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VAT rules for dropshippers - and other headaches

In this article we'll provide an overview of the Irish VAT rules for dropshippers. This will be of particular interest if you operate an e-commerce business which is based in Ireland.

What is dropshipping?

Dropshipping is a retail delivery method where your e-commerce business doesn't keep anything ( products ) in stock.  When you sell a product, you buy the product you have just sold from a third party and then have it delivered directly to the customer. You never actually see or handle the product in question.

The main difference between dropshipping and a normal retail business model is that you don't hold your own stock.  Instead, you buy stock as and when you need from your suppliers. This is usually a wholesaler or manufacturer who then delivers the goods to your customers as they order it. This method is used extensively by sellers using online website like Amazon.

Where is the place of supply?

The VAT rules for dropshippers are currently governed by the VAT place of supply.  The place of supply of the goods decides the VAT treatment.

If you are dropshipping from outside of the EU into Ireland, then the place of supply is deemed to be where the goods are shipped from. So for example, if the place of supply is China, VAT will not be due on the sale of the goods - though see below.

Goods imported into Ireland from outside the EU

Whenever goods are imported into Ireland from outside the EU, Import VAT and duties will potentially apply.  Where the final customer is not registered for VAT then they wil have to pay the VAT themselves.  Often the courier doing the delivery will collect the VAT on behalf of Irish Revenue.

The person who is the importer on record is responsible for the import VAT.  If it's your business then you'll be liable to pay the import duties and VAT.  If it's your customer, then they will be responsible for paying any import duty and VAT

What about goods imported into the EU from outside the EU?

If you're selling goods on an online market place like Amazon or Ebay it's possible you'll make sales to customers to the EU as well. So what's the position there?

If goods are being delivered to an EU country from outside of the EU, then import VAT and duties are payable at the appropriate rate for the EU country concerned either by the customer or potentially by the business.  If the latter case applies, you should also be mindful as to whether the EU distance selling rules apply to your business.  

Just to reiterate, if your customer is the importer on record then they are responsible for paying any import duties and VAT.

The Customs service in the country the customer is in may not release goods until the VAT has been paid meaning your customers may not receive their goods until they have paid the VAT.

Therefore we'd strongly recommend that you make this clear to your customers when they are purchasing from your website. This will hopefully ensure any negative feedback is kept to a minimum.

If you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on +353 1 2863 4123 or email us at info@osamcquillan.ie