Dropshipping VAT: What Are the Rules for Businesses?

In today’s global e-commerce landscape, dropshipping has become an increasingly popular way to run a business without maintaining inventory. It allows entrepreneurs to launch a business quickly by selling goods from third-party suppliers directly to customers. However, from a VAT perspective, things can get complicated, especially when selling across borders in the European Union (EU), or importing goods from non-EU countries.

This guide breaks down the key VAT and dropshipping rules every business needs to know to stay compliant, optimize their margins, and avoid penalties.

Key takeaways

• VAT obligations vary by country and transaction flow: Dropshipping often involves cross-border sales, triggering VAT registration and reporting requirements in multiple countries—especially when using fulfillment centers or exceeding sales thresholds.
• Tools like OSS, IOSS, and marketplace rules can simplify compliance: These schemes centralize VAT reporting and collection, particularly for low-value goods and EU consumer sales, reducing the need to register in every EU country.
• Staying compliant requires active tracking and accurate reporting: Businesses must monitor taxable turnover, register when thresholds are met, reclaim eligible input tax, and keep clear records to avoid penalties and protect margins.

What is dropshipping—and how does VAT apply?

A dropshipping business involves selling goods through an online store (like a Shopify store, Amazon seller account, or your own website) without ever stocking them yourself. Instead, when a customer places an order, you purchase the product from a third-party supplier—often based in a non-EU country—who ships it directly to the final customer.

While simple in theory, this model leads to complex VAT obligations due to the multi-jurisdictional nature of dropshipping activities, with goods frequently crossing EU country borders.

Do you need to register for VAT?

If you’re based in the EU—or selling to customers within it—you may need to register for VAT, depending on several factors:

• Your annual turnover or taxable turnover
• Whether goods are imported or shipped cross-border
• Where your customers are based
• Whether you’re using fulfillment centers (like Amazon FBA)

You’ll typically need EU VAT registration in an EU member state if:

• You exceed the country-specific VAT registration threshold (which varies by country for domestic sales).
• You exceed the EU-wide distance selling threshold of €10,000 for cross-border sales of goods and services to consumers in other EU countries. Once you exceed this threshold, you will generally need to either register for VAT in each relevant EU country or, more commonly, register for the One Stop Shop (OSS) scheme in your home EU country to declare and pay VAT on these sales.
• You hold inventory in that country (even if you don't own it).
• You’re making cross-border sales to different EU countries (and exceed the €10,000 threshold).
• You wish to reclaim input tax on business expenses.

Even non-EU businesses making dropshipping sales to EU customers may trigger VAT liability under new VAT rules implemented on July 1, 2021.

VAT and dropshipping

Here’s how VAT on dropshipping typically works at different stages of the transaction:

1. Import VAT and customs duties

If your supplier is in a non-EU country, any goods imported into the EU are generally subject to:

• Import VAT (usually charged at the local VAT rates of the destination country)
• Customs duties (based on the type and value of the goods)
• Customs fees (administrative charges)

Depending on the setup, these may be paid by the customer at delivery (Delivered at Place – DAP), or by you, the seller, if you act as the importer of record.

If you handle customs yourself, you’ll need an EORI number (Economic Operators Registration and Identification) and may be able to reclaim import VAT.

2. Charging VAT to customers

Once registered, you may need to charge VAT on your dropshipping sales. This depends on:

• Where your business is established
• Where the goods are stored
• Where the customer is based
• The value of the goods
• Whether you're using OSS or IOSS (Import One Stop Shop) 

Examples:

• Selling to UK customers from abroad? You must register for VAT in the UK and charge local VAT on goods below £135 at the point of sale.
• Shipping goods to EU customers from another EU country? You may be eligible to report all VAT via the One Stop Shop.

3. VAT Returns and ongoing compliance

Businesses that are VAT registered must file periodic VAT returns, detailing:

• Sales made
• VAT charged
• VAT paid on imports (input tax)
• Amounts due to (or from) the tax authorities

Using IOSS or OSS significantly simplifies VAT compliance for cross-border sales, as you can report VAT centrally rather than registering in multiple EU countries.

Deemed supplier rules and online marketplaces

Under the EU VAT reforms that took effect on 1 July 2021, online marketplaces such as Amazon, eBay, or AliExpress can be considered the deemed supplier in certain transactions.

This means the platform is treated as if it sold the goods to the final customer, and they (not the dropshipper) are responsible for charging and collecting VAT.

This applies when:

• The seller is based outside the EU
• The goods are delivered to an EU customer
• The consignment value is €150 or less
• The sale takes place via an electronic interface (like a marketplace)

As a result:

• You (the seller) do not charge VAT at checkout
• The marketplace collects and remits VAT to the relevant EU tax authorities
• You must still keep records and report these sales appropriately, but you’re not liable for the VAT itself

VAT regulations by region

EU country to EU customer

• Goods moved within the EU are classed as Intra-community shipments.
• If you're registered for OSS, you can declare all sales via one VAT return.
• You must apply the VAT rate of the customer's country.

Non-EU country to EU customer

• If the value of the goods is €150 or less, you can use the Import One Stop Shop to charge VAT at the point of sale and avoid import delays.
• If you don’t use IOSS, the customer will likely pay import VAT and handling fees when receiving the item.

Selling to UK customers

• The UK has distinct VAT rules post-Brexit.
• You may need a UK VAT number and must pay VAT on low-value goods upfront.
• Goods above £135 are subject to import VAT at the border.

Dropshipping VAT compliance

Here’s a checklist to stay on top of your VAT obligations:

• Track taxable turnover in every country you sell to
• Understand VAT rates and import tax in all target markets
• Consider using OSS or IOSS schemes for easier filing
• Determine who is acting as the importer and bearing VAT liability
• Make sure your selling price accounts for potential VAT and customs charges
• Register for VAT where necessary—and monitor if/when you need to
• Reclaim input tax where eligible to reduce costs
• Keep digital records to share with tax authorities if audited
• Use automation to track cross-border transactions in real time

Tools and solutions for dropshipping VAT

Managing VAT compliance manually is time-consuming. Fortunately, there are tools and services designed for dropshipping stores, such as:

• Automated VAT software for calculating rates and filing returns
• IOSS/OSS registration services for EU sales
• VAT advisors with experience in e-commerce and cross-border sales
• Integrated tax apps for platforms like Shopify, WooCommerce, and Amazon

Staying compliant not only avoids fines and other penalties—it builds trust with customers and supports sustainable growth.

Summary

Dropshipping and VAT are closely connected, especially for sellers operating internationally. Whether you're selling to EU customers, UK customers, or running a dropshipping operation from a non-EU country, understanding your VAT position is essential.

As your dropshipping business scales, your VAT obligations will evolve. Being proactive about VAT registration, tracking import VAT, and filing accurate VAT returns is critical for avoiding unexpected costs, delays, or audits.

Get your VAT compliance right from the start, and your e-commerce business will be in a much stronger position to grow sustainably.

How Taxually can help with dropshipping VAT compliance

Navigating dropshipping and VAT regulations across multiple jurisdictions—including the EU, UK, and non-EU countries—can quickly become overwhelming. Whether you’re importing goods, managing cross-border sales, or unsure about where to register for VAT, Taxually is here to help.

We specialize in simplifying global VAT compliance for e-commerce sellers, including those running dropshipping businesses from the UK, the EU, or abroad.

With Taxually, you can:

• Register for VAT in the UK, EU member states, and other countries
• Get access to IOSS and OSS schemes for simplified EU reporting
• Automate the preparation and submission of your VAT returns
• Manage import VAT and reclaim eligible input tax
• Ensure compliance with UK VAT rules—including thresholds, low-value consignment rules, and VAT on goods under £135
• Understand when to charge local VAT to EU customers and UK customers from your dropshipping store
• Keep up with evolving VAT regulations, customs duties, and tax authority requirements

Whether you’re dropshipping from the UK to EU customers, importing goods into the UK from Asia, or selling across different EU countries, our technology-driven platform and expert support make it easy to maintain control over your VAT obligations.

From tracking taxable turnover to managing VAT in multiple regions, Taxually helps you grow your dropshipping business without the compliance burden.

Book a free call with our tax experts and simplify your VAT reporting today.

Frequently Asked Questions

Do I need to pay VAT if I use dropshipping suppliers outside the EU?

Yes, goods imported from non-EU countries are usually subject to import VAT and may incur customs duties. The importer of record is responsible for paying.

What is the Import One Stop Shop (IOSS)?

The IOSS is an EU system that allows non-EU businesses to register for VAT and report it centrally when selling goods valued up to €150 to EU customers.

Can I reclaim VAT on dropshipping products?

If you're VAT registered and you act as the importer of record, you may be able to reclaim input tax, depending on the country and setup.

When do I need to register for VAT in different EU countries?

You may need to register if you store goods locally, exceed the turnover/distance selling threshold, or opt not to use the OSS scheme for EU-wide reporting.