Dropshipping

What it means

Dropshipping is a model in which the shop never holds the goods: it passes the order to a supplier who ships straight to the customer. Towards the customer the shop is still the seller, with every duty a seller carries.

It is neither agency nor fulfilment, where a firm stores and packs someone else’s goods. The goods move through a chain of two supplies with one transport, and which of them is the transported supply decides the place of supply and who accounts for the tax.

In the shop’s books dropshipping shows up as a purchase and sale of goods, not as a commission. Revenue is the full price the customer pays and cost is the supplier’s price, even though the shop never saw the goods. That sets it apart from agency, where only the agent’s fee is recorded as revenue.

How it works in practice

Where the goods come from a third country, consignments up to one hundred and fifty euro of intrinsic value can run through the IOSS scheme, with the tax collected at the point of sale. Above that it is an ordinary import with duty and import VAT, and the importer named on the declaration matters.

Selling goods held in another member state to customers across the Union falls under the distance selling rules and is handled through OSS. Whoever imports the goods and first places them on the Slovak market also picks up producer duties under extended producer responsibility.

Complaints and returns are handled by the customer with the shop, not with the supplier. A return therefore produces two documents in the books: a credit note to the customer and a credit note or other corrective document from the supplier. If the supplier will not take the returned goods back, they stay with the shop as stock in a place it does not control.

What to watch out for

The usual loss comes when the supplier or the carrier files the customs declaration in the customer’s name. The customer is asked for duty and VAT on delivery, refuses the parcel, and the shop carries the return and cannot deduct the tax, because it was not the importer.

With goods from third countries the shop may also carry responsibility for product safety, labelling and instructions in Slovak. When a market surveillance authority finds a non-compliant product, the fine and the withdrawal from the market often fall on the shop, because a supplier outside the Union is hard to reach.