VAT on dropshipping products: how to calculate it

Compared to any other type of business, VAT for dropshipping has a special method. Its calculation requires special attention before paying the suppliers' invoices and setting the price of your products. This requires a thorough knowledge of how to calculate this tax liability.

Essential considerations

In the context of dropshipping, VAT applies when benefiting from the services of suppliers located outside the European Union. In this case, the regime of this tax, linked to the company, varies according to two fundamental criteria. This particularly concerns your business model and your turnover. If you are in the e-commerce business, there is a good chance that the goods will pass through French customs.

However, it is up to the end customers to pay all customs fees. Often, they are only related to parcels that come from non-EU countries. Moreover, the value does not exceed €150 and this is not a systematic situation. Some dropshippers choose to set the amount to be paid, using the rate that applies to dropshipping products. This requires consultation of the tariff schedule within the French customs services.

As VAT is a consumption tax, the final consumer indirectly pays it. Each country can define its policy, but in France, the rate is 20% of the product price. For dropshipping in Belgium, the standard VAT rate is 21%.

The liability of dropshippers for this tax

Inevitably, tax declarations, such as VAT for dropshipping, are imperative. This process allows you to determine the applicable rate based on your status. Depending on the situation, you may declare taxes in the country of your supplier. The dilemma lies in choosing the country, especially in dropshipping, as there are many countries of origin. Thus, you might find yourself managing multiple regulations simultaneously. This is not a major issue if you are an expert.

Regarding dropshipping and VAT, a major change was made in the Finance Act in 2020. Most of the newly placed schemes have already been implemented, since January 2021. This mainly concerns all platforms that serve e-commerce, including marketplaces and dropshippers. Mainly, they are supposed to have purchased the dropshipping products, while having shipped them.

Applying VAT in dropshipping

Before delving into the details of VAT in dropshipping, it's crucial to understand the particularities of the sales method in e-commerce. In this model, the online store owner is not supposed to hold any stock. Instead, the suppliers manage the inventory and are responsible for the direct delivery of orders to the buyer.

This is the result of the services of marketplaces, such as Bigbuy, which have adopted this extremely economical method of selling. This avoids the management of stock acquisition and its potential devaluation when it is not used up. The same applies to the logistical part, which manages the stock and shipment of products. More precisely, it is the marketplaces that deal with dropshipping as a whole. This concept has the particularity of being opaque to the buyer during the sale. On the dropshipper's online shop, it is impossible to know that the items sold do not belong to the seller.

Regarding VAT recovery, it also has its peculiarities. For products purchased outside the EU, the importer is not responsible for delivery. In France, no VAT is imposed. Therefore, if you source from a supplier outside the EU, no VAT recovery on purchases is performed.

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How to avoid paying VAT in dropshipping

In reality, this is not a straightforward context. One must consider whether the transactions are classified by tax authorities as triangular operations involving a third country within the EU. When purchasing or delivering a product to a supplier or client outside the EU, no VAT is applied.

When dropshipping as a self-employed entrepreneur, your VAT is not completely exempt. In order to avoid paying this tax altogether, you must choose the VAT exemption. However, this regime is another special subject. On the other hand, dropshipping operations on Aliexpress in VAT are not regularly affected.

Additionally, you might have several suppliers, both within and outside the EU. Consequently, you may need to manage numerous VAT obligations.

Conclusion

The calculation of VAT varies according to certain criteria, including the geographical area. If you are in France and are obliged to pay it, the rate applied will be 20%. However, you will first need to determine whether or not you are. Contact Minea for more information on this subject.