EU VAT on Dropshipping: What E-Commerce Companies Need to Pay
Cross-border e-commerce boomed in 2020. Since then, some e-com models such as dropshipping have been growing at an extraordinary rate. Experts predict that the average annual growth of the dropshipping market will be 24.39% in the period 2020-26.
The advantage of the dropshipping model is that it does not require a lot of startup investment. Thus, it’s an easy start for newcomers to e-commerce. You do not bother about manufacturing, packing, and shipping the goods. But you do bother with a selection of products, marketing, and…back-office stuff.
Accounting, in fact, is one of the most complicated parts of these processes. The main reason for that is involvement of several countries with various VAT rates. There’re OSS and IOSS schemes that unify the process, but still, it takes time and energy. Let’s consider VAT for dropshippers on the EU market and how to deal with it.
The Case of Dropshipping
Imagine, you’ve got a company incorporated in Estonia. It can be any other EU member-state as well, however, Estonia with an e-Residency program and all the e-services fits particularly well to manage an online business.
Let’s imagine a bit further, you’re going to sell home appliances and target French customers. You create a shop on Shopify and contract suppliers from Aliexpress. So, now it’s already 3 sides involved:
Estonia, a place of incorporation;
France, a country of arrival;
China, a country of departure.
Imagine, your Estonian company sells goods that are stored in China to a customer in France! And there are different tax codes, VAT rates, sales thresholds, etc. in these jurisdictions. It seems to be a burden to register for VAT even in two different countries, doesn’t it?
The VAT Solution - MOSS Schemes
Thankfully, the EU market has a Mini One-Stop Shop (MOSS) scheme. Your company registers for VAT and signs up for MOSS in a single European country. Then you pay VAT to this country’s special authority only, and then it covers all your VAT-related deductions in the other Member States.
MOSS scheme was extended in July 2021. It has been divided into Import One-Stop-Shop (IOSS) scheme for goods that are stored outside the EU and One-Stop-Shop (OSS) for goods stored within the EU.
For now, it works for all cross-border e-commerce companies going to the EU market under the following conditions.
In short, you sign up for:
IOSS when your goods travel from non-EU country to the EU customers;
OSS when your goods travel within EU.
In practice, most of the companies use IOSS. Dropshipping within European Union is a less common business model, therefore OSS is used less often. Businessmen in the dropshipping usually purchase goods from non-EU countries such as China and sell them to customers in European countries.
It makes sense: manufacturing and storage of goods are essentially cheaper in China, while such EU countries as Sweeden, Denmark, and France are in the top-7 markets for dropshipping.
As you’ve already signed up for these schemes:
IOSS is reported monthly,
OSS is reported quarterly (3 months).
If you’re not signed up for these schemes yet, then you first register for VAT in the country of company incorporation and then apply for the IOSS scheme.
NB! It’s not allowed to use both regular VAT and the IOSS scheme. (I)OSS scheme enters into force from the next quarter after signing up.
How Enty Helps Dropshipping Businesses
Back to the case, a company incorporated in Estonia registers for Estonian VAT and then applies for the IOSS scheme to sell accessories traveled from China to French customers.
With the IOSS scheme, the company reduces business expenses and administrative workflow. However, then it’s required to file VAT-return monthly as well as IOSS return. And then, at the end of the year, it all should be correctly reflected in the Annual Report.
On Enty, you can take a subscription designed for e-commerce and dropshipping businesses. Monthly VAT returns and Annual Reports are included in the subscription. Monthly IOSS or OSS returns are not included, but you can add them to your corporate plan for €20 per file.
We combine an in-depth automated approach with human support, thus a consultation with a professional accountant is also included in the subscription.
How to Work with Enty
With our E-com subscription, you basically
upload your bank statement, or, you connect with Enty Open Banking and it’s done automatically;
upload Sales reports from Shopify, Amazon, etc.;
upload all the other invoices you issue, or, you use Enty Invoicing, and it’s done automatically;
and that’s it! Out accountant will do the job.
Join Enty and run your e-commerce business with ease.
