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New VAT rules for dropshipping in 2021

At present, the practice of Drop Shipping is having a big impact on the economy. Although they have no stocks or logistics to manage, any dropshipper worth his salt is now required to fulfil all his VAT obligations. This is the new rule on tax provisions for dropshipping. To find out more about the application and management of these taxes, follow this guide carefully.

Taxes on Dropshipping: what the law says 

Dropshipping is a legal business. It is, therefore, subject to specific regulations, and cannot be exempt from VAT or customs duties. The tax authorities have even confirmed this with clearer taxation from January 1, 2021. Any professional or company engaged in dropshipping is therefore liable for VAT. To demonstrate compliance, dropshippers must keep a record of transactions, which is kept for 10 years. Minea tells you more about this legal obligation.

  • Concerning the online sale of imported goods

The notion of distance selling of imported goods is regulated by the General Tax Code (CGI), in Article 256 II bis. The latter stipulates that any goods dispatched or transported by the supplier or on his behalf from third countries to private individuals within the European Union is not subject to dropshipping VAT.  

  • Regulation of distance selling (DSL)

Since 1 January 2021, distance selling or VAD has been subject to dropshipping VAT. This means that the seller is not directly involved in the delivery. 

  • Accountability of electronic platforms

All electronic interfaces such as marketplaces and platforms are made liable for VAT on facilitated distance sales. 

  • Establishment of electronic one-stop shops

Distance sellers of imported goods can use a special scheme to pay their VAT. This is the IOSS (Import One Stop Shop). Dropshipping companies are no exception to the rule. This VAT is not taxable for imports of less than €150. 

  • Compliance through information systems

In order to comply with these new regulations, every dropshipper or online platform is required to update their information systems (IS). 

  • The application of VAT to all purchases without exception

All platforms or companies selling online in France, whether dropshipping or not, will have to be taxed. VAT in dropshipping does not only involve France, but also all other foreign companies that sell online in France.

The different types of dropshipping taxes

The dropshipping business is attracting more and more self-employed entrepreneurs. Although dropshipping is an extremely profitable business, it can be very risky from a tax point of view. To manage your dropshipping business in the best possible way, it is important to be well informed about VAT in dropshipping. There are three types of dropshipping taxation and they generally depend on the legal status of each e-commerce company. Depending on the tax system applicable to your business, you will have to pay income tax, customs duties and dropshipping VAT, tax and social charges.

  • Taxation for the auto-entrepreneur

Being a self-entrepreneur or applying the self-entrepreneurial system in dropshipping must meet certain criteria. A dropshipper is considered to be an auto-entrepreneur if he is 

  • under the micro-BIC regime or with an annual turnover excluding tax of less than 176,200 euros.
  • micro-social regime

Many dropshippers register as auto-entrepreneurs, simply because the VAT imposed on an auto-entrepreneur in Dropshipping is reduced. Negotiations are made with the URSSAF for income tax and all social security contributions. Payment is made according to the percentage of the turnover made by regular payments in full discharge.

  • Taxation of an individual self-employed person (IE)

The individual auto-entrepreneur does not operate as a company and his turnover exceeds a certain threshold. The VAT for auto-entrepreneurs in Dropshipping applicable for an individual company is the micro-BIC regime (Industrial and Commercial Profits). However, your annual turnover excluding tax for the last year must not exceed 176,200 euros. This is 29% of the taxable turnover and 71% of the flat-rate allowance.

  • Taxation for an individual limited liability company (EIRL)

It should be noted that the EIRL and the sole proprietorship or EI are by default subject to the same tax regime. The EIRL has the possibility of separating its business assets from its personal assets in order to protect it by declaring the assets allocated to the business activity. The EIRL may also be subject to corporation tax (IS), i.e. 15% up to €38,120 of profits and 28% above €38,120 of profits.

  • Taxation adapted to a EURL

This is a status of a company that does not have a partner. For this status, VAT is imposed on income. It is also possible to subject it to corporation tax (IS). 

VAT payment methods in dropshipping

How to pay VAT in dropshipping? And who pays VAT in dropshipping or not? These are the questions that arise. The determination of the payment method generally depends on three conditions: status, turnover and geographical location.

  • VAT payment in dropshipping according to your status

Every dropshipper can choose between several statuses. Each status differs according to the way in which VAT is paid. It should be noted that VAT is paid to the government. Being registered as a self-employed person generally offers some advantage in terms of VAT payment. According to the 2020 law, a self-employed business is not required to pay VAT in dropshipping if its annual sales do not exceed €85,800, or €6,900 per month. This is a limit set by the State. Above this limit, you are obliged to pay dropshipping VAT to the government.

  • Payment of VAT based on turnover

When you work in dropshipping, declaring your taxes is quite simply compulsory. In addition to the status, the turnover has an impact on the rate to be paid. The VAT rate in Dropshipping generally varies according to the terms and conditions of the country where the dropshipper is registered, but the condition is that your company must be resident in the country.

  • Payment of VAT according to geographical location

The methods of paying VAT in dropshipping can also vary depending on the geographical location. Outside the European Union, dropshipping VAT takes into account customs fees. Logically, there is no customs VAT in Dropshipping taxable when the customer resides in the EU as the carrier or the supplier. In this case, it is the final customer who will be responsible for paying the customs fees.

Conclusion

Before planning to set up your Dropshipping business, it is essential to focus on the question of taxation. By turning to a specialist like Minea, you will have all the necessary answers.

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