The VAT and customs laws in Europe have changed drastically in 2021. Brexit and a new EU VAT package have created complexities that could strangle the traditional e-commerce dropshipping model. Import VAT, customs duties and customs declarations are eroding sellers’ margins and creating problems with fulfilment. Can the new Import One Stop Shop (IOSS) help?
What is dropshipping, anyway?
Firstly, let’s clarify what we mean by dropshipping. The traditional definition refers to a three-party model, where the customer orders on a website or platform, but the order is fulfilled by a third party:
- A customer places an order from your online store
- Your store automatically sends the order to your dropshipping supplier
- The dropshipping supplier prepares your customer’s order
- Your dropshipping supplier ships the order directly to your customer
Dropshipping has grown hugely in the past five years with the help of e-commerce platforms such as Etsy and AliExpress. When it comes to VAT in the EU, dropshipping does not only refer to an online store selling products it purchases from a third party. Instead, it represents all online sales that are shipped directly to a customer from outside the EU.
Overcoming dropshipping hurdles
There are 3 major obstacles dropshippers face in the EU:
- Import complexities and delays
- Unknown tax costs erode margins
- Poor customer experience
The process of importing the goods into the country where the customer is based can be very complicated and creates major friction in the fulfilment model. Different customs forms and declarations need to be completed and customs representatives might be required – resulting in several shipments being stuck at EU customs control or even returned.
From July 2021, VAT and duties will become payable on low-value items that were previously exempt – so dropshippers will also have an increased cost of sale to deal with. Whether they pass this cost onto the customer or not, the VAT rates differ vastly across the EU so it’s very difficult to know what to charge at the point of sale.
Finally, depending on the seller’s shipping arrangements, the deliveries can be significantly delayed and in many cases, the buyer will have to pay the VAT or duties herself before the goods are finally delivered – which makes for a very uncertain and irritating experience.
The new IOSS gives dropshippers the equivalent of a VIP ticket into the EU: the imports will be frictionless, no import VAT or duties will be payable and therefore the customer experience will be significantly improved.
If you are a dropshipper and interested in applying for the VIP status the IOSS offers, contact Vatglobal today to find out more.