this goal, a series of measures will be introduced. The measures include expanding the VAT reverse charge mechanism for B2B transactions and expanding the current One Stop Shop (“OSS”) covering more B2C supplies. SVR will go live in phases in 2027 and 2028. 

SVR could for example benefit hotel chains that manage complex supply chains in-house, including sourcing and warehousing of goods across multiple EU Member States.

Final remarks

ViDA will require businesses to redesign and re-implement their end-to-end VAT management. This includes revisiting VAT positions and VAT requirements of business operations. This will require cooperation beyond the in-house VAT function, involving tax, legal, finance, logistics, IT, and business teams. For example, Terms & Conditions, as well as trading practices, must be reviewed and possibly updated. Additionally, businesses will need to address data protection and regulation requirements when exchanging transactional data, ensuring this continuous data flow is secure, including through third-party solutions. 

If you wish to discuss ViDA for your Hotel, Hospitality and Leisure business and how Bird & Bird can support you, please contact Andy van Esdonk or your regular Bird & Bird contact.

This article was included in our quarterly Check-in newsletter, which provides key news and updates for hotel, hospitality & leisure businesses in Europe and beyond. Check out our latest edition here.