The VAT regime applicable in France to dropshipping, a widespread practice in online commerce, has recently undergone changes.
The French Finance Act for 2024 formally identified dropshipping as a source of tax evasion, and as such introduced measures to remedy a legal loophole leading to a loss of VAT revenue for the State on this sales model.
Whereas until 2024 French import VAT generally applied to the price charged by the supplier to the dropshipper, from now on it also applies to the dropshipper’s margin, which can be high depending on the case. As a general rule, dropshippers will also be responsible for declaring and paying the tax.
What is dropshipping?
Dropshipping is a business model in which the seller (dropshipper) does not store the goods. When a French customer places an order on the dropshipper’s online shop, the dropshipper buys the product himself from his own supplier located outside the European Union, who then dispatches the goods directly to the French end customer, who alone is identified as the recipient in the customs clearance process (import into France). In this way, the dropshipper manages neither the inventory nor the logistics, and is remunerated on the difference between the final selling price and the price paid to the supplier.
New VAT obligations for distance selling of imported goods
The new rules provide for two main changes to combat tax evasion in dropshipping:
– Application of French VAT. Whereas some transactions were previously exempt from French VAT, from now on any distance selling of goods imported from outside the EU are subject to French VAT, regardless of the intrinsic value of the shipment, where the dropshipper does not use the IOSS window, and where the goods are cleared through customs at a value lower than the resale price to the end customer.
– The dropshipper becomes liable for VAT. Where the VAT taxable amount declared on importation does not correspond to the value invoiced to the end customer, it is now the dropshipper who must be designated as the recipient of the goods on importation.
What are the consequences for dropshippers?
These two measures have major practical consequences for dropshippers, who must now register for VAT in France and declare and pay French VAT, both when the goods are imported and when they are resold to the end customer.
This means that the dropshipper’s margin is fully covered by French VAT.
