The European Union has introduced a major VAT reform that impacts all eCommerce sellers who ship to EU customers. In this article, we’ll look at the things that change for you if you have a dropshipping business and are shipping items from China into the EU.
What has changed for dropshipping businesses since July 1, 2021?
If you’re dropshipping from China into the EU, there are a few things that have changed with the introduction of the EU VAT reform:
1. Distance selling thresholds no longer apply
Sellers need to charge VAT according to the VAT rates of the buyer’s country, unless they are located in the EU and their annual sales are under €10,000. If that’s the case (i.e. they’re located in the EU and do not go over the annual limit), they need to charge their local VAT.
2. Low-value imported goods of under €22 are no longer VAT exempt
VAT will be collected on all goods sold to end customers in the EU, regardless of their value. In the past, parcels’ value was frequently under-declared to avoid VAT, but the EU is now taking measures to end this.
3. The OSS (One-Stop-Shop) system is introduced
The OSS’ aim is to facilitate VAT compliance and simplify VAT returns for businesses selling to EU customers (from EU inventories). It’ll allow them to declare VAT via a single VAT return every quarter, and not register for VAT in multiple EU countries.
4. The IOSS (Import-One-Stop-Shop) system is also introduced
With it, businesses can declare and pay VAT on imported items of less than €150 in a single monthly IOSS VAT return, and facilitate imports. In the next section, we’ll look into IOSS and dropshipping from China.
5. Online marketplaces will collect VAT on imported goods of a value of €150 or less
Online marketplaces, such as Amazon, Etsy, AliExpress, and Cdiscount will be responsible for VAT on imported goods of a value of less than €150. For goods of a value over €150, regular import procedures apply. Please note that if you’re using Shopify, WooCommerce, Squarespace, Wix, or another eCommerce platform to sell products on your own website, you’re responsible for VAT.
As you can see, the reform will impact most sellers who dropship from China and who have buyers in the EU, with the exception of suppliers who:
- only sell high-value items (of over €150), or
- sell exclusively to other businesses (B2B).
The IOSS system and dropshipping from China into the EU
If you’re dropshipping goods of a value under €150, we strongly recommend you to use the IOSS system to facilitate import and customs procedures.
Here are the things you need to keep in mind:
You need to submit a valid IOSS number for all goods imported into the EU.
The destination country’s customs will check your IOSS number before arrival. The package declaration will include:
- Your IOSS number
- A 6-digit HS (Harmonized system) code
- Product name
- Parcel number
- Value in €, same as the purchase value.
For goods imported under the IOSS scheme, import duties or import VAT will not be collected, to avoid double taxation. You need to collect VAT at the point of sale and declare it monthly.
If you’re established outside of the EU, you need to appoint an EU intermediary agent for your IOSS declarations.
If you’re VAT-registered in multiple EU countries while dropshipping from outside of the EU, you can now switch to the IOSS system and cancel your local VAT registrations.
In case the total parcel value exceeds €150, standard import duties and VAT will apply. If a customer orders items for more than €150, it would make sense to send them in separate parcels not exceeding €150.