Dropshipping Vat Taxes to Sell in Europe (EU) Countries
Dropshippers who sell their products to customers in the EU, as well as those who are considering becoming dropshippers, are likely to be aware of the EU’s VAT changes.
Dropshippers frequently inquire as to what has changed. What will this mean for my company’s future? What are my alternatives? Should I raise my prices, or should I stop selling to or in Europe altogether?
This article will discuss the new VAT changes that went into effect on July 1, 2021, and how they may affect your company’s financial situation.
The following is an overview of the EU’s VAT changes: Effective July 1, 2021
VAT collection, reporting, and payment are all part of the process.
In the past, each country had its distance selling threshold for distance sellers, which varied from country to country.
Overview of EU’s VAT changes: Effective July 1, 2021
Before eCommerce businesses were responsible for collecting and reporting VAT, a Shopify dropshipping store set up a Distance Selling threshold: sales volume to prevent fraud.
Sellers who work from a distance Any company that sells its products outside of the European Union.
Germany had a threshold of EUR100.000, while Spain’s threshold was EUR35,000, according to the World Bank. You were exempt from VAT if your annual revenue was less than EUR100.000 and you were dropshipping to German customers. However, if your revenue over the last two years has exceeded EUR10.000, you are now responsible.
Items less than EUR22 are no longer exempt from import VAT.
Distance sellers were previously exempt from import VAT on items costing less than EUR22. This rule has been removed from the books. All purchases under EUR150 are subject to import VAT at the time of purchase.
The EU has implemented the Import One-Stop-Shop program. Sellers can use this tool to report and remit VAT to the appropriate tax authorities. When goods are imported into a country, buyers are not required to pay VAT on the purchase.
Also, see Using Academy to Learn Dropshipping on eBay for more information.
Smaller orders to EU countries can be subject to VAT if they are processed through the tax authorities of a particular country.
Dropshippers who made more than the EU distance selling threshold were required to register with and pay VAT to each country in which they sold.
VAT on all EU country sales can now be paid to a single tax authority, rather than multiple tax authorities. You can also pick and choose which country you want to visit!
As a micro-business with sales of less than EUR 10,000, you can continue to charge the local VAT rate at the time of purchase.
Small merchants based in EU Member States who make sales of less than EUR 10,000 will be exempt from VAT under the new rules that will be implemented shortly.
It states that you are allowed to continue charging VAT in the EU country where you have your business, for all EU countries to which you send goods, and to continue remitting VAT to your local tax authority under the terms of the exemption.
What you should do now to prepare
Register to OSS or IOSS
Register to OSS or IOSS \sRegister for the One-Stop-Shop (OSS), if you are an EU company that sells to EU countries by distance, to remit all VAT taxes through a single authority.
If you are a non-EU company, you can register for the Import One-Stop Shop system (IOSS) to receive the same treatment as for goods worth less than EUR150. You may be able to file and remit VAT more quickly if you use IOS. Additionally, customs authorities may be able to process your imported goods more quickly if you provide them with sufficient information.
Also, see Tapestry Dropshipping Suppliers From Aliexpress for more information.
If you do not use IOSS, your shipments may be subjected to additional valuation checks at the border, which could result in delays. It is possible that your deliveries will be delayed, and that you will incur additional VAT charges.
If you choose to conduct your transactions through an online marketplace, the rules may be slightly different. In certain EU countries, you can deregister for VAT under the new legislation. This is due to the possibility that the marketplace you use will be considered the seller of the goods and will be in charge of collecting VAT at the time of sale.
If your company is not located within the EU, you will require the services of an EU intermediary to manage the process.
Hire a tax consultant or lawyer
Engage the services of a tax consultant or lawyer.
We don’t have to tell you that taxes can be complicated and time-consuming if you are a business owner or aspiring business owner. If you are unsure of your position under the new VAT regulations, it is worthwhile to consult with an attorney or consultant.
They will be able to examine your company and provide you with recommendations on how to proceed. You might come across solutions that can assist you in discovering that you would not have discovered otherwise.
Continue your investigation as you uncover new information.
Many details, similar to those surrounding the recent VAT changes in the United Kingdom, are likely to remain a mystery until the VAT changes take effect on July 1, 2021.
Also, see Dropshipping Water Cooling System and Coolers for more information.
Because of this, you should keep your ears and eyes peeled for any changes to the rules or misinterpretations of them.
As you find new details, keep doing your research
We will keep you informed, but right now is the best time to put your resources and network to work for you.
What is the reason behind the EU’s VAT reforms?
Before we get into the reasons why the EU announced the changes to VAT in 2021, let’s take a quick look at what VAT is and how it works.
Value-added tax (VAT) is a consumption tax that is levied on both goods and services in the United Kingdom. This flat tax applies to anyone who purchases an item. It is not like income taxes, which are calculated based on earnings. It is a tax that is imposed in more than 160 countries around the world. The most common, however, is the EU.
Each member state of the European Union has its rate of VAT.
Why is the EU making these VAT changes?
Reasons for the EU’s decision to change its VAT rules
The EU decided to change the VAT system for a variety of reasons.
VAT can be simplified across all member states (countries).
The task of managing, registering, and collecting separate VAT in 27 different countries can be overwhelming. The VAT process will be significantly simplified for governments and tax authorities as a result of the 2021 consolidation. Merchants who have historically had to remit VAT in multiple countries will find it much simpler as a result of the new legislation.
VAT fraud should be reduced.
VAT fraud cost EU countries a total of EUR160 billion in 2017. Non-EU businesses may be able to exploit loopholes to avoid paying VAT. VAT fraud, on the other hand, can be relatively straightforward. Professional thieves can run sophisticated VAT fraud rings with the help of sophisticated technology.
Also, see Is Dropshipping Allowed on Wish.com and How to Do It? for more information.
EU merchants will find it easier to conduct business in the future.
Because of VAT fraud, it is more difficult to keep up with EU-based businesses than it is with non-EU-based businesses. This is especially true for items that are smaller in size. To keep up with non-EU businesses that can avoid collecting and paying VAT, EU-based businesses have had to put in more effort. Businesses in the EU, on the other hand, were never given this option.
Drop-Shipping: VAT Duties
Drop-shipping businesses must determine the location of the supply to determine whether or not VAT is applicable.
In the shipping industry, shipping from China (or any other country outside of the EU) to France is referred to as the “place of supply.” As the name implies, this refers to the country from which the goods were shipped, in this case, China.
Because China is not a member of the European Union, no VAT will be applied to its imports. Until the annual threshold for imports is reached, there will be no restrictions.
VAT Registrations
To conduct any activity, including storing goods in a country, starting a business, or selling products online, VAT registration is required. Following-up work such as filings, reports, and VAT returns are included in this category.
The thresholds for distance selling differ from one Member State to the next. Once you have reached the annual threshold for your country of origin, you must obtain a VAT number for the country from which you are importing.
Drop-shipping companies operating in Europe must consider this restriction when selling to their customers.
Also, see What is Reverse Dropshipping and How Does It Work? for more information.
Due to the annual VAT registration threshold for distant selling, it is mandatory to have a VAT number to conduct business. It is critical to take action as soon as possible to avoid fines, penalties, and other negative consequences. This page contains a comprehensive list of all European VAT threshold values.
Intrastat
Intrastat reports can be used to track the movement of goods within the European Union’s member states, and they are available for free download. The need for them arises when the Intrastat threshold has been reached or exceeded. Businesses are required to declare all shipments and arrivals in all EU Member States.
If you have a European VAT number, you must report it every month to be compliant. For governments within the EU to keep track of sales between countries and collect statistical information to combat VAT fraud, this procedure must be followed.
Import VAT
Although “normal” VAT payments may not be required when a product is imported from outside the EU into a member state of the EU and the threshold limit has not been reached, import VAT will almost certainly be due.
Keep in mind that the value of the imported goods must exceed a threshold that varies between 10 EUR and 22 EUR depending on where they are located to be subject to import VAT.
The importer of record is responsible for paying the import duties and VAT.
Dropshipping occurs when your customer is the importer of record for the product. The customer is responsible for the payment of the import VAT in this situation. If your company is the importer, you will be responsible for paying import VAT and import costs.
You may also be interested in reading Griffati Dropshipping Designer Clothing Review. Importer of record: This is a term that refers to the entity that (1) ensures that imported goods comply with local laws, (2) files a completed duty entry along with associated documents, (3) pays the applicable import duties and other taxes (Image courtesy of businessdictionary.com)
Even though it is theoretically possible to include import VAT in the purchase price, this is not typically the case in practice. Customers are required to pay it. Customers are responsible for paying the import VAT to their postal service provider or directly to customs.
Drop-Benefits Shipping’s are numerous.
This article is not solely concerned with VAT and taxation. It also includes some pointers and suggestions on how to get the most out of drop-shipping businesses.
Drop-Shipping: The Advantages
Drop-shipping is a low-cost method of generating income. In addition, there are no storage fees or inventory costs. You only buy and sell the products that you have already sold to customers. There is absolutely no risk. This indicates that the customer has already compensated you.
It is simple to put together.
It should go without saying that you will not be dealing with physical products or requiring storage space. This reduces the workload and eliminates the need to perform any pre-ordering, storing, or other related activities.
Whenever and wherever it is possible
There is no need for you to be concerned about any physical aspects of your business, which allows you to sell from anywhere.
Also, see EPROLO vs CJ Dropshipping Pricing and Fulfillment Comparison for additional information.
Increased Adaptability
It is possible to make quick changes to the product catalog without having to place an order for the products in question. Adding new products or responding to current trends is made much easier as a result of this.
The disadvantages of the drop-shipping business model
Low-profit margins
Dropshipping businesses operate on razor-thin profit margins. This business model is simple to set up and has low overhead costs, making it an excellent choice for small businesses. In many cases, it is calculated with narrow margins and low prices.
Note Make sure you have a stronger online presence than your competitors, as well as a dependable brand that can 1. outperform them and 2. provide reasonable pricing that is acceptable to potential customers.
Suppliers are causing problems.
The drop shipper is responsible if your supplier experiences delivery difficulties.
Important: To avoid any problems, make certain that you have a dependable partner as well as a functional network. It is critical to have positive reviews and to have satisfied customers.
Downsides of the Drop-Shipping model
There are only a few opportunities for brand building in the world.
Drop-Shipping doesn’t provide many options for branding and customization, which is unfortunate. Packaging is handled by a third-party business associate. A business partner is also responsible for the manufacturing. This makes it more difficult to establish a bond with your customers.
Note Because of these limited opportunities, it is critical to have a strong online reputation and to perform well on the internet to compensate for these disadvantages.
It has been discovered that following up on orders and performing administrative tasks associated with VAT and taxation are the most difficult challenges for most dropshippers, in addition to this brief overview of the industry.
Also, read 17 Secrets to Making Money with Dropshipping Products That Go Viral.
Summary: VAT on Drop-Shipping
Drop-shipping is a fantastic way for businesses to reach millions of customers without having to spend a lot of money and without taking on a lot of risks at all. Even though drop-shipping has some disadvantages, such as the inability to establish a strong brand, it can be worthwhile depending on the industry and niche. Drop-shippers appreciate the freedom to choose their shipping methods.
Summary: Drop-Shipping VAT
Taxation, customs, and financial issues can all be a source of frustration, as we have already mentioned. Failure to comply with the law can result in fines, and some online marketplaces may prohibit sellers who do not have valid VAT IDs or proper VAT registrations from selling on their platforms.
PLEASE TAKE NOTE This article is solely to provide general information. Hellotax does not provide tax services to dropshippers, but rather only VAT services to e-commerce customers in the European Union.