If you're selling software to European customers, something shifted on January 1st, 2026.
Not a new tax. Something harder to ignore: enforcement.
The EU's "VAT in the Digital Age" (ViDA) package is rolling out, and tax authorities aren't just collecting anymore. They're cross-referencing your VAT filings against platform data, payment records, and transaction logs. In real-time.
For years, many SaaS founders treated EU VAT as a "figure it out later" problem. That era is over.
Here's what changed, why it matters, and what you can do about it.
What Is ViDA?
VAT in the Digital Age is the EU's most ambitious VAT overhaul in decades. The goal: close the estimated €60+ billion annual VAT gap by digitizing tax compliance across all 27 member states.
The initiative was first proposed in 2022, approved by the EU Council in 2024, and is now being implemented in phases through 2030. But don't let the long timeline fool you — the parts that matter most for software companies are already live.
ViDA consists of three pillars:
1. E-invoicing and Digital Reporting Mandatory electronic invoicing for cross-border B2B transactions, with real-time reporting of invoice data to tax authorities. No more paper. No more PDFs sent via email. Structured data that authorities can instantly verify.
2. Platform Economy Rules Expanded tax collection obligations for platforms and marketplaces. If you facilitate transactions, you may be liable for the VAT — even if you're not the actual seller.
3. Single VAT Registration (OSS Expansion) Expanding the One-Stop-Shop to cover more transaction types, reducing the need for multiple country registrations. A simplification measure, but one with strict compliance requirements.
The Key Milestones
- 2026: Enforcement intensifies. Tax authorities begin systematic cross-referencing of VAT data with platforms, payment processors, and banks. Audit risk increases significantly.
- 2027: Small seller threshold rules change. OSS expands to cover domestic B2C sales by non-established suppliers, goods with installation, and EV charging.
- 2028: Platform liability rules kick in for short-term accommodation and transport sectors. Mandatory reverse charge expands to all B2B supplies from non-established businesses.
- 2030: Mandatory e-invoicing for all intra-EU B2B transactions. Digital Reporting Requirements (DRR) go live — real-time submission of transaction data to tax authorities.
The full transformation takes until 2030. But the enforcement machinery? That's running now.
What Changed on January 1, 2026
The 2026 changes aren't primarily about new rules or new taxes. They're about enforcement infrastructure.
Tax authorities across Europe now have access to better data, better analytical tools, and unprecedented cross-border coordination. Here's what that means in practice:
1. Automatic cross-referencing is live
Your VAT returns are now being systematically matched against payment processor transaction data (Stripe, PayPal, etc.), platform and marketplace records, bank account information, and data shared between EU member states. If the numbers don't match, you'll hear about it.
2. Audit exposure has increased dramatically
Previously, getting audited required being unlucky or obviously non-compliant. Now, algorithmic detection means that even small inconsistencies — a misclassified transaction, a rate applied incorrectly, a customer location determined wrong — can trigger a review.
"From 1 January 2026, VAT on digital services is no longer primarily about whether a tax technically applies, but about how effectively authorities can detect, attribute, and enforce liability." — Global VAT Compliance
3. Retroactive enforcement is happening
Tax authorities aren't just looking at current filings. They're going back years. If you've been underreporting, misclassifying, or ignoring VAT obligations, 2026 is when the bill comes due — often with interest and penalties attached.
4. Data sharing between countries is seamless
The EU's VAT Information Exchange System (VIES) has been upgraded. When you sell to a customer in France and report it in Germany, both tax authorities can verify the transaction. Discrepancies are flagged automatically.
What This Means for SaaS Companies
If you sell software, subscriptions, or digital services to EU customers, you already owe VAT. That's been true since 2015 when the EU changed the rules to tax digital services where the customer is located, not where the seller is based.
But here's the reality most founders discover too late: knowing you owe VAT and actually complying with VAT are completely different problems.
The Complexity Stack
VAT rates vary by country — and they change. France: 20%. Germany: 19%. Luxembourg: 17%. Hungary: 27%. Poland: 23%. Ireland: 23%. And these aren't static. In 2025 alone, there were 14 VAT rate changes across EU member states.
Customer location determination is strict. VAT is due where the customer is located. The rules specify a hierarchy: billing address, IP geolocation, bank/card country, SIM card country. You need at least two non-contradictory pieces of evidence.
B2B vs B2C changes everything. Selling to a business with a valid VAT ID? Reverse charge applies. Selling to a consumer? You collect and remit. Misclassify and you're liable.
Invoice requirements are country-specific. Each EU country has specific requirements for VAT invoices. Missing fields or wrong formats can invalidate the invoice.
Filing frequency varies. Some countries require monthly VAT returns, others quarterly. Miss a deadline and penalties accrue.
The Real Cost of DIY Tax Compliance
Let's be brutally honest about what "handling EU VAT yourself" actually involves:
Engineering time: Building rate lookup systems for 27+ countries, integrating VAT ID validation APIs, implementing customer location logic, generating compliant invoices, building reporting dashboards.
Ongoing operations: Tracking rate changes, validating VAT IDs at checkout, filing returns in applicable jurisdictions, reconciling payments, responding to tax authority inquiries.
Risk exposure: Back-taxes, interest (typically 8-12% annually), penalties (up to 100% of VAT owed), audit defense costs.
Every hour your team spends on tax compliance is an hour not spent on your product.
The Merchant of Record Solution
Here's how a Merchant of Record (MoR) works:
We become the legal seller. When a customer in Germany buys your software through Creem, the transaction is between Creem and the customer. We collect payment, handle VAT at the correct rate, generate compliant invoices, and remit taxes to the appropriate authorities.
You receive your revenue, minus our fee. Clean, simple, predictable.
What this means in practice:
- You don't register for VAT anywhere — we handle it
- You don't track rate changes — our systems update automatically
- You don't validate VAT IDs — we handle B2B verification
- You don't generate invoices — we issue compliant invoices
- You don't file returns — we file in every jurisdiction
- You don't worry about ViDA — we're already compliant
For you, selling to a customer in Germany looks exactly like selling to a customer in the US, Japan, or Brazil. Same dashboard. Same payout schedule. Zero tax operations.
Why ViDA Makes MoR Even More Valuable
Before ViDA, you could get away with imperfect VAT compliance. Tax authorities had limited visibility. Cross-border enforcement was weak. Many companies operated in a gray zone.
That's over.
With real-time digital reporting, automatic cross-referencing, and coordinated enforcement, the cost of getting it wrong has gone up dramatically. The compliance bar is higher. The risk of non-compliance is higher. And the operational burden keeps growing.
Using an MoR isn't about avoiding responsibility — it's about transferring the operational complexity to a specialist while you focus on building your product.
Frequently Asked Questions
What is VAT in the Digital Age (ViDA)?
ViDA is the EU's comprehensive reform package to modernize VAT for the digital economy. It introduces mandatory e-invoicing, real-time digital reporting, expanded platform liability, and simplified registration through the One-Stop-Shop. The reforms are being implemented in phases from 2024 through 2030.
Does ViDA create new taxes for software companies?
No. VAT on digital services sold to EU customers has been required since 2015. ViDA doesn't create new taxes — it strengthens enforcement and digitizes compliance.
I'm a US-based SaaS company. Does this affect me?
Yes. If you sell software, subscriptions, or digital services to customers located in the EU, you owe VAT in the customer's country regardless of where your company is based.
What happens if I've been ignoring EU VAT?
You have potential back-tax liability for all sales where VAT should have been collected. Tax authorities can now more easily identify non-compliant sellers through payment processor data. Voluntary disclosure often results in reduced penalties compared to being caught in an audit.
Can I use the One-Stop-Shop (OSS) instead of an MoR?
Yes, OSS simplifies VAT filing. However, you still need to calculate correct rates, determine customer locations, validate VAT IDs, generate compliant invoices, and file quarterly returns. OSS reduces registration burden but doesn't eliminate operational complexity.
What's the difference between an MoR and a payment processor?
A payment processor moves money but you remain the seller of record — you're still responsible for VAT. An MoR becomes the seller and takes on legal responsibility for tax compliance.
Does Creem handle taxes outside the EU?
Yes. We handle VAT, GST, sales tax, and digital services taxes in 100+ countries including US sales tax, UK VAT, Australia GST, and more.
Bottom Line
EU VAT compliance isn't optional. It never was.
But in 2026, the consequences of getting it wrong got real. Tax authorities have the data, the tools, and the cross-border coordination to find non-compliant sellers.
You can build a tax operations team, integrate VAT APIs, track 27+ jurisdictions, and hope you get everything right every quarter.
Or you can let specialists handle it while you focus on what you're actually good at: building great software.
Creem handles VAT, sales tax, and compliance in 100+ countries so you can sell globally without the operational drag. Start selling →
