Tax Consultants for Dropshipping: hellotax helps you to stay VAT compliant

Please check our latest article on dropshipping

If you don’t run a warehouse and don’t want to bother with shipping products to customers, dropshipping may be an option for you. This is particularly interesting for e-commerce newcomers. However, running this type of business requires some tax know-how. In this article, we explain how you can master dropshipping, profit from a specialized tax consultant, and not overlook any stumbling blocks.

Does a tax consultant make sense for dropshipping?

You have registered the business, a producer has been found, the samples look promising and your listings on Amazon, Ebay, or in your own online shop are live. Since you have opted for dropshipping, from now on you will forward all incoming orders directly to the wholesaler. This sends the goods in your name – and you can put your profit directly into the further development of new products and strategies instead of having to use it to procure goods.

So far so good, but are you in good shape from a VAT perspective? There are some nasty pitfalls here that can be dangerous for sellers with a dropshipping business. It can therefore make sense to continuously consult with a tax advisor before starting your business and while running it. 

This is exactly what hellotax is there for. We will discuss the dropshipping business model with you and point out all sales tax obligations. We also take care of all the necessary registrations, filings, advance sales tax returns, and more. So you can concentrate fully on building your business and we, as your VAT consultant for dropshipping, will take care of the rest and make sure that you remain VAT compliant.

Tax rules and pitfalls that you need to know  

As with any business, a dropshipping sale is subject to income tax as soon as the total of all income exceeds the allowance. The German limit, for example, was set at 9,984 euros in 2022. If your turnover is low, you can be exempt from VAT – the limit here is 22,000 euros.

Whether you have to pay taxes for sales to other EU countries, a so-called intra-community delivery, depends on whether you sell to private or to B2B customers. You should also check whether you may need to register for tax purposes abroad. Import VAT may apply if you purchase goods from a third country – this is the case for products from China, for example. And: For export deliveries to non-EU countries, your VAT exemption must be noted on the invoice.

Ultimately, the VAT situation when dropshipping is not as uncomplicated as the business model sounds. Especially if you want to scale your business in terms of product range and delivery locations. For starters, many dropshippers limit themselves to one country and a few products in order to get an overview of what is actually important from a tax perspective.

A tax advisor can help!

Even if you are just starting out and are unsure about how to set up your dropshipping business, it is a good idea to talk to an accountant. In this way, you can learn which business is best suited to your entrepreneurial intentions and ideas. You can then report to the trade office and register your business.

You can easily deal with questions from the tax office with professional help since good tax advisors can prepare all necessary documents and declarations and submit them in your stead. If an important document is missing from the income tax or VAT return, you will be informed. You can even hand over the entire bookkeeping to an expert so that there are no problems with the accounting due to missing receipts. Otherwise, you could end up in a lot of trouble and high fees later on during a tax audit.

The services of a tax advisor can also include reminders to submit VAT returns and to pay an advance income tax payment. This gives you more time for your business and you don’t have to think about as many tax aspects. With a little patience, you can also read up on these topics and take care of them yourself – the more complex your business, the more time you need.

Typical operating costs are:

• Office supplies, tools, and subscriptions (e.g. for Shopify)
• Costs for staff maintaining your webshop
• input tax
• further education
• Costs for postage, internet, and telephone
• Website domain cost
• Books and other business literature
• depreciation

Tip: The taxable income is calculated by subtracting the annual operating expenses from the income. The more operating costs you have, the lower the income tax payment.

Find a competent accountant for Dropshipping and Shopify

Of course, it is best if your accountant is familiar with dropshipping AND Shopify. Because the cloud-based commerce platform for small and medium-sized companies may already be used by you. If not, the basics are briefly explained here: For a manageable monthly fee, you get access to an admin panel with which you can intuitively manage and customize your own online shop. Opening a simple webshop only takes a few minutes.

Thanks to many templates, your products will be well presented. You can also work with apps made available to you by Shopify and third-party providers. Among other things, you have the opportunity to easily become a multichannel seller, since your products can be effortlessly transformed into listings on Amazon, Ebay, Etsy, and Co. Just as important as the look are reliable updates for optimal protection of customer data and stable servers that don’t let you down even on important sales days like Black Friday.

Here’s how Shopify can also support your business offline:

• Customers can view goods in your store and buy them online
• It is also possible to order online and pick it up at a brick-and-mortar store
• The clever POS system lets you email visitors their favorite products

A tax advisor keeps track of everything for you

Multichannel sales are the optimal solution to quickly generate a lot of sales. But it also means that you have to keep an overview on several platforms at the same time. Different taxes and fees are incurred with different payment options, what should you watch out for with pan-EU shipping and VAT, where can input tax deduction be claimed, and which costs can you write off – the list of potential tax issues and questions is long.

A tax consultant can give you valuable tips, organize the supposed chaos for you and prepare all data and documents in an understandable way. If you tackle it together with a compatible Shopify merchandise management system, business evaluations can even be exported in no time at all.

Tip: With hellotax you can save yourself the task of creating VAT returns. Complete your applications for all the necessary VAT numbers all-in-one for you and automate the submission of advance VAT returns. With a team of tax consultants operating throughout Europe who are very familiar with local tax laws, you do not have to read up on country-specific delivery thresholds, deadlines, and VAT peculiarities yourself.

Conclusion

We hope that our tax advisor and dropshipping tips have shed some light on your situation. If a financial expert knows the specifics of drop shipping, he can provide you with even more targeted support. So it’s best to look out for someone who really understands e-commerce. You can search the web directly for law firms or self-employed tax consultants who are well versed in the special needs of online sellers.