VAT in the digital economy

The digital economy has transformed how businesses create, deliver and capture value. But for tax authorities and finance teams alike, it has also redefined how VAT is applied, collected and reported. 

As businesses expand online and cross borders without a physical footprint, VAT systems built for traditional trade are being tested like never before. Understanding this shift is essential for anyone involved in indirect tax, finance, or e-commerce. 

The digital shift and why VAT matters more than ever

From streaming services and software subscriptions to online marketplaces and gig-economy platforms, digitalisation has blurred the lines between goods and services, local and global. 

VAT, designed to tax consumption where it happens, must now adapt to a world where transactions take place in the cloud. This shift has driven significant reforms worldwide from the EU’s VAT e-commerce package to new marketplace liability rules and digital services taxes. 

The goal is to ensure fair taxation, levelling the playing field between domestic and international sellers, and closing VAT gaps caused by unreported digital sales. 

The challenges of VAT in a borderless market

The complexities of VAT in the digital economy are vast. 

1. Defining reportable supplies, scope and place of supply:

The landscape for the digital economy is quickly changing. The scope of digital services continues to expand – from purely intangible services (such as advertising and online content) to any service arranged online such as accommodation or delivery services.

The online trade of goods is being brought into scope, with country-specific low-value thresholds and varying rules on who is liable to account for VAT – the supplier or the customer, and whether this should occur at the point of import (via customs) or through the VAT return.

Determining the place of taxation requires meeting country-specific criteria, while liability can fall either on the supplier or the customer depending on the nature of the transaction.

In many jurisdictions, non-established suppliers must also verify their customer’s business status and, in some cases, submit Control Lists of B2B transactions for audit purposes.

2. Marketplace liability:

More countries now classify platforms as deemed suppliers for VAT purposes, shifting compliance responsibilities from sellers to the platforms themselves. 

3. Cross-border thresholds and registration: 

Businesses operating in the digital economy often face multiple VAT obligations across different jurisdictions, each with unique thresholds and interpretations.

Monitoring and analysing these constantly changing country-specific requirements demands significant time and resources. In some cases, legislation remains ambiguous, leaving room for interpretation and uncertainty rather than clear guidance.

In certain jurisdictions, the obligation to collect VAT may not align with other rules determining place of supply or liability for payment, creating inconsistencies between supplier and customer responsibilities.

Even where regulations are clearly defined, the procedures to register and report VAT can still cause difficulties. Dedicated e-portals, while intended to simplify compliance, can introduce technical hurdles such as authentication errors, access setup issues and platform outages.

In countries where non-established digital economy traders must follow the general VAT regime, compliance becomes more complex. Local fiscal representatives may be required and filing costs can be significant, especially for businesses with only occasional cross-border transactions.

4. Further obligations – real-time reporting, eInvoicing and record keeping:

An increasing number of countries require real-time reporting and eInvoicing to improve visibility and reduce fraud. In some countries, these requirements apply to non-established traders. Local recordkeeping rules may also require data to be stored on domestic servers or synchronised copies maintained within the country.

For many digital-first businesses, manual VAT compliance processes simply can’t keep up with this level of complexity and regulatory change. Remaining compliant often means allocating significant resources and undertaking varying risks, even for occasional cross-border transactions.  

Global responses: A patchwork of regulation

To ensure fair competition for local traders and improve VAT collection in the rapidly growing digital economy, countries worldwide are expanding regulations to cover digital services and e-commerce platforms. This includes widening the scope of taxable supplies and increasing reporting obligations for platforms and traders.  

A snapshot of global development in 2025: 

• Albania: Non-established suppliers must register and appoint a local fiscal representative, with potential sanctions for non-compliance 

• Burkina Faso: Digital services are now subject to 10% VAT. 

• Chad: Expanded VAT obligations for e-platforms. 

• Chile: Platforms must verify traders’ status and report to authorities; one-off waver of penalties issued due to ePortal errors; low-value goods now in scope. 

• China: Platforms are liable to report trader details. 

• European Union: Directive 2025/1539 enters into force, promoting broader adoption of OSS schemes. 

• Indonesia: Revised digital products and services regulations and reporting regime. 

• New Zealand: Clarifications published regarding GST treatment of digital services 

• Pakistan: Circular issued detailing platform obligations and sanctions for non-compliance. 

• Philippines: VAT now applies to digital services. 

• South Africa: Updated criteria for liability to account for VAT. 

• Sri Lanka: Implementation postponed from October 2025 to 2026. 

• Switzerland: Platforms now treated as deemed suppliers. 

• Taiwan: Registration thresholds raised. 

• Vietnam: Low-value goods now subject to VAT. 

Looking ahead to 2026, more countries plan to bring the digital economy under VAT or equivalent indirect taxes, or to expand existing obligations: Azerbaijan, Botswana, Kazakhstan, Mauritius, Rwanda, Saudi Arabia (platforms as deemed suppliers) and Sri Lanka. 

Additionally, the list of countries requiring platforms to report trader details continues to grow: Colombia, Chile, Norway and Ukraine. 

This global patchwork of rules highlights the complexity of digital VAT compliance. Navigating these evolving requirements effectively often requires automation and specialist expertise, enabling businesses to remain compliant while focusing on growth. 

The role of automation in modern VAT compliance

As the digital economy accelerates, so does the demand for automated VAT compliance solutions. Businesses need technology that can: 

• Identify and apply correct VAT rates based on transaction type and location. 

• Manage multi-jurisdictional reporting requirements. 

• Integrate seamlessly with ERP, e-commerce, and invoicing systems. 

• Adapt quickly as new regulations emerge. 

This is where Fintua comes in – helping organisations simplify the complex, stay compliant across markets, and focus on growth rather than administration. 

The future of VAT in the digital economy 

Looking ahead, the future of VAT will be more connected, data-driven and real-time. Governments will continue to expand digital reporting requirements, and businesses will rely increasingly on technology partners to remain compliant. 

For VAT and finance professionals, success in this new era will depend on agility, the ability to adapt processes, embrace automation and anticipate regulatory change rather than react to it. 

Final Thoughts 

The digital economy has redefined how value is created and VAT compliance is evolving to keep pace. For businesses operating online, understanding these changes isn’t just about avoiding risk; it’s about staying ahead in a world where technology drives both innovation and regulation. 

Fintua empowers organisations to navigate this landscape with clarity, confidence, and compliance.  

About Fintua

At Fintua, our solution Comply automates the end-to-end VAT compliance process across 180+ jurisdictions. This helps save hours of manual effort, boost accuracy and efficiency across the VAT process, enabling your team to focus on higher-value, strategic initiatives.

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