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What is ‘drop shipping’?
Drop shipping is a form of e-commerce in which a merchant sells goods that he does not actually have in stock. When a customer orders a product in the webshop, the merchant does not ship the product himself. He passes the order on to a manufacturer, a wholesaler or another e-commerce merchant. The latter ships the product directly to the end customer.
Rising popularity of e-commerce
Drop shipping has been gaining in popularity over the last few years. It requires little initial capital, and the merchant has no stock risk. These are often traders who offer goods for sale through online marketplaces. The model is regularly used to enable goods of low value (up to EUR 22) to be sold without VAT. The goods are shipped directly to European consumers from outside the EU.
Who carries out the transportation?
From 1 July 2021, you can declare intra-community remote sales via an OSS (One Stop Shop) declaration). In this way, you avoid foreign VAT registrations. In order to be able to speak of an 'intra-community remote sale', the following is required: the goods are dispatched or transported by, or at the expense of the seller,orthe seller indirectly intervenes in the transport or dispatch of the goods. And that is exactly where drop shipping comes in.
A Belgian, a Frenchman and a German
Suppose a Belgian webshop receives an order from a French individual, and then asks its German supplier to ship the goods directly from Germany to France.
The transport will be carried out by, or on behalf of the German supplier. For VAT purposes, the transport is linked to the supply to the Belgian webshop by the German supplier. The delivery by the Belgian webshop is one without transport. The sale by the Belgian webshop cannot be qualified as an 'intra-community remote sale', and therefore falls outside the OSS scheme.
The Belgian webshop must declare an intra-community acquisition in France, and charge French VAT on the subsequent local sale to the French private individual. This requires normal French VAT registration and submission of periodic French VAT returns.
In short, as from 1 July 2021, a webshop that uses drop shipping runs the risk of having to apply for a VAT number in every European Member State. And that is just the opposite of the intention of the e-commerce package. We can really talk about a 'wrong note’ here.
Solution in the making
A general solution to this problem does not currently exist. Depending on the actual situation, the need for foreign VAT registrations could be reduced to a minimum. This could be done, for example, by making other agreements about the transport, and applying for a VAT number in the country where the transport starts. The European Commission has meanwhile started preparing legislation to eliminate the undesirable effects of the e-commerce package. The problem of drop shipping is one of them.
Do you use drop shipping, and would you like to know the best approach for your specific situation? Please don’t hesitate to contact our VAT team.
