Dropshipping Import Tax: Everything You Need to Know

Dropshipping is a business model that allows the retailer sells the product online without too much investment because products are purchased from third-party dropshipping suppliers who will ship the products directly to the end customers. It is known as easy to start but it can sometimes be complicated due to import tax problems, especially when the suppliers are located in China or other countries.

 

So if you are confused about if you have to pay import taxes when dropshipping from China, then you are in the right place! Let's find out how import taxes and duties work in different countries and what you can do to avoid tax issues and delivery delays when dropshipping.

 

Do You Have to Pay Import Taxes When Dropshipping from China?

 

First, you don't have to pay any taxes to China for dropshipping. But since you ship internationally, you or your customers may be required to pay additional customs fees such as duties and import taxes to the country where your products are shipped to. It depends on the shipping destination, goods value, and the carrier.

 

The tax value and threshold value for import taxes and duties vary among different countries and regions. To make it easier for you to understand further, you only need to learn about the specific import tax and customs policy for selling to your destination country and region.

 

US Import Taxes from China

Generally speaking, when it comes to importing products to the US, all goods valued at or less than $800 are not subject to import taxes. This import tax threshold value is friendly for dropshipping businesses which usually ship small packages with goods valued below $800.

 

So for most retailers dropshipping products from China to the US, there is usually no need to pay import taxes. Even if your customer orders products from your store in bulk with a value over $800, you are advised to divide the order into multiple small packages for shipment to avoid being charged import taxes.

 

When are Import Taxes Required?

 

When you import products in bulk to the United States with a value over $800, which usually happens at wholesale, then the import taxes you will be charged include customs duty (the largest part), merchandising processing fee (MPF), and port maintenance fees (HMF).

 

The duty rate will depend on the value of the imported product and the HS (or HTS) code of the product. You can check the HS code of your product and its import duty directly on the USITC website (U.S. International Trade Commission).

 

Who Will Pay Import Taxes?

 

The carrier will usually pay any outstanding duties and taxes to the customs authorities on your behalf. This is to minimize the delivery time of your goods. The end customer will then receive a duty invoice which must be repaid in full before the goods are delivered.

 

Therefore, if your customers order in bulk from your store, it is always best to inform your customers whether the products they purchase are subject to import taxes or not.

 

Dropshipping VAT in EU Countries

 

Import taxes are more complicated in EU countries and it has been one of the biggest concerns for those who are about to start a dropshipping business internationally. The main taxes for importing products to the EU are VAT, import VAT, and customs duties, which may make you confused because the vat rate and threshold vary in different countries. Let's see how it actually works.

 

What is VAT and Import VAT?

 • VAT

 

The VAT(value-added tax) is a consumption tax levied on the sales of goods and services in Europe. There are several reasons why a business or seller has to register for VAT, such as reaching the VAT registration threshold or storing in a country. All EU member states have their own guidelines and VAT rates that apply to different product categories and business fields.

 

 • Import VAT

 

The Import VAT is levied by the local customs administration within the EU when products are imported from third countries, in addition to customs duties and special consumption taxes.

 

The dropshipping business model is usually associated with foreign suppliers, especially Chinese suppliers, and the majority of dropshipping businesses source their products from abroad. So except for regular VAT when selling goods to end consumers, Import VAT is also payable when products are imported into Europe.

 

How Does Import VAT & Duty Work in Dropshipping?

 

If you are dropshipping from China to EU countries, you must know that from July 2021, all products imported into the EU are subject to Import VAT in the country where the products arrive. And it applies the normal VAT rates of the importing countries.

 

In addition to VAT on imports into the EU, there are country-specific customs duties depending on the country of import. For example in Germany, the customs duty threshold is still a goods value of €150.

 

So, for EU dropshipping businesses, you will encounter the following two situations when it comes to Import VAT.

 

 • Import VAT is applied to orders that are equal to or less than 150 EUR.

 

For imported orders valued equal to or less than €150, you can use the One-Stop Shop for Imports (IOSS) to declare and pay the Import VAT in place of your customers. And the products will be exempt from customs duty.

 

 • Import VAT and customs duties are applied to orders that are more than 150 EUR.

 

For imported orders valued more than €150, IOSS will no longer be applicable. Your end customer, the direct recipient of the products from non-EU countries, is responsible for import VAT and customs duties.  

 

If your customer orders products valued over €150, a wise choice to avoid extra customs fees is to ship the order in multiple small packages.

 

Dropshipping Taxes in the UK

UK dropshipping taxes and VAT work similarly to the EU. If you import products from a retailer in a foreign country such as China, you will be charged the following taxes:

 

 • UK VAT

 

The UK government charges VAT(value-added tax) on the sale of goods and services. You’ll need to register for VAT if your business's turnover exceeds the VAT threshold. It’s charged to consumers in the price of goods, and collected by businesses. In the UK, businesses are then responsible for reporting it to the HMRC (Her Majesty’s Revenue & Customs). The standard VAT rate is 20% and it applies to most goods and services.

 

 • Import VAT

 

Similarly to the EU, import VAT applies to the imports of goods from abroad into the UK. It is usually charged at the rate of VAT that would have applied to the goods as if they had been purchased in the UK. HMRC will sometimes allow businesses to reclaim the import VAT they pay on goods imported into the UK.

 

 • Customs Duty

 

Differing from the EU, the customs duty threshold of the UK is £135. That is, goods ordered from a retailer in a foreign country are exempt from customs duty if they are worth £135 or less and do not contain alcohol or tobacco. If the imported goods are above £135, customs duties will be charged depending on the type of goods and country of export.

 

You can look up commodity codes, duty, and VAT rates at www.gov.uk/trade-tariff.

 

How to Claim Import VAT Back from HMRC?

 

VAT-registered businesses can use the postponed VAT accounting method to declare and pay import VAT. In this way, the payment of import VAT is postponed until the business completes and files its VAT return. And businesses may be able to reclaim the VAT as input tax on the same VAT return.

 

Alternatively, a business can choose to pay import VAT at the point of importation. The business may then be able to reclaim the import VAT as input tax on its VAT return, subject to the normal rules for reclaiming VAT. HMRC provides more information about accounting for import VAT on its website.

 

Businesses that are not registered for VAT are unable to reclaim import VAT.

 

Import Taxes on Dropshipping Brazil

 

Taxes are complicated and expensive in Brazil, which has been a pressure for most e-commerce businesses. And due to the unpredictable government, dropshipping sellers have been worried about being charged higher taxes on imports. So it's important to learn how import tax and tax exemption work in Brazil now.

 

How Does Import Tax Work in Brazil?

 

Imports are subject to multiple taxes and fees in Brazil, which are usually paid during the customs clearance process. There are three taxes that account for the bulk of import costs:

 

 • Import Duty (abbreviated in Portuguese as II)

 • Industrialized Product tax (IPI)

 • Merchandise and Service Circulation tax (ICMS)

 

In addition to these taxes, several smaller taxes and fees apply to imports. And most taxes are calculated on a cumulative basis.

 

for B2C businesses, usually, the import tax is 60% on CIF value (value of product + international freight), but sometimes ICMS will be charged on imported products depending on the carrier.

 

Are Shipments of up to US$ 50 Exempt?

 

The exemption is only valid when the shipment is made from one person to another without commercial purposes and below a CIF value of US$ 50. But when the shipment is made from a company located abroad to a consumer in Brazil, the purchase may be taxed under Brazilian law

 

The truth is that in practice international dropshipping sellers with products below a CIF value of $50 often escape the control of customs and succeed to deliver their products with no taxation. Because only shipments that stop at the inspection of the Federal Revenue pay tax. The Revenue does not inspect all packages sent from abroad to Brazil. Inspection is done by sampling, so many of them are released without paying taxes.

 

However, Minister Fernando Haddad said that the government is studying measures to increase the inspection of shipments. As a result, more shipments made from other countries will likely be taxed by the Federal Revenue when they arrive in Brazil. And this is still a risk for dropshipping Brazil from abroad.

 

How to Avoid Import Tax Issues When Dropshipping?

 

Before you start dropshipping, it is necessary to research the import tax laws of the country you are selling products to. Each country has its own set of rules and regulations, and you need to be aware of them to avoid any issues. Also, choosing a reliable dropshipping supplier and the shipping method can also help you legally avoid additional customs fees on your dropshipping packages. let's see what tips we have for you.

 

Be Careful to Use Express Shipping Methods

 

Express shipping methods, such as DHL, UPS, FedEx, and TNT, are more likely to be inspected by customs officials compared to slower shipping methods, such as standard postal services. This is because express shipments are usually higher in value and are prioritized for faster delivery.

 

To avoid import tax issues with express shipping methods, it is recommended to choose a shipping method that is less likely to be inspected by customs. Or if you have to use express shipping methods for faster delivery, you can communicate with your customers about the potential for import taxes and help them understand their responsibilities.

 

Do Not Ship Multiple Products in Bundles

 

Import taxes mainly depends on the value of goods. Usually, Large packages containing multiple products are more likely to be inspected by customs because the value of the shipment may be above the threshold. So dropshipping sellers, if the customer purchases multiple products together, it is recommended to ask your supplier to break down large orders into multiple small packages to distribute the value of the goods across multiple shipments.

 

Be Transparent with Your Customers

 

Make sure you are transparent with your customers about any potential import taxes they may be responsible for. This can help avoid any issues with unhappy customers down the line. You can also collect import taxes and duties from your customers at checkout if necessary.

 

Hire an Accounting or Tax Professional

 

Hiring an accounting or tax professional can be a good strategy for avoiding import tax issues when dropshipping. An experienced professional can help you understand the tax laws and regulations in your country and the countries you are importing goods from. They can also help you identify potential issues and take steps to mitigate them.

 

How Does SourcinBox Work on Dropshipping Import Taxes?

 

Working with an all-around dropshipping agent is also one of the best ways to avoid tax issues on shipments. SourcinBox is a dropshipping agent from China who can take care of the whole processing of dropshipping from product sourcing to delivering the product to your end customer.

 

Let's see how can SourcinBox help you with customs clearance and avoid import tax issues of dropshipping.

 

Reliable Customs Clearance Services

 

You don't have to worry about customs clearance because we will handle it for you no matter which shipping method you choose. And you just need to simply provide the following information to us.

 

 • For Orders Shipping to EU Countries

 

If you have registered IOSS, you can add it to SourcinBox for customs clearance for your orders on SourcinBox. If you don't have an IOSS, we will deal with the customs clearance for you but we will also collect the tax payable from you.

 

 • For Orders Shipping to Brazil

 

To make sure that we can deliver your orders to Brazil, we'll need you to provide your customer's CPF number to SourcinBox. You can check our tutorial to collect your customer's CPF number at the checkout page of your Shopify store. After that, all the customer order information including the CPF number will be synchronized to SourcinBox so that we can use it for customs clearance.

 

But what you need to know is that the rate of random customs inspection on packages from abroad to Brazil is higher than before. If your package is unfortunately stopped at the inspection, you must notify your end customer to pay the relevant taxes before the package can pass smoothly.

Fewer Customs Issues and Delivery Delays

 

For dropshipping orders, usually the product values plus shipping are below the threshold of taxation. And we provide multiple cheap but fast shipping methods for different countries, which can reduce the risk of being inspected by customs.

 

Also, you can easily split large orders into small orders to spread the value of the order over multiple shipments to avoid extra import taxes.

 

Final Words

 

Dropshipping can be a profitable business model, but it is important to be aware of the potential for import tax issues. Import tax laws are required courses before you step into the dropshipping industry. And working with a reliable dropshipping supplier and choosing the right shipping method are the fellow steps to minimize the impact of import taxes on your bottom line.

 

You can sign up SourcinBox now to save more on your dropshipping cost and enjoy more stable and reliable order fulfillment services!