Dropshipping is a business model in which the seller does not store the products. He has the goods shipped directly from the supplier to the customer. VAT settlement in dropshipping can be complex, in the context of taxation. Especially when it comes to international transactions. In this article, we will discuss how to settle VAT on dropshipping properly. You will find out what are the key rules and procedures. We will also present what tax interpretations apply in this regard.
Dropshipping and VAT – what is dropshipping?
Dropshipping is a sales model where a seller offers products on his website or e-commerce platform but does not own them physically. When a customer buys products, the order is forwarded to the supplier, who ships them to the customer. This helps to avoid storage and logistics costs. Dropshipping is popular on platforms like Aliexpress, Shopify, and Allegro. Entrepreneurs can quickly expand their product offerings without investing in large inventories.
Dropshipping and VAT – sales models in dropshipping
Two sales models within dropshipping are used by entrepreneurs.
Model | Description |
Sale as a Trade Intermediary | The dropshipper collects orders from customers and forwards them to the manufacturer or distributor. Then, he settles his business activity as an intermediary service. |
Sale in Your Own Name | The dropshipper first buys the goods and then sells them to the target customer. The sale is settled as part of this transaction. |
What is important, none of the described models assumes storage. In both cases, the manufacturer or supplier ships goods directly to the customer.
Dropshipping and VAT – how to settle VAT in dropshipping?
The VAT settlement in dropshipping depends on several key factors:
- Location of the Seller and Customer. The place of delivery of goods is crucial for determining where VAT should be applied.
- Source of Products. Importing goods from third countries, e.g. China, involves obligatory import VAT charge.
- Destination Country. VAT regulations may vary depending on the country to which the goods are shipped. For example, the USA has different regulations than EU countries.
Dropshipping from China and VAT
Importing goods from China to Poland involves the obligation to charge import VAT. The entrepreneur must report the import of goods to the customs office. The VAT will be charged at the rate applicable in the country of import. It is also worth paying attention to customs clearance regulations. They can affect the time and cost of import.
Dropshipping and VAT – dropshipping from Poland to the USA
In the case of sales of goods to the USA from Poland, the entrepreneur is not obliged to charge Polish VAT. Yet, selling to the USA may involve the obligation to register for sales tax in individual states. This depends on the fact whether sales exceed certain thresholds. Different states have different sales tax requirements. This means that the entrepreneur must be well aware of the tax rules in each state to which goods are shipped.
Dropshipping and VAT – dropshipping on e-commerce platforms
Selling on platforms like Allegro, Aliexpress, or Shopify may involve various tax obligations. For example, platforms may charge VAT on the products they sell under local regulations. Allegro can automatically charge VAT for transactions in Poland. Aliexpress and Shopify can have different approaches to charging taxes depending on the seller’s and customer’s location.
Dropshipping and VAT – key elements of VAT settlement in dropshipping
Key element | Description |
Location | The place where the goods are delivered |
Source of product | The country from which the goods are imported |
Destination country | VAT regulations in the destination country |
Dropshipping and VAT – challenges and best practices
Settling VAT in dropshipping can be challenging due to various tax rules across countries. Therefore, it is worth following the best practices:
- Monitoring Changes in Regulations. Regularly track changes in tax regulations in the countries where you sell.
- Investing in new Technologies. Invest in tax management systems that automate the VAT calculation processes.
- Consulting Experts. Cooperate with tax advisors who can assist in interpreting complex regulations.
Dropshipping and VAT – summary
Dropshipping is a business model that offers many benefits. Yet, it also brings challenges for entrepreneurs related to VAT settlements. To effectively manage taxes in dropshipping, it is necessary to understand the VAT regulations in different countries. You should regularly monitor changes in the law. Investing in technology to support tax management is also a good idea. Cooperation with tax experts can significantly facilitate VAT settlement processes. This will minimize the risk of mistakes and sanctions. Effective tax management in dropshipping is crucial for the long-term success and financial stabilisation of the company.
Want to learn more about VAT settlements in dropshipping? Contact our experts who can help you understand complex tax laws and optimize your business.
FAQ – Frequently asked questions about Dropshipping and VAT
What is dropshipping?
Dropshipping is a business model in which the seller does not store the products. He has them shipped directly from the supplier to the customer.
How to settle VAT in dropshipping?
The VAT settlement depends on the location of the seller, the customer and the country of origin of the goods.
Do I have to pay VAT when importing from China?
Yes, when importing goods from China to Poland, you must charge import VAT.
What are the tax obligations when selling to the USA?
Selling to the USA may require registration for sales tax in individual states.
What are the differences in VAT in dropshipping on e-commerce platforms?
Platforms such as Allegro, Aliexpress or Shopify can charge VAT themselves according to local rules.
Do I need to register for VAT in other EU countries?
Yes, if you sell goods to other EU countries and you exceed the sales thresholds, you need to register for VAT in those countries.
What is import VAT?
Import VAT is a tax charged when goods are imported from third countries into the EU.
What are the VAT rates in Poland?
The standard VAT rate in Poland is 23%, but there are also reduced rates on some products.
Do I have to pay VAT when selling digital products?
Yes, the sale of digital products is subject to VAT.
What are the benefits of dropshipping?
Dropshipping allows you to avoid storage and logistics costs. This reduces the cost of running a business.