VAT on dropshipping products: the calculation

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.

The essential elements to take into account

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.

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

The liability of dropshippers for this tax

Inevitably, the declaration of taxes, such as VAT in dropshipping, is imperative. This is a process that allows you to know the rate to be applied according to your status. Depending on the situation, you have the option of doing your declarations in the country of your supplier. The dilemma lies in the choice of this country, particularly in dropshipping, as there are many countries of origin. Thus, you may be forced to manage different modalities simultaneously. Indeed, this is not a major problem when 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.

The application of VAT in the dropshipping sector

Before going into detail about VAT in dropshipping, it is essential to recall the particularity of the sales method in e-commerce. In this concept, the owner of the online shop is not supposed to hold stock of goods. In fact, it is the suppliers who manage it. The latter 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.

With regard to VAT recovery, it also has its own particularities. Indeed, for products purchased outside the European Union, the importer is not responsible for the delivery. In France, no VAT is charged. Therefore, if you buy from a supplier outside the EU, there is no recovery of VAT on the purchases.

How to avoid paying VAT when dropshipping?

In reality, this is not an easy context. One has to ask whether the transactions are qualified by the tax authorities as triangular transactions in the context of delivery of goods. This may require the involvement of a third country at EU level. When a product is purchased from or supplied to a supplier or customer outside the EU, no VAT is charged.

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.

In addition, you may have several suppliers, both inside and outside the European Union. This means that you may have to deal with a large number of VAT charges.

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.