For online retailers, 3PL and drop shipping are two very different ways of getting your goods to customers.
Most obviously, the logistics of each look very different. In the case of drop shipping, the goods will generally be outside of the EU at the time that the sale is made. The goods will then be imported into the EU and delivered directly to the customer.
In the case of 3PL, goods are located in an EU fulfilment centre at the time of sale. When the sale is made, the 3PL provider will manage packing and delivery.
Different VAT rules for different processes
In principle, an e-commerce retailer could choose to sell goods via a combination of both fulfilment methods, dependent on circumstances. In practice, a seller may determine that one of these methods better meets their needs.
However, there’s another layer of complexity to consider. 3PL and drop shipping entail very different VAT considerations.
The new EU e-commerce VAT rules that take effect on 1 July 2021 provide important new mechanisms for retailers to meet their VAT obligations.
The IOSS and the OSS
For low-value goods (consignments valued under €150) outside the EU at the time of sale that are shipped directly to customers, sellers can use the new Import One Stop Shop (IOSS) to streamline the customs and VAT process.
In the case of goods shipped using 3PL, the IOSS does not apply. Rather, sellers can take advantage of the new One Stop Shop to manage VAT on their sales throughout the EU.
Neither the IOSS nor OSS is obligatory, but there are compelling reasons for retailers to use them when applicable. However, each involves different requirements for registration and ongoing filing and compliance. Thus 3PL sales and drop shipping also need to be accounted for differently from a VAT perspective.
The optimal logistics and compliance for your business
Vatglobal’s e-commerce VAT specialists are available to provide strategic advice on how to optimise your VAT compliance, whatever logistics solution you use. Vatglobal’s powerful VAT compliance technology makes meeting your VAT obligations simpler, more efficient and more affordable.