In France, online sales are becoming increasingly popular and dropshipping is another form of this popular business activity. Dropshipping has become a business in its own right and since the beginning of 2021 it has been subject to value added tax (VAT). Details in the article.
Dropshipping in France is now subject to VAT
Since January 2021, the Finance Act 2020 has rectified the taxation of online commerce on French territory and dropshipping products have not escaped the rule. Dropshipping is now taxed under the VAT regime, the provisions of which were implemented towards the beginning of the year. The online trading platforms are indeed supposed to have purchased and delivered the products even if they usually play the role of a facilitator or intermediary for distance sales. VAT on dropshipping in France is thus a matter of course.
A few rules are then applicable to all e-commerce activities, including the liability to vat for dropshipping.
- For an annual turnover of €10,000 or less, the sale will be declared as being located in France and the VAT rate charged is 20%.
- For an annual turnover of more than €10,000, the sale will be considered to be located in the country of the final consumer. The rate of VAT charged is aligned with the rate that governs trade in the recipient's country. However, dropshipping benefits from an option and the dropshipper will be able to request that his sales be subject to dropshipping VAT in France.
- The one-stop-shop: This is a system that has been rolled out across the European Union. Commonly known as the one-stop-shop, the one-stop-shop concerns all sales for which VAT is due in a country other than that of the dropshipper. The dropshipper pays the VAT in a single Member State, regardless of the country of taxation.
VAT on facilitator dropshippers
Platforms facilitating the sale of products imported from one country to customers located in France have, since the beginning of 2021, also been subject to VAT collected on importation instead of the recipient, i.e. the final customer of the goods. In other words, dropshipping has become liable for VAT. It is therefore essential to know how VAT is established in France for dropshipping products.
All distance sales of imported products with a value of up to €150 are subject to VAT taxation, as are all sales of dropshipped products within the EU by a supplier outside the EU. In order to be able to check whether VAT has been paid, a record of transactions should be kept by the dropshipper. This record must be kept for a period of 10 years from 31 December of the year of the sale. This is a useful document in the event of an audit by the tax authorities. The VAT liability and chargeable event is the date of approval of the payment and not the date of payment of the funds.
How to avoid paying VAT when dropshipping?
There are two cases of dropshipping and VAT where the total value of each transaction does not exceed €150. IOSS or Import-One-Stop-Shop is another form of electronic shop. It allows VAT to be either exempted or payable in the Member State of the final customer, which is then collected from the dropshipper. To benefit from this advantage, the dropshipper must have a VAT identification number for this scheme. Some suppliers such as Brands Distribution offer dropshipping products for self-employed entrepreneurs without VAT.
This exemption is acquired subject to a formal notice in case of non-compliance with some rules. The Finance Act 2020 stipulates that if an operator who trades on an online sales platform is not regular in collecting VAT, they could be jointly liable for the tax. In this case, the tax authorities will give them formal notice to make the payment.
The dropshipper does not have to pay customs duties as a sales intermediary. It is up to the end customer to pay them. These costs will be indicated on the invoice given to the customer at the time of delivery. If the recipient resides in France, the country of import is that of the final customer. The sale is then considered as a single import by the customer, who will then pay the VAT to the customs authorities. The operation of dropshipping and VAT is based on a number of criteria which it is essential to be aware of well before starting the business.
Recently, dropshipping has been legally recognised and is now governed by commercial rules, including VAT taxation. Tax requirements that all dropshippers must comply with. To support you in all these steps, call on the services of Minea, specialised in dropshipping, which will guide you through all the stages.