What is Dropshipping?

Dropshipping is a business model where you sell goods to a customer without holding or shipping the products yourself.

Typically:

Customer places an order → You receive the order → Your supplier ships the goods directly to the customer

Although you may never physically handle the goods, you are still involved in the supply chain and may have VAT obligations in the EU.

The VAT treatment depends on several factors, including:

• Where your business is established
• Where the goods are located when the sale takes place
• Where the goods are shipped from
• Where the customer is located
• Who arranges the transport of the goods
• Whether your customer is a business (B2B) or consumer (B2C)
• Whether you sell through an online marketplace such as Amazon or through your own website
• Whether the marketplace is considered the deemed supplier for VAT purposes

Why Does the Location and Movement of the Goods Matter? 📦

With dropshipping, it is important to understand the physical movement of the goods and who is responsible for arranging that movement.

For example:

Supplier in China → Customer in Germany

is treated differently from:

Supplier in Poland → Customer in Germany

even if your business is established in the same country and the customer orders through the same website.

There can also be an important difference between:

Supplier arranges delivery → Customer

and:

You arrange delivery from supplier → Customer

This is because a dropshipping transaction normally contains more than one supply:

Supplier → You (the dropshipper) → Final customer

For VAT purposes, it is important to determine which supply is connected to the physical transport of the goods.

Selling Through Your Own Website 🛒

When you sell through your own website or online store, you are generally responsible for determining and managing the VAT treatment of your sale.

Goods Shipped from One EU Country to a Consumer in Another EU Country 🇪🇺

When goods are dropshipped from a supplier in one EU country directly to your customer in another EU country, do not automatically assume that your sale can be reported through OSS.

Who arranges the transport can be very important.

If Your Supplier Arranges the Transport

In a typical dropshipping arrangement, your supplier sends the goods directly to your final customer and the supplier arranges the transport.

In this situation, the movement of the goods will generally be attributed to the supplier's sale to you.

Your subsequent B2C sale to the final customer may therefore be treated as a non-moving/local supply in the country where the goods arrive.

This means that Union OSS would generally not apply to your sale, and you may instead need a local VAT registration in the customer's country.

Important: The fact that goods physically travel from one EU country to a consumer in another EU country does not automatically mean that your sale qualifies as an intra-EU distance sale reportable through OSS.

If You Arrange the Transport

The VAT treatment can be different where you, as the dropshipper, arrange the transport of the goods to your customer.

Depending on the exact supply chain, contractual arrangements and the VAT identification number used, the movement of the goods may be attributed to your sale to the final customer.

Where your B2C sale qualifies as an intra-EU distance sale of goods, Union OSS may then be available to report and pay VAT due in the customer's EU country.

For qualifying EU-established businesses, the EU-wide €10,000 threshold may apply, subject to specific conditions. This threshold does not apply to businesses established outside the EU.

Because determining which transaction is the moving supply is critical, dropshipping businesses should confirm their VAT treatment before assuming that OSS can be used.

Goods Shipped from Outside the EU Directly to an EU Consumer 🌍

If your supplier sends the goods directly from a non-EU country, such as China, Türkiye or the UK, to your EU customer, the goods are imported into the EU.

For eligible B2C distance sales of imported goods in consignments with an intrinsic value not exceeding €150, the Import One Stop Shop (IOSS) may be used to collect, declare and pay VAT at the point of sale.

If IOSS is not used, import VAT may instead be collected during the import/delivery process, depending on the arrangement used.

Goods subject to excise duties cannot be declared through IOSS.

Selling Through Amazon or Another Marketplace 🛍️

Selling through an online marketplace can result in a different VAT treatment.

Under EU VAT rules, an electronic interface such as a marketplace or platform can, in certain circumstances, become the “deemed supplier.”

This means that, for VAT purposes, the marketplace is treated as though it:

bought the goods from you → then sold the goods to the customer

The marketplace may therefore be responsible for collecting and remitting VAT on the sale to the consumer.

When Can a Marketplace Become the Deemed Supplier?

Under the current rules, this can include:

1. Goods imported from outside the EU

Where a marketplace facilitates a distance sale of imported goods to an EU consumer and the consignment has an intrinsic value of €150 or less, the marketplace can become the deemed supplier.

2. Goods already located within the EU sold by a non-EU established business

Where a marketplace facilitates certain supplies of goods within the EU by a seller not established in the EU to a consumer, the marketplace can also become the deemed supplier.

Does Amazon Collecting VAT Mean I Have No VAT Obligations? ⚠️

Not necessarily.

This is an important distinction.

Even where Amazon or another marketplace collects VAT from the customer as the deemed supplier, the seller may still have other VAT obligations.

For example, VAT registration or reporting requirements may arise because of:

• Holding stock in an EU country
• Moving your own stock between EU countries
• Imports
• Sales that are not covered by the marketplace deemed-supplier rules
• Sales made through your own website or other channels

Therefore:

“Amazon collects the VAT” does not automatically mean “I don't need a VAT registration.”

EU vs Non-EU Businesses 🌍

EU-Established Business

An EU-established dropshipping business may need to consider:

• Domestic VAT registration
• Local VAT on domestic sales
• Union OSS for eligible intra-EU B2C distance sales
• IOSS for eligible imported consignments
• VAT registrations where stock is held or other local taxable activities occur

The €10,000 EU distance-sales threshold may apply to qualifying EU-established businesses, subject to the relevant conditions.

Important for dropshipping: Before using Union OSS, you must first establish which supply is connected to the transport of the goods. A cross-border delivery to a consumer does not automatically mean that the dropshipper's sale qualifies for Union OSS.

Non-EU Established Business

A business established outside the EU can still have EU VAT obligations.

Depending on how the business operates, this may include:

• EU VAT registration
• Union OSS for eligible intra-EU distance sales of goods
• IOSS for eligible imported goods
• Local VAT registrations where stock is stored or other taxable activities occur

A non-EU business can use the Union OSS for eligible intra-EU distance sales of goods.

For IOSS, a non-EU business will generally need an EU-established intermediary, although an exception can apply to businesses established in a country with which the EU has concluded the relevant mutual-assistance agreement.

The €10,000 distance-sales threshold does not apply to non-EU established businesses.

Marketplace vs Your Own Website – What's the Difference?

Remember: the marketplace being responsible for VAT on a particular sale does not necessarily remove the seller's other VAT registration or reporting obligations.

Example 1 – EU Seller Using an EU Supplier 🇪🇺

A German dropshipping business sells a product through its own website to a consumer in France.

The product is held by its supplier in Germany and shipped directly from the supplier to the customer in France.

Scenario A – The Supplier Arranges the Transport

If the supplier arranges the transport from Germany to France, the movement of the goods will generally be attributed to the supplier's sale to the German dropshipper.

The dropshipper's subsequent sale to the French consumer may therefore be a non-moving supply in France.

In this situation, Union OSS would generally not apply to the dropshipper's sale, and a French VAT registration may be required.

Scenario B – The Dropshipper Arranges the Transport

If the dropshipper arranges the transport of the goods from Germany directly to the French customer, the VAT treatment may be different.

Depending on the circumstances and the VAT identification number used, the dropshipper's sale to the consumer may qualify as an intra-EU distance sale.

If it does, French VAT would normally apply and the sale may potentially be reported through Union OSS rather than requiring a French VAT registration solely for that distance sale.

Example 2 – EU Seller Dropshipping from China 🌏

A German business sells a €50 product through its own website to a consumer in France.

Its supplier in China ships the product directly to France.

The goods are being imported into the EU.

If the conditions are met, the seller may use IOSS to collect French VAT from the customer at checkout and report that VAT through IOSS.

Example 3 – Non-EU Seller Using Amazon 📦

A US business sells goods that are already stored in Germany to a German consumer through Amazon.

Where the applicable deemed-supplier conditions are met, Amazon is treated as the supplier to the consumer for VAT purposes and is responsible for collecting and reporting VAT on that sale.

However, the US seller may still have VAT obligations connected with importing, storing or moving its stock in the EU.

Example 4 – Non-EU Seller Using Its Own Website 💻

A US business holds goods in Germany and sells them directly to EU consumers through its own website.

There is no marketplace acting as deemed supplier.

The business therefore needs to determine its own VAT obligations.

Depending on where the goods are stored, where they are delivered and which supply is connected with the transport, this can include German VAT registration, local VAT registrations in other EU countries and potentially Union OSS for eligible cross-border B2C sales.

Non-EU businesses carrying out qualifying intra-EU distance sales of goods can use the Union OSS.

Questions to Ask Before You Start Dropshipping ❓

Before determining your VAT obligations, establish:

1. Where is my business established?
2. Where are the goods physically located before the sale?
3. From which country are the goods shipped?
4. Who arranges the transport – me or my supplier?
5. Where is my customer located?
6. Is the customer a business or consumer?
7. Am I selling through a marketplace or my own website?
8. If using a marketplace, is it acting as deemed supplier for this transaction?
9. Am I holding or moving stock anywhere in the EU?
10. Are the goods being imported into the EU?
11. Could OSS or IOSS apply?

Key Takeaway 💡

Dropshipping does not remove VAT obligations.

VAT treatment follows the supply and movement of the goods, not simply the location of your company or the fact that you use a dropshipping supplier.

Importantly:

Dropshipping does not automatically qualify for OSS simply because goods are shipped from one EU country to a consumer in another.

You need to determine which supply is connected to the transport and who arranges that transport.

Where the supplier arranges delivery directly to the final customer, the dropshipper's B2C sale may be a local supply in the destination country, potentially requiring local VAT registration rather than OSS.

Where the dropshipper arranges the transport, the VAT treatment can be different and the sale may, depending on the circumstances, qualify for Union OSS.

Selling through a marketplace such as Amazon can also change who is responsible for collecting VAT because the marketplace may become the deemed supplier.

Because small changes to a dropshipping supply chain can change the VAT treatment, businesses should review their VAT position before starting sales in a new country, changing suppliers, changing transport arrangements, storing stock in a new country or adding a new sales channel.