This article has been written after the the substantial change in VAT regulation of July 2021.
Dropshipping has become a popular e-commerce model due to its flexibility and low barrier to entry. However, when selling to customers in the European Union (EU) through dropshipping, it’s essential to understand how VAT in the EU works and how it affects your business. Complying with tax obligations is key to avoiding problems and sanctions.
How is VAT Applied to Dropshipping Within the EU?
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Place of Supply: In B2C (business-to-consumer) sales, dropshipping VAT is generally applied in the country where the customer is located, regardless of where your supplier or company is based, provided the sales are over 10,000 EUR annually.
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Seller’s Responsibility: As a seller, you’re responsible for collecting VAT at the correct rate and reporting it to the relevant tax authorities.
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Thresholds: If you sell to individual customers in the EU you will have to use the One-Stop Shop (OSS) regulation to report your VAT in all the countries starting from a threshold in sales.
Differences in VAT for Dropshipping in the EU
The handling of dropshipping VAT within the EU can become complex due to:
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Supplier’s Location: If your supplier is based outside the EU, rules may vary compared to those within the EU.
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Type of Product: Digital products or services, for example, have different rules than physical products.
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Customer Type: The VAT will vary depending on the type of customer, either B2B or B2C.
Strategies for Tax Compliance in Dropshipping:
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Register for OSS (One-Stop Shop): The OSS system allows you to collect and report VAT in a single EU country, simplifying your tax obligations when selling to end consumers in multiple countries.
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Evaluate if IOSS applies: If your supplier is based outside the EU and your shipments are below 150 euros you could be using the Import One-Stop Shop (IOSS) instead.
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Use Specialized Software: A VAT automation software or platform can help you manage all tax matters and control the different steps of VAT compliance in the EU.
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Maintain Exhaustive Records: Keep organized records of your sales, invoices, and other relevant documents. This will be very helpful when you need to comply with VAT and in case of a tax audit.
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Seek Expert Advice: If you feel overwhelmed by the complexity of the system, it’s advisable to seek help from e-commerce VAT experts, who can guide you and help you find the best solution for your business.
Dropshipping VAT can be challenging, but with good planning and the right tools, your business can comply with EU tax obligations effectively and efficiently.
Call to Action:
Want to better understand the implications of dropshipping VAT in the EU and how to comply with tax regulations? Contact us to explore how we can simplify your VAT management.
