Dropshipping is one of the most popular e-commerce business models, but also one of the most misunderstood from a tax perspective. Many sellers think that not having a physical warehouse simplifies VAT management. In reality it’s the exact opposite: the tax flows are more complex and the pitfalls more numerous.
Dropshipping and VAT: why it’s complex
Dropshipping is a model where the seller sells products they don’t physically own: the order is forwarded to the supplier, who ships directly to the customer. From a tax perspective, though, there are two distinct, independent transactions: the sale from the supplier to the seller, and the sale from the seller to the end customer. Both have different VAT implications.
The most common mistake is treating dropshipping as simple intermediation. In reality, the dropshipping seller is, for tax purposes, the supplier of the goods to the end customer, with all the VAT obligations that entails — regardless of the fact that the goods never physically passed through their hands.
Scenario 1: Italian supplier, EU customer
The simplest case: the supplier is in Italy, the end customer is in another EU state.
- The supplier invoices the seller (a domestic Italian transaction, 22% VAT)
- The seller sells to the end consumer in Germany, France, etc.
- The sale is subject to the OSS scheme if total annual EU B2C sales exceed €10,000
- The seller must apply the VAT of the consumer’s destination country
The peculiarity of dropshipping is that the shipment happens directly from the supplier to the customer, but VAT invoicing follows the seller’s standard rules. The Italian supplier doesn’t invoice the foreign customer: it’s the seller who is treated as the final supplier.
Scenario 2: Chinese or non-EU supplier, EU customer
This is the most common scenario for those dropshipping on marketplaces like Amazon or eBay, but also the most complex:
- Goods shipped from China enter the EU through customs clearance
- If the parcel’s value is under €150, it can use the IOSS scheme
- If the value is over €150, customs duties and import VAT are due in the country of entry
Responsibility for the VAT return remains with the seller even when the goods never physically pass through Italy. If you sell to a French customer with shipping from China, you must apply French VAT on the sale — regardless of where your warehouse is.
Scenario 3: Dropshipping via marketplaces like Amazon
When selling through Amazon, the situation gets even more complicated because Amazon can act as deemed reseller for certain categories. In these cases:
- Amazon collects VAT directly from the customer
- Amazon remits it to the relevant tax authorities
- The seller has no direct obligations for those transactions
However, this rule mainly applies to non-EU sellers or specific situations defined by Amazon. For most Italian dropshipping sellers, the tax responsibility remains their own.
IOSS for dropshipping from non-EU countries
IOSS (Import One Stop Shop) is the scheme dedicated to sales of goods worth less than €150 imported from non-EU countries. It lets you:
- Declare and pay VAT for all EU countries through a single portal
- Simplify customs clearance: parcels with a valid IOSS number pass through customs without paying import VAT
- Issue an invoice with the consumer’s destination country’s VAT already included in the price
The IOSS number must be communicated to the Chinese supplier/freight forwarder, who includes it on the customs documentation.
Table of obligations by scenario
| Scenario | Applicable regime | Seller’s obligations |
|---|---|---|
| IT supplier → EU customer | OSS | OSS registration, quarterly return |
| Non-EU supplier → EU customer < €150 | IOSS | IOSS registration, monthly return |
| Non-EU supplier → EU customer > €150 | Import VAT | Customs handling, possible local VAT |
| Amazon deemed reseller | Handled by Amazon | Always check in the reports |
Typical tax mistakes in dropshipping
- Not registering for OSS when you exceed the €10,000 EU B2C sales threshold
- Always applying Italian VAT even on above-threshold sales to other EU countries
- Not tracking marketplace sales to distinguish the ones handled as deemed reseller
- Ignoring IOSS for imports under €150, risking double VAT (to the supplier + at customs)
- Not keeping documentation proving the end customer’s destination country
How to track VAT flows in dropshipping
The main challenge in dropshipping is that transactions are often fragmented across multiple platforms and suppliers. VATManager helps sellers:
- Import sales data from Amazon and other marketplaces
- Categorise transactions by destination country
- Automatically calculate the VAT due for each EU country
- Produce the quarterly OSS report ready for filing
Frequently asked questions
If the Chinese supplier ships directly to my European customer, who pays the customs VAT? It depends on the agreement with the supplier. If you use DDP (Delivered Duty Paid) terms, the supplier handles customs. If you use DDU/DAP, the customs VAT is charged to the customer on delivery — with a high risk of returns or complaints.
Do I need a customs representative in Europe for non-EU dropshipping? Not necessarily. Many international freight forwarders handle customs clearance as part of their service. With IOSS, the process is even simpler for parcels under €150.
Is dropshipping legal in all EU countries? Yes. There are no legal restrictions on the dropshipping model in the EU. The obligations are purely tax and customs related.
📎 Learn more: IOSS for e-commerce: when you actually need it — E-commerce VAT thresholds 2025-2026