EU Agrees to Hike VAT on Online Platforms like Airbnb and Uber

EU diplomats have approved a VAT reform that mandates digital platforms like Airbnb and Uber to apply VAT on their services, aiming to level the playing field with traditional hotel and taxi sectors. Estonia, which had previously blocked the initiative, dropped its opposition after securing more lenient terms for small businesses and a longer transition period.

Starting as a voluntary measure in July 2028, the VAT application will become mandatory by January 2030. Estonia, the home of ride-sharing company Bolt, had argued that immediate taxation would be burdensome for smaller providers and potentially harm their competitiveness.

Key Aspects of the VAT Reform

• Platform Responsibility: Digital platforms will be required to handle VAT registration directly, instead of leaving compliance to individual drivers and property owners, which has often resulted in lost tax revenue.
• Transition Period: The gradual implementation allows voluntary adoption beginning in mid-2028, with full compliance expected by 2030. This adjustment was included to accommodate small businesses and address Estonia's concerns.
• Flexible Exemptions: Estonia negotiated a flexible exemption regime for smaller operators, addressing worries about excessive administrative burdens for small-scale service providers.

The VAT measure, which could reach rates as high as 25%, has been part of the EU's efforts to modernize digital regulation, given concerns that many online platforms bypass the VAT obligations imposed on traditional industries.

Industry Reactions and Concerns

The change has received mixed reactions. Hotel industry representatives argue that the VAT adjustment will reduce unfair competition from short-term rental platforms that previously avoided VAT obligations. However, platforms like Airbnb and Uber are pushing back, with the European Holiday Homes Association (EHHA) warning of potential downsides, including increased costs for consumers, possible double taxation, and challenges for smaller platforms to implement the changes.

Meanwhile, Bolt has argued that many small-scale drivers are not liable for VAT and that the tax will disproportionately impact independent operators seeking supplementary income.

A Step Toward Digital Regulation

The VAT reform reflects a broader EU strategy to integrate digital platforms into its regulatory framework. Earlier this year, Brussels agreed on new rules to improve labor rights for platform workers, such as those for Uber and Deliveroo. EU Finance Ministers are expected to formally endorse the VAT measure at a meeting on November 5, moving the EU closer to its goal of standardizing tax regulations across digital and traditional sectors.