Dropshipping/Reseller Tax/VAT liabilites

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direct11

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Hi

Can anyone tell me the tax/VAT implications for the dropshipping business model in Ireland.

For example, I want to run an ecommerce website based on Dropshipping.

I would not hold any products. I would take the orders and receive payment online. I would then order that product from a 'dropshipper' who would be a wholesaler who ships that product directly to the customer.

As I have not bought the product, but rather act like an 'agent' for the product, I was wondering would the applicable VAT be the service rate of 13% rather then the product rate of up to 23%.

Thanks in advance for any help
 
Are you actually acting as an agent for the wholesaler or is it just that you don't take delivery of the products.

If you are running a website and selling products which you order from a range of supplies, although you don't actually take delivery of the product then you have to account for VAT on the total sales with a deduction for on the purchases.

If you are acting for a wholesaler as their agent and this fact is disclosed to your customers then you account for VAT on the commission. Either way you will pay the higher rate as the reduced rate only applies to certain services not all services. Check out disclosed and non disclosed agents if you are acting as an agent.
 
Thanks for the help guys - if I can reply to both points here.

I used the word 'agent' as euphemism for the process. I would not actually be the wholesaler's contracted agent. I would have an ecommerce website with products offered by manufactorers of those products. I would hold no stock. I am interested in a dropshipping method where I have an arrangement (not a contract) that if one of their products are bought then I can order by the single unit and for that unit to be posted direct to the customer.

I have no contract or commitment to buy. I would only be ordering by the product when it's ordered from my site. When someone pays for the product on site, that order can be immediately orderered from manufacturer. That company would then send that product directly to customer. I would not handle it.

It is a business model to avoid stock holding & related expenses. For VAT purpose I was just wondering that as I have not 'bought' the product and then resold it as a usual business model, then perhaps I may get the VAT rate for a 'Service' business. I am effectively acting like an agent if you see what I mean.

Thanks in advance for extra help.
 
But you have in fact bought the product from the wholesaler and sold it to the customer. The fact that it is shipped directly to the customer in this case is irrelevant.

The wholesaler will invoice you for the cost of the product plus shipping and you will invoice the customer for the cost plus shipping.

You account for VAT on total sales at the rate applicable to the product you are selling and get a deduction for VAT on purchases.

I can see the point you are trying to make but I don't think your view is correct that you are not buying from the wholesaler.
 
I see what you mean Joe yes. Probably that is how Revenue will view it. Although you could view it another way and that is that I only pay the supplier the portion they are due when the product goes out and withholding my 'commission' which includes VAT.

I suppose the only way around it would be to make a website stating explicitly that this was a finders service but that doesnt present well on viewing!!
 
But you are not 'withholding' anything from them? You are paying their invoice in full and you make your money from the higher price you charge to your own customer.
 
direct11 said:
so its definitely the higher rate then?!?!
Click to expand...

Yes!

And by the way, even IF you were acting as a commission agent (which you aren't), the rate of VAT would still be 23%.

To help you to try to understand why you aren't an agent - who decides how much you charge the final customer on your website for the good? And if the good doesn't arrive to the final customer, under consumer law, who do they have recourse to?
 
Yes I see alright.

Hypothetically though ( and I won't be doing this) you could design a site where you are advertising company's goods and making it clear you are a 'portal' for them. The prices could be the ones they sell at wholesale/dropship rate. It would be clear you are ordering straight from the company. The website could then track purchases to that company and go to the company for commission after the sale. It would be made clear to the customer that you are dealing direct with that wholesaler/shipper etc and the website is just a finders service.

Where would VAT apply here? Hypothetically the wholesaler would have to apply it. My commission would also maybe subject to VAT at service rate?
 
What is this magical "service rate" you keep talking about?! You'll be on the hook for 23% of your profit/"commission" either way...!
 
@direct11 appears to think that all services (because repairs, electricians ect are) are chargeable at 13.5%.

The list of services chargeable at 23% is extensive.
 
Hi.

I'd like to revive this thread to see if anymore info has came up as this is a relatively "new" topic.
How is vat paid on the product?
Do I add VAT into the pricing of the products, or I pay VAT to the revenue with tax form?

Thank you.
 
Hi . I am also new to vat and trying to understand in the context of dropshipping. For example if I register for vat and purchase the product in the UK and pay 20% vat on purchase, but because I am Irish registered company, I will pay 23% to Revenue on sales. This is a significant differential. I presume I can only claim back the difference.

Can you claim back the vat on the start up expenses of a business before you have made any sales, i.e. are expenses treated the same as if they were a purchase of stock or can you claim the vat back back before you make sales. Many thanks
 
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