Digitalization poses significant challenges to the EU VAT system, as it does in other areas of law. These challenges can be broadly divided into two main categories: those stemming from transformations in the economy, and those related to the legislative responses to these changes. In the VAT context, the first category includes the growing volume of transactions—particularly cross-border transactions—the increasing role of digital intermediaries in the supply of goods and services, and the emergence of transactions that do not easily align with the current EU VAT framework. The second category concerns issues such as the complexity of rules, lack of legal certainty, regulatory overreach, and potential human rights implications. Unlike direct taxes, digitalization does not undermine the core principles of VAT as a tax on consumption. On the contrary, it offers opportunities to enhance the system through technological solutions that can simplify compliance and reduce VAT fraud. New business models involving digital platforms are being used to modernize VAT collection through shifting VAT obligations from suppliers to digital intermediaries. This chapter examines the key challenges posed by the digitalization in the field of EU VAT, explores how technological innovations and new business models are being used to address these issues, and highlights areas in need of further research.