Dropshipping Taxes: Everything You Need to Know

Starting a dropshipping business is exciting: no inventory, low investment, and a scalable business model. But when it comes to taxes, it’s a whole different story… VAT, sales tax, income tax, customs duties – How do you stay on track? And above all, how do you avoid mistakes that can cost you a lot?

Dropshipping Taxes: Everything You Need to Know

Starting a dropshipping business is exciting: no inventory, low investment, and a scalable business model. But when it comes to taxes, it’s a whole different story… VAT, sales tax, income tax, customs duties – How do you stay on track? And above all, how do you avoid mistakes that can cost you a lot?

Dropshipping Taxes: Everything You Need to Know

Starting a dropshipping business is exciting: no inventory, low investment, and a scalable business model. But when it comes to taxes, it’s a whole different story… VAT, sales tax, income tax, customs duties – How do you stay on track? And above all, how do you avoid mistakes that can cost you a lot?

Dropshipping Taxes: Everything You Need to Know

Starting a dropshipping business is exciting: no inventory, low investment, and a scalable business model. But when it comes to taxes, it’s a whole different story… VAT, sales tax, income tax, customs duties – How do you stay on track? And above all, how do you avoid mistakes that can cost you a lot?

Dropshipping Taxes: Everything You Need to Know

Starting a dropshipping business is exciting: no inventory, low investment, and a scalable business model. But when it comes to taxes, it’s a whole different story… VAT, sales tax, income tax, customs duties – How do you stay on track? And above all, how do you avoid mistakes that can cost you a lot?

Dropshipping Taxes: Everything You Need to Know

Starting a dropshipping business is exciting: no inventory, low investment, and a scalable business model. But when it comes to taxes, it’s a whole different story… VAT, sales tax, income tax, customs duties – How do you stay on track? And above all, how do you avoid mistakes that can cost you a lot?

Understanding Dropshipping Taxes

Earning money without the need for inventory, a physical store, or managing logistics – sounds like a dream, right? But like any e-commerce business, dropshipping is subject to tax laws. Income tax, VAT, dropshipping sales tax, customs duties – if you don’t master these concepts, you could make costly mistakes.

What Are the Dropshipping Taxes?

It’s often said that dropshipping is an easy business model with no constraints. However, just because you don’t store the products yourself doesn’t mean you’re exempt from taxes. Your status, location, and your customers’ location determine which taxes you need to collect and pay.

Here are the main taxes you need to know in dropshipping:

Income Tax: Like any entrepreneur, you must declare your profits and pay taxes on them.
Sales Tax (or VAT in Europe): A tax that you collect on each sale and then remit to the tax authorities.
Customs Duties: A tax that applies when you import products from a country outside of your tax zone (e.g: outside the EU).
Withholding Tax (Source Tax): Some suppliers apply a tax on purchases made by resellers.

These taxes don’t apply the same way everywhere. In France and EU member states, you need to manage EU VAT. In the United States, the sales tax depends on the States and your tax nexus.

If you’re in dropshipping, it’s essential to understand how much tax you need to pay yourself and what you need to collect from your customers.

Understanding Dropshipping Taxes

Earning money without the need for inventory, a physical store, or managing logistics – sounds like a dream, right? But like any e-commerce business, dropshipping is subject to tax laws. Income tax, VAT, dropshipping sales tax, customs duties – if you don’t master these concepts, you could make costly mistakes.

What Are the Dropshipping Taxes?

It’s often said that dropshipping is an easy business model with no constraints. However, just because you don’t store the products yourself doesn’t mean you’re exempt from taxes. Your status, location, and your customers’ location determine which taxes you need to collect and pay.

Here are the main taxes you need to know in dropshipping:

Income Tax: Like any entrepreneur, you must declare your profits and pay taxes on them.
Sales Tax (or VAT in Europe): A tax that you collect on each sale and then remit to the tax authorities.
Customs Duties: A tax that applies when you import products from a country outside of your tax zone (e.g: outside the EU).
Withholding Tax (Source Tax): Some suppliers apply a tax on purchases made by resellers.

These taxes don’t apply the same way everywhere. In France and EU member states, you need to manage EU VAT. In the United States, the sales tax depends on the States and your tax nexus.

If you’re in dropshipping, it’s essential to understand how much tax you need to pay yourself and what you need to collect from your customers.

Understanding Dropshipping Taxes

Earning money without the need for inventory, a physical store, or managing logistics – sounds like a dream, right? But like any e-commerce business, dropshipping is subject to tax laws. Income tax, VAT, dropshipping sales tax, customs duties – if you don’t master these concepts, you could make costly mistakes.

What Are the Dropshipping Taxes?

It’s often said that dropshipping is an easy business model with no constraints. However, just because you don’t store the products yourself doesn’t mean you’re exempt from taxes. Your status, location, and your customers’ location determine which taxes you need to collect and pay.

Here are the main taxes you need to know in dropshipping:

Income Tax: Like any entrepreneur, you must declare your profits and pay taxes on them.
Sales Tax (or VAT in Europe): A tax that you collect on each sale and then remit to the tax authorities.
Customs Duties: A tax that applies when you import products from a country outside of your tax zone (e.g: outside the EU).
Withholding Tax (Source Tax): Some suppliers apply a tax on purchases made by resellers.

These taxes don’t apply the same way everywhere. In France and EU member states, you need to manage EU VAT. In the United States, the sales tax depends on the States and your tax nexus.

If you’re in dropshipping, it’s essential to understand how much tax you need to pay yourself and what you need to collect from your customers.

Understanding Dropshipping Taxes

Earning money without the need for inventory, a physical store, or managing logistics – sounds like a dream, right? But like any e-commerce business, dropshipping is subject to tax laws. Income tax, VAT, dropshipping sales tax, customs duties – if you don’t master these concepts, you could make costly mistakes.

What Are the Dropshipping Taxes?

It’s often said that dropshipping is an easy business model with no constraints. However, just because you don’t store the products yourself doesn’t mean you’re exempt from taxes. Your status, location, and your customers’ location determine which taxes you need to collect and pay.

Here are the main taxes you need to know in dropshipping:

Income Tax: Like any entrepreneur, you must declare your profits and pay taxes on them.
Sales Tax (or VAT in Europe): A tax that you collect on each sale and then remit to the tax authorities.
Customs Duties: A tax that applies when you import products from a country outside of your tax zone (e.g: outside the EU).
Withholding Tax (Source Tax): Some suppliers apply a tax on purchases made by resellers.

These taxes don’t apply the same way everywhere. In France and EU member states, you need to manage EU VAT. In the United States, the sales tax depends on the States and your tax nexus.

If you’re in dropshipping, it’s essential to understand how much tax you need to pay yourself and what you need to collect from your customers.

Understanding Dropshipping Taxes

Earning money without the need for inventory, a physical store, or managing logistics – sounds like a dream, right? But like any e-commerce business, dropshipping is subject to tax laws. Income tax, VAT, dropshipping sales tax, customs duties – if you don’t master these concepts, you could make costly mistakes.

What Are the Dropshipping Taxes?

It’s often said that dropshipping is an easy business model with no constraints. However, just because you don’t store the products yourself doesn’t mean you’re exempt from taxes. Your status, location, and your customers’ location determine which taxes you need to collect and pay.

Here are the main taxes you need to know in dropshipping:

Income Tax: Like any entrepreneur, you must declare your profits and pay taxes on them.
Sales Tax (or VAT in Europe): A tax that you collect on each sale and then remit to the tax authorities.
Customs Duties: A tax that applies when you import products from a country outside of your tax zone (e.g: outside the EU).
Withholding Tax (Source Tax): Some suppliers apply a tax on purchases made by resellers.

These taxes don’t apply the same way everywhere. In France and EU member states, you need to manage EU VAT. In the United States, the sales tax depends on the States and your tax nexus.

If you’re in dropshipping, it’s essential to understand how much tax you need to pay yourself and what you need to collect from your customers.

Understanding Dropshipping Taxes

Earning money without the need for inventory, a physical store, or managing logistics – sounds like a dream, right? But like any e-commerce business, dropshipping is subject to tax laws. Income tax, VAT, dropshipping sales tax, customs duties – if you don’t master these concepts, you could make costly mistakes.

What Are the Dropshipping Taxes?

It’s often said that dropshipping is an easy business model with no constraints. However, just because you don’t store the products yourself doesn’t mean you’re exempt from taxes. Your status, location, and your customers’ location determine which taxes you need to collect and pay.

Here are the main taxes you need to know in dropshipping:

Income Tax: Like any entrepreneur, you must declare your profits and pay taxes on them.
Sales Tax (or VAT in Europe): A tax that you collect on each sale and then remit to the tax authorities.
Customs Duties: A tax that applies when you import products from a country outside of your tax zone (e.g: outside the EU).
Withholding Tax (Source Tax): Some suppliers apply a tax on purchases made by resellers.

These taxes don’t apply the same way everywhere. In France and EU member states, you need to manage EU VAT. In the United States, the sales tax depends on the States and your tax nexus.

If you’re in dropshipping, it’s essential to understand how much tax you need to pay yourself and what you need to collect from your customers.

Taxes Collected vs. Taxes Paid: Understanding the Difference

Many dropshippers make the mistake of confusing the taxes they need to pay with those they need to collect.

Tax Collected

These are the taxes you add to the sale prices and then remit to tax authorities. Example: If you charge VAT in Europe or sales tax in the United States, this is not money that belongs to you, but rather an amount you collect for the tax administration.

Tax Paid

These are dropshipping taxes that directly affect your business: pay income taxes, customs duties, or any withholding taxes applied by your suppliers.

Let’s look at a concrete example:

You sell a product for €100 to a French customer. If your business is registered in France and you’re subject to EU VAT, you need to apply a 20% VAT rate, making the total €120. Out of this €120, you must remit €20 to the tax administration.

You purchase this same product for €50 from a Chinese supplier.

If the order goes through customs and customs duties of 10% apply, you’ll pay €55 in total for the product.

At the end, you will have:

Collected €20 in VAT to remit.
Paid €55 for the product (price + import taxes).
Made €100 in revenue, alongside a resale certificate, on which you’ll be taxed at the end of the year.

Taxes Collected vs. Taxes Paid: Understanding the Difference

Many dropshippers make the mistake of confusing the taxes they need to pay with those they need to collect.

Tax Collected

These are the taxes you add to the sale prices and then remit to tax authorities. Example: If you charge VAT in Europe or sales tax in the United States, this is not money that belongs to you, but rather an amount you collect for the tax administration.

Tax Paid

These are dropshipping taxes that directly affect your business: pay income taxes, customs duties, or any withholding taxes applied by your suppliers.

Let’s look at a concrete example:

You sell a product for €100 to a French customer. If your business is registered in France and you’re subject to EU VAT, you need to apply a 20% VAT rate, making the total €120. Out of this €120, you must remit €20 to the tax administration.

You purchase this same product for €50 from a Chinese supplier.

If the order goes through customs and customs duties of 10% apply, you’ll pay €55 in total for the product.

At the end, you will have:

Collected €20 in VAT to remit.
Paid €55 for the product (price + import taxes).
Made €100 in revenue, alongside a resale certificate, on which you’ll be taxed at the end of the year.

Taxes Collected vs. Taxes Paid: Understanding the Difference

Many dropshippers make the mistake of confusing the taxes they need to pay with those they need to collect.

Tax Collected

These are the taxes you add to the sale prices and then remit to tax authorities. Example: If you charge VAT in Europe or sales tax in the United States, this is not money that belongs to you, but rather an amount you collect for the tax administration.

Tax Paid

These are dropshipping taxes that directly affect your business: pay income taxes, customs duties, or any withholding taxes applied by your suppliers.

Let’s look at a concrete example:

You sell a product for €100 to a French customer. If your business is registered in France and you’re subject to EU VAT, you need to apply a 20% VAT rate, making the total €120. Out of this €120, you must remit €20 to the tax administration.

You purchase this same product for €50 from a Chinese supplier.

If the order goes through customs and customs duties of 10% apply, you’ll pay €55 in total for the product.

At the end, you will have:

Collected €20 in VAT to remit.
Paid €55 for the product (price + import taxes).
Made €100 in revenue, alongside a resale certificate, on which you’ll be taxed at the end of the year.

Taxes Collected vs. Taxes Paid: Understanding the Difference

Many dropshippers make the mistake of confusing the taxes they need to pay with those they need to collect.

Tax Collected

These are the taxes you add to the sale prices and then remit to tax authorities. Example: If you charge VAT in Europe or sales tax in the United States, this is not money that belongs to you, but rather an amount you collect for the tax administration.

Tax Paid

These are dropshipping taxes that directly affect your business: pay income taxes, customs duties, or any withholding taxes applied by your suppliers.

Let’s look at a concrete example:

You sell a product for €100 to a French customer. If your business is registered in France and you’re subject to EU VAT, you need to apply a 20% VAT rate, making the total €120. Out of this €120, you must remit €20 to the tax administration.

You purchase this same product for €50 from a Chinese supplier.

If the order goes through customs and customs duties of 10% apply, you’ll pay €55 in total for the product.

At the end, you will have:

Collected €20 in VAT to remit.
Paid €55 for the product (price + import taxes).
Made €100 in revenue, alongside a resale certificate, on which you’ll be taxed at the end of the year.

Taxes Collected vs. Taxes Paid: Understanding the Difference

Many dropshippers make the mistake of confusing the taxes they need to pay with those they need to collect.

Tax Collected

These are the taxes you add to the sale prices and then remit to tax authorities. Example: If you charge VAT in Europe or sales tax in the United States, this is not money that belongs to you, but rather an amount you collect for the tax administration.

Tax Paid

These are dropshipping taxes that directly affect your business: pay income taxes, customs duties, or any withholding taxes applied by your suppliers.

Let’s look at a concrete example:

You sell a product for €100 to a French customer. If your business is registered in France and you’re subject to EU VAT, you need to apply a 20% VAT rate, making the total €120. Out of this €120, you must remit €20 to the tax administration.

You purchase this same product for €50 from a Chinese supplier.

If the order goes through customs and customs duties of 10% apply, you’ll pay €55 in total for the product.

At the end, you will have:

Collected €20 in VAT to remit.
Paid €55 for the product (price + import taxes).
Made €100 in revenue, alongside a resale certificate, on which you’ll be taxed at the end of the year.

Taxes Collected vs. Taxes Paid: Understanding the Difference

Many dropshippers make the mistake of confusing the taxes they need to pay with those they need to collect.

Tax Collected

These are the taxes you add to the sale prices and then remit to tax authorities. Example: If you charge VAT in Europe or sales tax in the United States, this is not money that belongs to you, but rather an amount you collect for the tax administration.

Tax Paid

These are dropshipping taxes that directly affect your business: pay income taxes, customs duties, or any withholding taxes applied by your suppliers.

Let’s look at a concrete example:

You sell a product for €100 to a French customer. If your business is registered in France and you’re subject to EU VAT, you need to apply a 20% VAT rate, making the total €120. Out of this €120, you must remit €20 to the tax administration.

You purchase this same product for €50 from a Chinese supplier.

If the order goes through customs and customs duties of 10% apply, you’ll pay €55 in total for the product.

At the end, you will have:

Collected €20 in VAT to remit.
Paid €55 for the product (price + import taxes).
Made €100 in revenue, alongside a resale certificate, on which you’ll be taxed at the end of the year.

Income Tax in Dropshipping

Like any business activity, dropshipping generates income, and this income is taxable. Income tax is one of the main tax obligations you face as a dropshipper.

How Does Income Tax Work for Dropshippers?

Income tax in dropshipping depends on several factors:

Your legal status: sole proprietor, company, freelancer, etc.
The country where you are registered: tax rates vary from country to country.
Your revenue and profits: the more you earn, the higher your tax burden.

For example, in France, if you are a sole proprietor, you are subject to a flat-rate tax that includes both income tax and social security contributions. For a company (SASU, EURL, etc.), the tax is calculated on net profits, either through corporate tax or income tax, depending on the option you choose.

In the United States, dropshippers must declare their income to the IRS. Depending on your business structure (LLC, sole proprietorship, corporation), VAT rules vary.

How to Calculate Income Tax in Dropshipping?

Income tax is calculated based on your net profit, which is your revenue minus expenses.

Example:

You make €100,000 in revenue.
You have €30,000 in expenses (advertising, Shopify subscription, transaction fees, cost of goods sold, etc.).
Your net profit is €70,000.

The tax is then calculated on this €70,000, according to the applicable tax rate for your status and country.

In France, a sole proprietor may pay a 12.8% flat-rate tax on revenue (plus social security contributions). A company pays tax on net profit, with corporate tax rates starting at 15% up to €42,500, then 25% beyond that.

How to Legally Optimize and Reduce Income Tax?

There are several strategies to optimize your dropshipping taxes:

Dropshipping tax calculator: deduct all possible expenses through Facebook ads, software (Shopify SEO tools), transaction fees, subscriptions, suppliers, etc.
Choose the right legal status: a company may offer better tax optimization compared to a sole proprietorship.
Open a special business bank account: better accounting management helps predict income tax payments and avoid unpleasant surprises.
Invest in your business: reinvesting in advertising or e-commerce tools can reduce your taxable profits.
Consult an accountant: seek professional advice if your business takes off to structure your finances effectively.

Sales Tax and Dropshipping VAT

When a customer buys a product, a tax may apply to the sale. Depending on the country you’re selling in, dropshipping taxes take different forms:

VAT (Value Added Tax) in the EU country..
Sales tax in the United States and Canada.

Each region has its own rules, making it difficult for dropshippers selling internationally.

How does dropshipping taxes Europe work?

In Europe, every sale to an end customer is subject to VAT. If you sell in France, you apply a 20% French VAT rate on your products. But if you sell to a customer in Germany, the German VAT rate applies.

Since July 2021, the €10,000 threshold has been removed, and all online stores must charge sales tax based on the customer's country from the first sale.

Dropshippers can simplify this management through the VAT One-Stop Shop (OSS), which allows them to declare and pay VAT for all EU countries in one place.

Sales Tax in the United States: A Complex System

In the United States, sales tax does not automatically apply to the entire process. It depends on your tax nexus, which refers to your connection with a state:

If you have a physical nexus (office, warehouse, employees), you must source tax from that state.
If you exceed a revenue threshold in a state (usually $100,000 or 200 transactions), you must also collect dropshipping sales tax there.

Each state sets its own rules and tax rates, ranging from 0% to 11%.

How to Collect and Declare These Taxes?

Platforms like Shopify, WooCommerce, and other e-commerce platforms help automate VAT and sales tax collection. -using the dropshipping tax calculator.
In Europe, the OSS registration simplifies the declaration process.

Outside the EU, tools like TaxJar or Avalara assist in managing state-by-state tax obligations.

Ignoring these dropshipping taxes can lead to penalties, so it’s vital to understand when and where you need to collect them.

Customs Duties and Import Taxes in Dropshipping

Importing dropshipping products seems simple on paper: your supplier in China or in non EU countries sends the order directly to your end customer. But in practice, some packages can be held up in customs, and additional fees may apply.

Many dropshippers overlook this aspect, often leaving the final customer to pay these fees upon delivery. The result? Unhappy customers, forced refunds, and repeated disputes.

Why Are Some Packages Taxed and Others Not?

Customs duties and import dropshipping taxes are calculated based on several criteria:

The package value: In Europe, for example, orders below €150 are exempt from customs duties but still subject to VAT. In the United States, imports under $800 are usually not taxed.
The type of product: Certain items, such as electronics or cosmetics, have higher tax rates.
The country of origin: Some trade agreements allow for reduced or exempt taxes on certain imported products.

But what dropshippers really want to know is who pays these dropshipping taxes and how to avoid them.

Who Pays Customs Duties in Dropshipping?

In dropshipping, the final customer is often the one responsible for paying customs duties upon delivery. However, many customers are unaware of this and might refuse to pay, which can block delivery and cause disputes.

Some suppliers, especially on e-commerce platforms like AliExpress, mark packages as "gifts" or declare a lower value to avoid taxes. While this may work in the short term, it’s risky in the long run. If the package is inspected, it might be blocked or destroyed, causing harm to your business.

Dropshipping sales tax: How to Avoid Bad Surprises?

To prevent your customers from facing hidden fees at delivery, here are some best practices:

Be transparent with your customers: Clearly state in your terms and conditions that customs fees may apply. This helps avoid disputes and protects your reputation.
Use suppliers with local warehouses: Some suppliers offer stock in Europe, the United States, or Canada. Although the price is slightly higher, you completely avoid customs fees for your customers.
Check the sales tax rates before shipping: If you’re selling an expensive product, check the customs rules of your customer’s country. Tools like TARIC (Europe) or USITC (United States) provide the exact tax rates by product.
Choose the right Incoterm: In dropshipping, the most common term is DAP (Delivered At Place), where the customer handles the customs fees. However, to offer a better customer experience, you can opt for DDP (Delivered Duty Paid) and pay dropshipping sales tax fees in advance.

It’s better to foresee these costs than to leave your customers with unpleasant surprises. Proper management of import taxes will help you avoid disputes, improve the shopping experience, and build trust with your customers.

Invoices and Documents in Dropshipping Taxes

When talking about dropshipping taxes, people often think of taxes and duties… but there’s another key point: managing invoices and tax documents. Managing these documents poorly can lead to issues with tax authorities, disputes with customers, and problems with your supplier.

If you want to avoid problems and manage your business properly, here’s everything you need to know.

Who Should Issue the Invoice in Dropshipping?

This is a key question, and many dropshippers fail to let their supplier handle the invoices. Bad idea! As the seller, you are responsible for invoicing your customer.

The customer buys from your dropshipping store → You need to issue an invoice.
You buy from your supplier → They send you a purchase invoice.

This means you must issue a drop shipping commercial invoice for each sale, even if your supplier is the one shipping the product.

What Should an Invoice Include?

A proper drop shipping commercial invoice include mandatory details:

Your business information (name, address, Aliexpress VAT number if applicable).
The customer’s information (name, address).
A detailed description of the product sold (name, quantity, unit price).
The total amount with and without dropshipping sales taxes (VAT if applicable).
A unique and sequential invoice number.

If you are selling internationally, it’s also recommended to issue drop shipping invoices in English… and in the currency of the chain transaction.

Should You Include a Drop Shipping Invoice in the Package?

The answer depends on the shipping method and the supplier.

AliExpress and other Asian suppliers: Generally, no paper invoice is included in the package, which can be problematic if the customer requests one.
European or American suppliers: Some include a drop shipping invoice, but it’s often in the supplier’s name, not the dropshipper’s.

In all cases, it’s better to offer a downloadable invoice directly on your website or send it via email after the order.

How to Automate Drop Shipping Commercial Invoice?

Manually creating invoices for each order can quickly become a nightmare. Luckily, there are tools that automate the drop shipping invoice creation and sending process:

Shopify: Has apps like Sufio, Order Printer Pro, or Invoice Falcon to create and automatically send invoices to customers.
WooCommerce: Plugins like WooCommerce PDF Invoices & Packing Slips to create compliant drop shipping invoices.
Accounting systems (QuickBooks, Sage, Zoho Books): Allow you to integrate invoicing directly into your accounting management.

These solutions save time and ensure dropshipping VAT compliance with current tax regulations. Proper invoice management avoids administrative issues and builds customer trust.

Optimizing Dropshipping taxes Management

Dropshipping taxes can quickly become a headache. Too many entrepreneurs end up with tax surprises because they don’t know what to pay or how to optimize it. Yet good news: there are simple and 100% legal ways to pay less while staying compliant.

Choose the Right Business Status: Don’t Get Trapped in the Wrong System

The status of your business plays a huge role in your tax situation. Many people start as self-employed because it’s simple, but it’s not always the best solution when your business takes off.

Self-employed: Easy to manage, but watch out for limits and flat-rate taxation (which can be a trap if your margins are low).
SASU/EURL (Dropshipping Taxes Europe): More paperwork, but allows for more expense deductions and better tax optimization.
LLC in the USA: If you sell mostly to the US, this can be an interesting option, but you need to fully understand how dropshipping taxes work..

Takeaway: If you’re just making a few sales, being self-employed might be enough. But if your business starts making significant income, switching to a company structure will save you a lot on dropshipping taxes in the long run.

Deduct Your Expenses: Stop Paying More Than Necessary

One of the biggest mistakes in dropshipping is failing to declare expenses. However, every euro you invest in your business can be deducted from your taxes:

Facebook, TikTok, Google Ads ads → 100% deductible.
Shopify fees, WooCommerce, softwares, subscriptions.
Stripe, PayPal commissions, bank fees.
Product costs and shipping fees.
Training, seminars, e-commerce events.

The more expenses you deduct, the less tax you pay on your profits.

Manage VAT and Sales Tax without the Hassle

If you’re selling internationally, you need to manage VAT regulations and dropshipping sales tax smartly.

In EU countries: The IOSS (One-Stop-Shop) helps centralize VAT management for all your sales in the EU. A must in this particular state.
In the USA: Sales tax varies by state, and it can get worse. Automate with TaxJar or Avalara to avoid errors.
Ship from Local Warehouses: Avoid VAT and customs fees for your customers by sourcing from suppliers with warehouses in Europe or the US.

Automate to Save Time

No one wants to spend their days managing invoices and file taxes. Luckily, there are tools that handle the work for you:

QuickBooks, Xero, Zoho Books → For automated accounting management and dropshipping tax calculator.
Sufio, Order Printer Pro (Shopify) → To automatically create and send invoices.
TaxJar, Avalara → To automate sales tax collection and filing VAT returns in the USA.

Dropshipping Taxes: The Worst Mistakes to Avoid

Taxes are tricky enough… so avoid these common mistakes that can cost you dearly.

Not Collecting VAT or Sales Tax

Thinking you can avoid taxes and collect revenue quietly in dropshipping? Bad idea.

In Europe: Any sale to a final consumer is subject to VAT. Not charging it can lead to tax audits.
In the USA: If you have a tax nexus in a state, you must collect dropshipping sales tax there.

Make sure to verify your tax obligations and use tools like TaxJar or Avalara to automate collection.

Not Declaring Your Income

Thinking you can pocket 'easy money' from dropshipping taxes without declaring? Not a good idea.

Payment platforms (Stripe, PayPal…) report your income to the tax authorities.
A simple audit can cost you a lot in back taxes and penalties.

It’s essential to declare your income and keep your books updated with a tool like QuickBooks or Xero.

Letting Your Supplier Handle Invoicing

It’s your dropshipping store, and you’re selling to the end customer, so you’re the one who needs to issue the invoice, not your supplier.

Many dropshippers rely on AliExpress tax refund system or Alibaba, but these platforms don’t issue invoices in your name. You’re in for trouble if a B2B customer or local governments request one.

Using a tool like Sufio, Order Printer Pro (Shopify), or WooCommerce PDF Invoices can automate this task and avoid issues.

Ignoring Customs Duties and Import Taxes

Your customers order, and surprise! The package gets stuck at customs with additional fees. Who pays?

If you sell under DAP (Delivered At Place) → The customer pays the customs fees. Bad experience if they weren’t informed.
If you sell under DDP (Delivered Duty Paid) → You cover the costs, but these must be planned in advance.

Add a clear disclaimer on your website explaining that import VAT may apply, or work with suppliers who have local warehouses to avoid these fees.

Not Optimizing Your Tax Situation

Too many dropshippers pay more taxes than necessary because they don’t deduct their expenses.

Facebook Ads, Shopify, Stripe, training… All of that is deductible.
Staying self-employed too long can cost more than setting up a well-optimized business.

It’s essential to maximize your deductions and consider a more profitable legal status if your business grows.

Conclusion

Managing dropshipping taxes is a key step to avoid bad surprises and maximize profits. Here’s what to keep in mind:

Income Declaration: You must declare your income, even if you’re selling only online.
Dropshipping VAT and Sales Tax: Know your sales and VAT obligations based on your country and use tools to automate collection.
Customs Duties: Inform your final customers or choose suppliers with local warehouses.
Invoicing: It’s up to you to issue a compliant drop shipping commercial invoice, not your supplier.
Tax Optimization: Deduct your expenses and choose the right business status to pay less taxes.

By applying these best practices, you avoid common mistakes and manage your business professionally and profitably.

FAQ on Dropshipping Taxes

How to Recover Dropshipping VAT?

If you purchase products from suppliers outside the EU, you will pay import VAT. To recover it, you need to:

Be VAT-registered and have an intra community regular or Aliexpress VAT number.
Include VAT perspective on your invoices and account for it in your VAT returns.
Use the reverse charge mechanism if you buy from a European supplier.

If you're using the IOSS (One-Stop-Shop), VAT is collected directly on your sales, to smoothen the entire process.

How to Declare Income in Dropshipping Taxes?

All income earned from drop shipping must be declared to the tax authorities, even if you have an online store and your suppliers are overseas.

Self-employed: Monthly or quarterly declaration through URSSAF (gross revenue).
Company (SASU, EURL, etc.): Annual income declaration and mandatory accounting.
Tax resident outside France: Declaration according to the rules of the country where your business is registered.

Failing to declare income can lead to tax sanctions and penalties.

What Profit Margin for Dropshipping?

The margin in dropshipping sales tax depends on several factors:

Cost of the product + shipping fees.
Advertising and customer acquisition costs (Facebook Ads, Google Ads, etc.).
Taxes and transaction fees (VAT, Stripe, PayPal, etc.).

In general, a margin of 30-50% is recommended to keep making profits. Some products can reach 70% or more if you target low-competition niches.

Is Dropshipping Profitable?

Yes, dropshipping can be very profitable, but it’s not a passive income. To succeed, you need to:

Choose products with good margins and strong demand.
Optimize advertising costs to maintain profitability.
Pay income taxes and issue proper drop shipping commercial invoices and avoid losses.

Income Tax in Dropshipping

Like any business activity, dropshipping generates income, and this income is taxable. Income tax is one of the main tax obligations you face as a dropshipper.

How Does Income Tax Work for Dropshippers?

Income tax in dropshipping depends on several factors:

Your legal status: sole proprietor, company, freelancer, etc.
The country where you are registered: tax rates vary from country to country.
Your revenue and profits: the more you earn, the higher your tax burden.

For example, in France, if you are a sole proprietor, you are subject to a flat-rate tax that includes both income tax and social security contributions. For a company (SASU, EURL, etc.), the tax is calculated on net profits, either through corporate tax or income tax, depending on the option you choose.

In the United States, dropshippers must declare their income to the IRS. Depending on your business structure (LLC, sole proprietorship, corporation), VAT rules vary.

How to Calculate Income Tax in Dropshipping?

Income tax is calculated based on your net profit, which is your revenue minus expenses.

Example:

You make €100,000 in revenue.
You have €30,000 in expenses (advertising, Shopify subscription, transaction fees, cost of goods sold, etc.).
Your net profit is €70,000.

The tax is then calculated on this €70,000, according to the applicable tax rate for your status and country.

In France, a sole proprietor may pay a 12.8% flat-rate tax on revenue (plus social security contributions). A company pays tax on net profit, with corporate tax rates starting at 15% up to €42,500, then 25% beyond that.

How to Legally Optimize and Reduce Income Tax?

There are several strategies to optimize your dropshipping taxes:

Dropshipping tax calculator: deduct all possible expenses through Facebook ads, software (Shopify SEO tools), transaction fees, subscriptions, suppliers, etc.
Choose the right legal status: a company may offer better tax optimization compared to a sole proprietorship.
Open a special business bank account: better accounting management helps predict income tax payments and avoid unpleasant surprises.
Invest in your business: reinvesting in advertising or e-commerce tools can reduce your taxable profits.
Consult an accountant: seek professional advice if your business takes off to structure your finances effectively.

Sales Tax and Dropshipping VAT

When a customer buys a product, a tax may apply to the sale. Depending on the country you’re selling in, dropshipping taxes take different forms:

VAT (Value Added Tax) in the EU country..
Sales tax in the United States and Canada.

Each region has its own rules, making it difficult for dropshippers selling internationally.

How does dropshipping taxes Europe work?

In Europe, every sale to an end customer is subject to VAT. If you sell in France, you apply a 20% French VAT rate on your products. But if you sell to a customer in Germany, the German VAT rate applies.

Since July 2021, the €10,000 threshold has been removed, and all online stores must charge sales tax based on the customer's country from the first sale.

Dropshippers can simplify this management through the VAT One-Stop Shop (OSS), which allows them to declare and pay VAT for all EU countries in one place.

Sales Tax in the United States: A Complex System

In the United States, sales tax does not automatically apply to the entire process. It depends on your tax nexus, which refers to your connection with a state:

If you have a physical nexus (office, warehouse, employees), you must source tax from that state.
If you exceed a revenue threshold in a state (usually $100,000 or 200 transactions), you must also collect dropshipping sales tax there.

Each state sets its own rules and tax rates, ranging from 0% to 11%.

How to Collect and Declare These Taxes?

Platforms like Shopify, WooCommerce, and other e-commerce platforms help automate VAT and sales tax collection. -using the dropshipping tax calculator.
In Europe, the OSS registration simplifies the declaration process.

Outside the EU, tools like TaxJar or Avalara assist in managing state-by-state tax obligations.

Ignoring these dropshipping taxes can lead to penalties, so it’s vital to understand when and where you need to collect them.

Customs Duties and Import Taxes in Dropshipping

Importing dropshipping products seems simple on paper: your supplier in China or in non EU countries sends the order directly to your end customer. But in practice, some packages can be held up in customs, and additional fees may apply.

Many dropshippers overlook this aspect, often leaving the final customer to pay these fees upon delivery. The result? Unhappy customers, forced refunds, and repeated disputes.

Why Are Some Packages Taxed and Others Not?

Customs duties and import dropshipping taxes are calculated based on several criteria:

The package value: In Europe, for example, orders below €150 are exempt from customs duties but still subject to VAT. In the United States, imports under $800 are usually not taxed.
The type of product: Certain items, such as electronics or cosmetics, have higher tax rates.
The country of origin: Some trade agreements allow for reduced or exempt taxes on certain imported products.

But what dropshippers really want to know is who pays these dropshipping taxes and how to avoid them.

Who Pays Customs Duties in Dropshipping?

In dropshipping, the final customer is often the one responsible for paying customs duties upon delivery. However, many customers are unaware of this and might refuse to pay, which can block delivery and cause disputes.

Some suppliers, especially on e-commerce platforms like AliExpress, mark packages as "gifts" or declare a lower value to avoid taxes. While this may work in the short term, it’s risky in the long run. If the package is inspected, it might be blocked or destroyed, causing harm to your business.

Dropshipping sales tax: How to Avoid Bad Surprises?

To prevent your customers from facing hidden fees at delivery, here are some best practices:

Be transparent with your customers: Clearly state in your terms and conditions that customs fees may apply. This helps avoid disputes and protects your reputation.
Use suppliers with local warehouses: Some suppliers offer stock in Europe, the United States, or Canada. Although the price is slightly higher, you completely avoid customs fees for your customers.
Check the sales tax rates before shipping: If you’re selling an expensive product, check the customs rules of your customer’s country. Tools like TARIC (Europe) or USITC (United States) provide the exact tax rates by product.
Choose the right Incoterm: In dropshipping, the most common term is DAP (Delivered At Place), where the customer handles the customs fees. However, to offer a better customer experience, you can opt for DDP (Delivered Duty Paid) and pay dropshipping sales tax fees in advance.

It’s better to foresee these costs than to leave your customers with unpleasant surprises. Proper management of import taxes will help you avoid disputes, improve the shopping experience, and build trust with your customers.

Invoices and Documents in Dropshipping Taxes

When talking about dropshipping taxes, people often think of taxes and duties… but there’s another key point: managing invoices and tax documents. Managing these documents poorly can lead to issues with tax authorities, disputes with customers, and problems with your supplier.

If you want to avoid problems and manage your business properly, here’s everything you need to know.

Who Should Issue the Invoice in Dropshipping?

This is a key question, and many dropshippers fail to let their supplier handle the invoices. Bad idea! As the seller, you are responsible for invoicing your customer.

The customer buys from your dropshipping store → You need to issue an invoice.
You buy from your supplier → They send you a purchase invoice.

This means you must issue a drop shipping commercial invoice for each sale, even if your supplier is the one shipping the product.

What Should an Invoice Include?

A proper drop shipping commercial invoice include mandatory details:

Your business information (name, address, Aliexpress VAT number if applicable).
The customer’s information (name, address).
A detailed description of the product sold (name, quantity, unit price).
The total amount with and without dropshipping sales taxes (VAT if applicable).
A unique and sequential invoice number.

If you are selling internationally, it’s also recommended to issue drop shipping invoices in English… and in the currency of the chain transaction.

Should You Include a Drop Shipping Invoice in the Package?

The answer depends on the shipping method and the supplier.

AliExpress and other Asian suppliers: Generally, no paper invoice is included in the package, which can be problematic if the customer requests one.
European or American suppliers: Some include a drop shipping invoice, but it’s often in the supplier’s name, not the dropshipper’s.

In all cases, it’s better to offer a downloadable invoice directly on your website or send it via email after the order.

How to Automate Drop Shipping Commercial Invoice?

Manually creating invoices for each order can quickly become a nightmare. Luckily, there are tools that automate the drop shipping invoice creation and sending process:

Shopify: Has apps like Sufio, Order Printer Pro, or Invoice Falcon to create and automatically send invoices to customers.
WooCommerce: Plugins like WooCommerce PDF Invoices & Packing Slips to create compliant drop shipping invoices.
Accounting systems (QuickBooks, Sage, Zoho Books): Allow you to integrate invoicing directly into your accounting management.

These solutions save time and ensure dropshipping VAT compliance with current tax regulations. Proper invoice management avoids administrative issues and builds customer trust.

Optimizing Dropshipping taxes Management

Dropshipping taxes can quickly become a headache. Too many entrepreneurs end up with tax surprises because they don’t know what to pay or how to optimize it. Yet good news: there are simple and 100% legal ways to pay less while staying compliant.

Choose the Right Business Status: Don’t Get Trapped in the Wrong System

The status of your business plays a huge role in your tax situation. Many people start as self-employed because it’s simple, but it’s not always the best solution when your business takes off.

Self-employed: Easy to manage, but watch out for limits and flat-rate taxation (which can be a trap if your margins are low).
SASU/EURL (Dropshipping Taxes Europe): More paperwork, but allows for more expense deductions and better tax optimization.
LLC in the USA: If you sell mostly to the US, this can be an interesting option, but you need to fully understand how dropshipping taxes work..

Takeaway: If you’re just making a few sales, being self-employed might be enough. But if your business starts making significant income, switching to a company structure will save you a lot on dropshipping taxes in the long run.

Deduct Your Expenses: Stop Paying More Than Necessary

One of the biggest mistakes in dropshipping is failing to declare expenses. However, every euro you invest in your business can be deducted from your taxes:

Facebook, TikTok, Google Ads ads → 100% deductible.
Shopify fees, WooCommerce, softwares, subscriptions.
Stripe, PayPal commissions, bank fees.
Product costs and shipping fees.
Training, seminars, e-commerce events.

The more expenses you deduct, the less tax you pay on your profits.

Manage VAT and Sales Tax without the Hassle

If you’re selling internationally, you need to manage VAT regulations and dropshipping sales tax smartly.

In EU countries: The IOSS (One-Stop-Shop) helps centralize VAT management for all your sales in the EU. A must in this particular state.
In the USA: Sales tax varies by state, and it can get worse. Automate with TaxJar or Avalara to avoid errors.
Ship from Local Warehouses: Avoid VAT and customs fees for your customers by sourcing from suppliers with warehouses in Europe or the US.

Automate to Save Time

No one wants to spend their days managing invoices and file taxes. Luckily, there are tools that handle the work for you:

QuickBooks, Xero, Zoho Books → For automated accounting management and dropshipping tax calculator.
Sufio, Order Printer Pro (Shopify) → To automatically create and send invoices.
TaxJar, Avalara → To automate sales tax collection and filing VAT returns in the USA.

Dropshipping Taxes: The Worst Mistakes to Avoid

Taxes are tricky enough… so avoid these common mistakes that can cost you dearly.

Not Collecting VAT or Sales Tax

Thinking you can avoid taxes and collect revenue quietly in dropshipping? Bad idea.

In Europe: Any sale to a final consumer is subject to VAT. Not charging it can lead to tax audits.
In the USA: If you have a tax nexus in a state, you must collect dropshipping sales tax there.

Make sure to verify your tax obligations and use tools like TaxJar or Avalara to automate collection.

Not Declaring Your Income

Thinking you can pocket 'easy money' from dropshipping taxes without declaring? Not a good idea.

Payment platforms (Stripe, PayPal…) report your income to the tax authorities.
A simple audit can cost you a lot in back taxes and penalties.

It’s essential to declare your income and keep your books updated with a tool like QuickBooks or Xero.

Letting Your Supplier Handle Invoicing

It’s your dropshipping store, and you’re selling to the end customer, so you’re the one who needs to issue the invoice, not your supplier.

Many dropshippers rely on AliExpress tax refund system or Alibaba, but these platforms don’t issue invoices in your name. You’re in for trouble if a B2B customer or local governments request one.

Using a tool like Sufio, Order Printer Pro (Shopify), or WooCommerce PDF Invoices can automate this task and avoid issues.

Ignoring Customs Duties and Import Taxes

Your customers order, and surprise! The package gets stuck at customs with additional fees. Who pays?

If you sell under DAP (Delivered At Place) → The customer pays the customs fees. Bad experience if they weren’t informed.
If you sell under DDP (Delivered Duty Paid) → You cover the costs, but these must be planned in advance.

Add a clear disclaimer on your website explaining that import VAT may apply, or work with suppliers who have local warehouses to avoid these fees.

Not Optimizing Your Tax Situation

Too many dropshippers pay more taxes than necessary because they don’t deduct their expenses.

Facebook Ads, Shopify, Stripe, training… All of that is deductible.
Staying self-employed too long can cost more than setting up a well-optimized business.

It’s essential to maximize your deductions and consider a more profitable legal status if your business grows.

Conclusion

Managing dropshipping taxes is a key step to avoid bad surprises and maximize profits. Here’s what to keep in mind:

Income Declaration: You must declare your income, even if you’re selling only online.
Dropshipping VAT and Sales Tax: Know your sales and VAT obligations based on your country and use tools to automate collection.
Customs Duties: Inform your final customers or choose suppliers with local warehouses.
Invoicing: It’s up to you to issue a compliant drop shipping commercial invoice, not your supplier.
Tax Optimization: Deduct your expenses and choose the right business status to pay less taxes.

By applying these best practices, you avoid common mistakes and manage your business professionally and profitably.

FAQ on Dropshipping Taxes

How to Recover Dropshipping VAT?

If you purchase products from suppliers outside the EU, you will pay import VAT. To recover it, you need to:

Be VAT-registered and have an intra community regular or Aliexpress VAT number.
Include VAT perspective on your invoices and account for it in your VAT returns.
Use the reverse charge mechanism if you buy from a European supplier.

If you're using the IOSS (One-Stop-Shop), VAT is collected directly on your sales, to smoothen the entire process.

How to Declare Income in Dropshipping Taxes?

All income earned from drop shipping must be declared to the tax authorities, even if you have an online store and your suppliers are overseas.

Self-employed: Monthly or quarterly declaration through URSSAF (gross revenue).
Company (SASU, EURL, etc.): Annual income declaration and mandatory accounting.
Tax resident outside France: Declaration according to the rules of the country where your business is registered.

Failing to declare income can lead to tax sanctions and penalties.

What Profit Margin for Dropshipping?

The margin in dropshipping sales tax depends on several factors:

Cost of the product + shipping fees.
Advertising and customer acquisition costs (Facebook Ads, Google Ads, etc.).
Taxes and transaction fees (VAT, Stripe, PayPal, etc.).

In general, a margin of 30-50% is recommended to keep making profits. Some products can reach 70% or more if you target low-competition niches.

Is Dropshipping Profitable?

Yes, dropshipping can be very profitable, but it’s not a passive income. To succeed, you need to:

Choose products with good margins and strong demand.
Optimize advertising costs to maintain profitability.
Pay income taxes and issue proper drop shipping commercial invoices and avoid losses.

Income Tax in Dropshipping

Like any business activity, dropshipping generates income, and this income is taxable. Income tax is one of the main tax obligations you face as a dropshipper.

How Does Income Tax Work for Dropshippers?

Income tax in dropshipping depends on several factors:

Your legal status: sole proprietor, company, freelancer, etc.
The country where you are registered: tax rates vary from country to country.
Your revenue and profits: the more you earn, the higher your tax burden.

For example, in France, if you are a sole proprietor, you are subject to a flat-rate tax that includes both income tax and social security contributions. For a company (SASU, EURL, etc.), the tax is calculated on net profits, either through corporate tax or income tax, depending on the option you choose.

In the United States, dropshippers must declare their income to the IRS. Depending on your business structure (LLC, sole proprietorship, corporation), VAT rules vary.

How to Calculate Income Tax in Dropshipping?

Income tax is calculated based on your net profit, which is your revenue minus expenses.

Example:

You make €100,000 in revenue.
You have €30,000 in expenses (advertising, Shopify subscription, transaction fees, cost of goods sold, etc.).
Your net profit is €70,000.

The tax is then calculated on this €70,000, according to the applicable tax rate for your status and country.

In France, a sole proprietor may pay a 12.8% flat-rate tax on revenue (plus social security contributions). A company pays tax on net profit, with corporate tax rates starting at 15% up to €42,500, then 25% beyond that.

How to Legally Optimize and Reduce Income Tax?

There are several strategies to optimize your dropshipping taxes:

Dropshipping tax calculator: deduct all possible expenses through Facebook ads, software (Shopify SEO tools), transaction fees, subscriptions, suppliers, etc.
Choose the right legal status: a company may offer better tax optimization compared to a sole proprietorship.
Open a special business bank account: better accounting management helps predict income tax payments and avoid unpleasant surprises.
Invest in your business: reinvesting in advertising or e-commerce tools can reduce your taxable profits.
Consult an accountant: seek professional advice if your business takes off to structure your finances effectively.

Sales Tax and Dropshipping VAT

When a customer buys a product, a tax may apply to the sale. Depending on the country you’re selling in, dropshipping taxes take different forms:

VAT (Value Added Tax) in the EU country..
Sales tax in the United States and Canada.

Each region has its own rules, making it difficult for dropshippers selling internationally.

How does dropshipping taxes Europe work?

In Europe, every sale to an end customer is subject to VAT. If you sell in France, you apply a 20% French VAT rate on your products. But if you sell to a customer in Germany, the German VAT rate applies.

Since July 2021, the €10,000 threshold has been removed, and all online stores must charge sales tax based on the customer's country from the first sale.

Dropshippers can simplify this management through the VAT One-Stop Shop (OSS), which allows them to declare and pay VAT for all EU countries in one place.

Sales Tax in the United States: A Complex System

In the United States, sales tax does not automatically apply to the entire process. It depends on your tax nexus, which refers to your connection with a state:

If you have a physical nexus (office, warehouse, employees), you must source tax from that state.
If you exceed a revenue threshold in a state (usually $100,000 or 200 transactions), you must also collect dropshipping sales tax there.

Each state sets its own rules and tax rates, ranging from 0% to 11%.

How to Collect and Declare These Taxes?

Platforms like Shopify, WooCommerce, and other e-commerce platforms help automate VAT and sales tax collection. -using the dropshipping tax calculator.
In Europe, the OSS registration simplifies the declaration process.

Outside the EU, tools like TaxJar or Avalara assist in managing state-by-state tax obligations.

Ignoring these dropshipping taxes can lead to penalties, so it’s vital to understand when and where you need to collect them.

Customs Duties and Import Taxes in Dropshipping

Importing dropshipping products seems simple on paper: your supplier in China or in non EU countries sends the order directly to your end customer. But in practice, some packages can be held up in customs, and additional fees may apply.

Many dropshippers overlook this aspect, often leaving the final customer to pay these fees upon delivery. The result? Unhappy customers, forced refunds, and repeated disputes.

Why Are Some Packages Taxed and Others Not?

Customs duties and import dropshipping taxes are calculated based on several criteria:

The package value: In Europe, for example, orders below €150 are exempt from customs duties but still subject to VAT. In the United States, imports under $800 are usually not taxed.
The type of product: Certain items, such as electronics or cosmetics, have higher tax rates.
The country of origin: Some trade agreements allow for reduced or exempt taxes on certain imported products.

But what dropshippers really want to know is who pays these dropshipping taxes and how to avoid them.

Who Pays Customs Duties in Dropshipping?

In dropshipping, the final customer is often the one responsible for paying customs duties upon delivery. However, many customers are unaware of this and might refuse to pay, which can block delivery and cause disputes.

Some suppliers, especially on e-commerce platforms like AliExpress, mark packages as "gifts" or declare a lower value to avoid taxes. While this may work in the short term, it’s risky in the long run. If the package is inspected, it might be blocked or destroyed, causing harm to your business.

Dropshipping sales tax: How to Avoid Bad Surprises?

To prevent your customers from facing hidden fees at delivery, here are some best practices:

Be transparent with your customers: Clearly state in your terms and conditions that customs fees may apply. This helps avoid disputes and protects your reputation.
Use suppliers with local warehouses: Some suppliers offer stock in Europe, the United States, or Canada. Although the price is slightly higher, you completely avoid customs fees for your customers.
Check the sales tax rates before shipping: If you’re selling an expensive product, check the customs rules of your customer’s country. Tools like TARIC (Europe) or USITC (United States) provide the exact tax rates by product.
Choose the right Incoterm: In dropshipping, the most common term is DAP (Delivered At Place), where the customer handles the customs fees. However, to offer a better customer experience, you can opt for DDP (Delivered Duty Paid) and pay dropshipping sales tax fees in advance.

It’s better to foresee these costs than to leave your customers with unpleasant surprises. Proper management of import taxes will help you avoid disputes, improve the shopping experience, and build trust with your customers.

Invoices and Documents in Dropshipping Taxes

When talking about dropshipping taxes, people often think of taxes and duties… but there’s another key point: managing invoices and tax documents. Managing these documents poorly can lead to issues with tax authorities, disputes with customers, and problems with your supplier.

If you want to avoid problems and manage your business properly, here’s everything you need to know.

Who Should Issue the Invoice in Dropshipping?

This is a key question, and many dropshippers fail to let their supplier handle the invoices. Bad idea! As the seller, you are responsible for invoicing your customer.

The customer buys from your dropshipping store → You need to issue an invoice.
You buy from your supplier → They send you a purchase invoice.

This means you must issue a drop shipping commercial invoice for each sale, even if your supplier is the one shipping the product.

What Should an Invoice Include?

A proper drop shipping commercial invoice include mandatory details:

Your business information (name, address, Aliexpress VAT number if applicable).
The customer’s information (name, address).
A detailed description of the product sold (name, quantity, unit price).
The total amount with and without dropshipping sales taxes (VAT if applicable).
A unique and sequential invoice number.

If you are selling internationally, it’s also recommended to issue drop shipping invoices in English… and in the currency of the chain transaction.

Should You Include a Drop Shipping Invoice in the Package?

The answer depends on the shipping method and the supplier.

AliExpress and other Asian suppliers: Generally, no paper invoice is included in the package, which can be problematic if the customer requests one.
European or American suppliers: Some include a drop shipping invoice, but it’s often in the supplier’s name, not the dropshipper’s.

In all cases, it’s better to offer a downloadable invoice directly on your website or send it via email after the order.

How to Automate Drop Shipping Commercial Invoice?

Manually creating invoices for each order can quickly become a nightmare. Luckily, there are tools that automate the drop shipping invoice creation and sending process:

Shopify: Has apps like Sufio, Order Printer Pro, or Invoice Falcon to create and automatically send invoices to customers.
WooCommerce: Plugins like WooCommerce PDF Invoices & Packing Slips to create compliant drop shipping invoices.
Accounting systems (QuickBooks, Sage, Zoho Books): Allow you to integrate invoicing directly into your accounting management.

These solutions save time and ensure dropshipping VAT compliance with current tax regulations. Proper invoice management avoids administrative issues and builds customer trust.

Optimizing Dropshipping taxes Management

Dropshipping taxes can quickly become a headache. Too many entrepreneurs end up with tax surprises because they don’t know what to pay or how to optimize it. Yet good news: there are simple and 100% legal ways to pay less while staying compliant.

Choose the Right Business Status: Don’t Get Trapped in the Wrong System

The status of your business plays a huge role in your tax situation. Many people start as self-employed because it’s simple, but it’s not always the best solution when your business takes off.

Self-employed: Easy to manage, but watch out for limits and flat-rate taxation (which can be a trap if your margins are low).
SASU/EURL (Dropshipping Taxes Europe): More paperwork, but allows for more expense deductions and better tax optimization.
LLC in the USA: If you sell mostly to the US, this can be an interesting option, but you need to fully understand how dropshipping taxes work..

Takeaway: If you’re just making a few sales, being self-employed might be enough. But if your business starts making significant income, switching to a company structure will save you a lot on dropshipping taxes in the long run.

Deduct Your Expenses: Stop Paying More Than Necessary

One of the biggest mistakes in dropshipping is failing to declare expenses. However, every euro you invest in your business can be deducted from your taxes:

Facebook, TikTok, Google Ads ads → 100% deductible.
Shopify fees, WooCommerce, softwares, subscriptions.
Stripe, PayPal commissions, bank fees.
Product costs and shipping fees.
Training, seminars, e-commerce events.

The more expenses you deduct, the less tax you pay on your profits.

Manage VAT and Sales Tax without the Hassle

If you’re selling internationally, you need to manage VAT regulations and dropshipping sales tax smartly.

In EU countries: The IOSS (One-Stop-Shop) helps centralize VAT management for all your sales in the EU. A must in this particular state.
In the USA: Sales tax varies by state, and it can get worse. Automate with TaxJar or Avalara to avoid errors.
Ship from Local Warehouses: Avoid VAT and customs fees for your customers by sourcing from suppliers with warehouses in Europe or the US.

Automate to Save Time

No one wants to spend their days managing invoices and file taxes. Luckily, there are tools that handle the work for you:

QuickBooks, Xero, Zoho Books → For automated accounting management and dropshipping tax calculator.
Sufio, Order Printer Pro (Shopify) → To automatically create and send invoices.
TaxJar, Avalara → To automate sales tax collection and filing VAT returns in the USA.

Dropshipping Taxes: The Worst Mistakes to Avoid

Taxes are tricky enough… so avoid these common mistakes that can cost you dearly.

Not Collecting VAT or Sales Tax

Thinking you can avoid taxes and collect revenue quietly in dropshipping? Bad idea.

In Europe: Any sale to a final consumer is subject to VAT. Not charging it can lead to tax audits.
In the USA: If you have a tax nexus in a state, you must collect dropshipping sales tax there.

Make sure to verify your tax obligations and use tools like TaxJar or Avalara to automate collection.

Not Declaring Your Income

Thinking you can pocket 'easy money' from dropshipping taxes without declaring? Not a good idea.

Payment platforms (Stripe, PayPal…) report your income to the tax authorities.
A simple audit can cost you a lot in back taxes and penalties.

It’s essential to declare your income and keep your books updated with a tool like QuickBooks or Xero.

Letting Your Supplier Handle Invoicing

It’s your dropshipping store, and you’re selling to the end customer, so you’re the one who needs to issue the invoice, not your supplier.

Many dropshippers rely on AliExpress tax refund system or Alibaba, but these platforms don’t issue invoices in your name. You’re in for trouble if a B2B customer or local governments request one.

Using a tool like Sufio, Order Printer Pro (Shopify), or WooCommerce PDF Invoices can automate this task and avoid issues.

Ignoring Customs Duties and Import Taxes

Your customers order, and surprise! The package gets stuck at customs with additional fees. Who pays?

If you sell under DAP (Delivered At Place) → The customer pays the customs fees. Bad experience if they weren’t informed.
If you sell under DDP (Delivered Duty Paid) → You cover the costs, but these must be planned in advance.

Add a clear disclaimer on your website explaining that import VAT may apply, or work with suppliers who have local warehouses to avoid these fees.

Not Optimizing Your Tax Situation

Too many dropshippers pay more taxes than necessary because they don’t deduct their expenses.

Facebook Ads, Shopify, Stripe, training… All of that is deductible.
Staying self-employed too long can cost more than setting up a well-optimized business.

It’s essential to maximize your deductions and consider a more profitable legal status if your business grows.

Conclusion

Managing dropshipping taxes is a key step to avoid bad surprises and maximize profits. Here’s what to keep in mind:

Income Declaration: You must declare your income, even if you’re selling only online.
Dropshipping VAT and Sales Tax: Know your sales and VAT obligations based on your country and use tools to automate collection.
Customs Duties: Inform your final customers or choose suppliers with local warehouses.
Invoicing: It’s up to you to issue a compliant drop shipping commercial invoice, not your supplier.
Tax Optimization: Deduct your expenses and choose the right business status to pay less taxes.

By applying these best practices, you avoid common mistakes and manage your business professionally and profitably.

FAQ on Dropshipping Taxes

How to Recover Dropshipping VAT?

If you purchase products from suppliers outside the EU, you will pay import VAT. To recover it, you need to:

Be VAT-registered and have an intra community regular or Aliexpress VAT number.
Include VAT perspective on your invoices and account for it in your VAT returns.
Use the reverse charge mechanism if you buy from a European supplier.

If you're using the IOSS (One-Stop-Shop), VAT is collected directly on your sales, to smoothen the entire process.

How to Declare Income in Dropshipping Taxes?

All income earned from drop shipping must be declared to the tax authorities, even if you have an online store and your suppliers are overseas.

Self-employed: Monthly or quarterly declaration through URSSAF (gross revenue).
Company (SASU, EURL, etc.): Annual income declaration and mandatory accounting.
Tax resident outside France: Declaration according to the rules of the country where your business is registered.

Failing to declare income can lead to tax sanctions and penalties.

What Profit Margin for Dropshipping?

The margin in dropshipping sales tax depends on several factors:

Cost of the product + shipping fees.
Advertising and customer acquisition costs (Facebook Ads, Google Ads, etc.).
Taxes and transaction fees (VAT, Stripe, PayPal, etc.).

In general, a margin of 30-50% is recommended to keep making profits. Some products can reach 70% or more if you target low-competition niches.

Is Dropshipping Profitable?

Yes, dropshipping can be very profitable, but it’s not a passive income. To succeed, you need to:

Choose products with good margins and strong demand.
Optimize advertising costs to maintain profitability.
Pay income taxes and issue proper drop shipping commercial invoices and avoid losses.

Income Tax in Dropshipping

Like any business activity, dropshipping generates income, and this income is taxable. Income tax is one of the main tax obligations you face as a dropshipper.

How Does Income Tax Work for Dropshippers?

Income tax in dropshipping depends on several factors:

Your legal status: sole proprietor, company, freelancer, etc.
The country where you are registered: tax rates vary from country to country.
Your revenue and profits: the more you earn, the higher your tax burden.

For example, in France, if you are a sole proprietor, you are subject to a flat-rate tax that includes both income tax and social security contributions. For a company (SASU, EURL, etc.), the tax is calculated on net profits, either through corporate tax or income tax, depending on the option you choose.

In the United States, dropshippers must declare their income to the IRS. Depending on your business structure (LLC, sole proprietorship, corporation), VAT rules vary.

How to Calculate Income Tax in Dropshipping?

Income tax is calculated based on your net profit, which is your revenue minus expenses.

Example:

You make €100,000 in revenue.
You have €30,000 in expenses (advertising, Shopify subscription, transaction fees, cost of goods sold, etc.).
Your net profit is €70,000.

The tax is then calculated on this €70,000, according to the applicable tax rate for your status and country.

In France, a sole proprietor may pay a 12.8% flat-rate tax on revenue (plus social security contributions). A company pays tax on net profit, with corporate tax rates starting at 15% up to €42,500, then 25% beyond that.

How to Legally Optimize and Reduce Income Tax?

There are several strategies to optimize your dropshipping taxes:

Dropshipping tax calculator: deduct all possible expenses through Facebook ads, software (Shopify SEO tools), transaction fees, subscriptions, suppliers, etc.
Choose the right legal status: a company may offer better tax optimization compared to a sole proprietorship.
Open a special business bank account: better accounting management helps predict income tax payments and avoid unpleasant surprises.
Invest in your business: reinvesting in advertising or e-commerce tools can reduce your taxable profits.
Consult an accountant: seek professional advice if your business takes off to structure your finances effectively.

Sales Tax and Dropshipping VAT

When a customer buys a product, a tax may apply to the sale. Depending on the country you’re selling in, dropshipping taxes take different forms:

VAT (Value Added Tax) in the EU country..
Sales tax in the United States and Canada.

Each region has its own rules, making it difficult for dropshippers selling internationally.

How does dropshipping taxes Europe work?

In Europe, every sale to an end customer is subject to VAT. If you sell in France, you apply a 20% French VAT rate on your products. But if you sell to a customer in Germany, the German VAT rate applies.

Since July 2021, the €10,000 threshold has been removed, and all online stores must charge sales tax based on the customer's country from the first sale.

Dropshippers can simplify this management through the VAT One-Stop Shop (OSS), which allows them to declare and pay VAT for all EU countries in one place.

Sales Tax in the United States: A Complex System

In the United States, sales tax does not automatically apply to the entire process. It depends on your tax nexus, which refers to your connection with a state:

If you have a physical nexus (office, warehouse, employees), you must source tax from that state.
If you exceed a revenue threshold in a state (usually $100,000 or 200 transactions), you must also collect dropshipping sales tax there.

Each state sets its own rules and tax rates, ranging from 0% to 11%.

How to Collect and Declare These Taxes?

Platforms like Shopify, WooCommerce, and other e-commerce platforms help automate VAT and sales tax collection. -using the dropshipping tax calculator.
In Europe, the OSS registration simplifies the declaration process.

Outside the EU, tools like TaxJar or Avalara assist in managing state-by-state tax obligations.

Ignoring these dropshipping taxes can lead to penalties, so it’s vital to understand when and where you need to collect them.

Customs Duties and Import Taxes in Dropshipping

Importing dropshipping products seems simple on paper: your supplier in China or in non EU countries sends the order directly to your end customer. But in practice, some packages can be held up in customs, and additional fees may apply.

Many dropshippers overlook this aspect, often leaving the final customer to pay these fees upon delivery. The result? Unhappy customers, forced refunds, and repeated disputes.

Why Are Some Packages Taxed and Others Not?

Customs duties and import dropshipping taxes are calculated based on several criteria:

The package value: In Europe, for example, orders below €150 are exempt from customs duties but still subject to VAT. In the United States, imports under $800 are usually not taxed.
The type of product: Certain items, such as electronics or cosmetics, have higher tax rates.
The country of origin: Some trade agreements allow for reduced or exempt taxes on certain imported products.

But what dropshippers really want to know is who pays these dropshipping taxes and how to avoid them.

Who Pays Customs Duties in Dropshipping?

In dropshipping, the final customer is often the one responsible for paying customs duties upon delivery. However, many customers are unaware of this and might refuse to pay, which can block delivery and cause disputes.

Some suppliers, especially on e-commerce platforms like AliExpress, mark packages as "gifts" or declare a lower value to avoid taxes. While this may work in the short term, it’s risky in the long run. If the package is inspected, it might be blocked or destroyed, causing harm to your business.

Dropshipping sales tax: How to Avoid Bad Surprises?

To prevent your customers from facing hidden fees at delivery, here are some best practices:

Be transparent with your customers: Clearly state in your terms and conditions that customs fees may apply. This helps avoid disputes and protects your reputation.
Use suppliers with local warehouses: Some suppliers offer stock in Europe, the United States, or Canada. Although the price is slightly higher, you completely avoid customs fees for your customers.
Check the sales tax rates before shipping: If you’re selling an expensive product, check the customs rules of your customer’s country. Tools like TARIC (Europe) or USITC (United States) provide the exact tax rates by product.
Choose the right Incoterm: In dropshipping, the most common term is DAP (Delivered At Place), where the customer handles the customs fees. However, to offer a better customer experience, you can opt for DDP (Delivered Duty Paid) and pay dropshipping sales tax fees in advance.

It’s better to foresee these costs than to leave your customers with unpleasant surprises. Proper management of import taxes will help you avoid disputes, improve the shopping experience, and build trust with your customers.

Invoices and Documents in Dropshipping Taxes

When talking about dropshipping taxes, people often think of taxes and duties… but there’s another key point: managing invoices and tax documents. Managing these documents poorly can lead to issues with tax authorities, disputes with customers, and problems with your supplier.

If you want to avoid problems and manage your business properly, here’s everything you need to know.

Who Should Issue the Invoice in Dropshipping?

This is a key question, and many dropshippers fail to let their supplier handle the invoices. Bad idea! As the seller, you are responsible for invoicing your customer.

The customer buys from your dropshipping store → You need to issue an invoice.
You buy from your supplier → They send you a purchase invoice.

This means you must issue a drop shipping commercial invoice for each sale, even if your supplier is the one shipping the product.

What Should an Invoice Include?

A proper drop shipping commercial invoice include mandatory details:

Your business information (name, address, Aliexpress VAT number if applicable).
The customer’s information (name, address).
A detailed description of the product sold (name, quantity, unit price).
The total amount with and without dropshipping sales taxes (VAT if applicable).
A unique and sequential invoice number.

If you are selling internationally, it’s also recommended to issue drop shipping invoices in English… and in the currency of the chain transaction.

Should You Include a Drop Shipping Invoice in the Package?

The answer depends on the shipping method and the supplier.

AliExpress and other Asian suppliers: Generally, no paper invoice is included in the package, which can be problematic if the customer requests one.
European or American suppliers: Some include a drop shipping invoice, but it’s often in the supplier’s name, not the dropshipper’s.

In all cases, it’s better to offer a downloadable invoice directly on your website or send it via email after the order.

How to Automate Drop Shipping Commercial Invoice?

Manually creating invoices for each order can quickly become a nightmare. Luckily, there are tools that automate the drop shipping invoice creation and sending process:

Shopify: Has apps like Sufio, Order Printer Pro, or Invoice Falcon to create and automatically send invoices to customers.
WooCommerce: Plugins like WooCommerce PDF Invoices & Packing Slips to create compliant drop shipping invoices.
Accounting systems (QuickBooks, Sage, Zoho Books): Allow you to integrate invoicing directly into your accounting management.

These solutions save time and ensure dropshipping VAT compliance with current tax regulations. Proper invoice management avoids administrative issues and builds customer trust.

Optimizing Dropshipping taxes Management

Dropshipping taxes can quickly become a headache. Too many entrepreneurs end up with tax surprises because they don’t know what to pay or how to optimize it. Yet good news: there are simple and 100% legal ways to pay less while staying compliant.

Choose the Right Business Status: Don’t Get Trapped in the Wrong System

The status of your business plays a huge role in your tax situation. Many people start as self-employed because it’s simple, but it’s not always the best solution when your business takes off.

Self-employed: Easy to manage, but watch out for limits and flat-rate taxation (which can be a trap if your margins are low).
SASU/EURL (Dropshipping Taxes Europe): More paperwork, but allows for more expense deductions and better tax optimization.
LLC in the USA: If you sell mostly to the US, this can be an interesting option, but you need to fully understand how dropshipping taxes work..

Takeaway: If you’re just making a few sales, being self-employed might be enough. But if your business starts making significant income, switching to a company structure will save you a lot on dropshipping taxes in the long run.

Deduct Your Expenses: Stop Paying More Than Necessary

One of the biggest mistakes in dropshipping is failing to declare expenses. However, every euro you invest in your business can be deducted from your taxes:

Facebook, TikTok, Google Ads ads → 100% deductible.
Shopify fees, WooCommerce, softwares, subscriptions.
Stripe, PayPal commissions, bank fees.
Product costs and shipping fees.
Training, seminars, e-commerce events.

The more expenses you deduct, the less tax you pay on your profits.

Manage VAT and Sales Tax without the Hassle

If you’re selling internationally, you need to manage VAT regulations and dropshipping sales tax smartly.

In EU countries: The IOSS (One-Stop-Shop) helps centralize VAT management for all your sales in the EU. A must in this particular state.
In the USA: Sales tax varies by state, and it can get worse. Automate with TaxJar or Avalara to avoid errors.
Ship from Local Warehouses: Avoid VAT and customs fees for your customers by sourcing from suppliers with warehouses in Europe or the US.

Automate to Save Time

No one wants to spend their days managing invoices and file taxes. Luckily, there are tools that handle the work for you:

QuickBooks, Xero, Zoho Books → For automated accounting management and dropshipping tax calculator.
Sufio, Order Printer Pro (Shopify) → To automatically create and send invoices.
TaxJar, Avalara → To automate sales tax collection and filing VAT returns in the USA.

Dropshipping Taxes: The Worst Mistakes to Avoid

Taxes are tricky enough… so avoid these common mistakes that can cost you dearly.

Not Collecting VAT or Sales Tax

Thinking you can avoid taxes and collect revenue quietly in dropshipping? Bad idea.

In Europe: Any sale to a final consumer is subject to VAT. Not charging it can lead to tax audits.
In the USA: If you have a tax nexus in a state, you must collect dropshipping sales tax there.

Make sure to verify your tax obligations and use tools like TaxJar or Avalara to automate collection.

Not Declaring Your Income

Thinking you can pocket 'easy money' from dropshipping taxes without declaring? Not a good idea.

Payment platforms (Stripe, PayPal…) report your income to the tax authorities.
A simple audit can cost you a lot in back taxes and penalties.

It’s essential to declare your income and keep your books updated with a tool like QuickBooks or Xero.

Letting Your Supplier Handle Invoicing

It’s your dropshipping store, and you’re selling to the end customer, so you’re the one who needs to issue the invoice, not your supplier.

Many dropshippers rely on AliExpress tax refund system or Alibaba, but these platforms don’t issue invoices in your name. You’re in for trouble if a B2B customer or local governments request one.

Using a tool like Sufio, Order Printer Pro (Shopify), or WooCommerce PDF Invoices can automate this task and avoid issues.

Ignoring Customs Duties and Import Taxes

Your customers order, and surprise! The package gets stuck at customs with additional fees. Who pays?

If you sell under DAP (Delivered At Place) → The customer pays the customs fees. Bad experience if they weren’t informed.
If you sell under DDP (Delivered Duty Paid) → You cover the costs, but these must be planned in advance.

Add a clear disclaimer on your website explaining that import VAT may apply, or work with suppliers who have local warehouses to avoid these fees.

Not Optimizing Your Tax Situation

Too many dropshippers pay more taxes than necessary because they don’t deduct their expenses.

Facebook Ads, Shopify, Stripe, training… All of that is deductible.
Staying self-employed too long can cost more than setting up a well-optimized business.

It’s essential to maximize your deductions and consider a more profitable legal status if your business grows.

Conclusion

Managing dropshipping taxes is a key step to avoid bad surprises and maximize profits. Here’s what to keep in mind:

Income Declaration: You must declare your income, even if you’re selling only online.
Dropshipping VAT and Sales Tax: Know your sales and VAT obligations based on your country and use tools to automate collection.
Customs Duties: Inform your final customers or choose suppliers with local warehouses.
Invoicing: It’s up to you to issue a compliant drop shipping commercial invoice, not your supplier.
Tax Optimization: Deduct your expenses and choose the right business status to pay less taxes.

By applying these best practices, you avoid common mistakes and manage your business professionally and profitably.

FAQ on Dropshipping Taxes

How to Recover Dropshipping VAT?

If you purchase products from suppliers outside the EU, you will pay import VAT. To recover it, you need to:

Be VAT-registered and have an intra community regular or Aliexpress VAT number.
Include VAT perspective on your invoices and account for it in your VAT returns.
Use the reverse charge mechanism if you buy from a European supplier.

If you're using the IOSS (One-Stop-Shop), VAT is collected directly on your sales, to smoothen the entire process.

How to Declare Income in Dropshipping Taxes?

All income earned from drop shipping must be declared to the tax authorities, even if you have an online store and your suppliers are overseas.

Self-employed: Monthly or quarterly declaration through URSSAF (gross revenue).
Company (SASU, EURL, etc.): Annual income declaration and mandatory accounting.
Tax resident outside France: Declaration according to the rules of the country where your business is registered.

Failing to declare income can lead to tax sanctions and penalties.

What Profit Margin for Dropshipping?

The margin in dropshipping sales tax depends on several factors:

Cost of the product + shipping fees.
Advertising and customer acquisition costs (Facebook Ads, Google Ads, etc.).
Taxes and transaction fees (VAT, Stripe, PayPal, etc.).

In general, a margin of 30-50% is recommended to keep making profits. Some products can reach 70% or more if you target low-competition niches.

Is Dropshipping Profitable?

Yes, dropshipping can be very profitable, but it’s not a passive income. To succeed, you need to:

Choose products with good margins and strong demand.
Optimize advertising costs to maintain profitability.
Pay income taxes and issue proper drop shipping commercial invoices and avoid losses.

Income Tax in Dropshipping

Like any business activity, dropshipping generates income, and this income is taxable. Income tax is one of the main tax obligations you face as a dropshipper.

How Does Income Tax Work for Dropshippers?

Income tax in dropshipping depends on several factors:

Your legal status: sole proprietor, company, freelancer, etc.
The country where you are registered: tax rates vary from country to country.
Your revenue and profits: the more you earn, the higher your tax burden.

For example, in France, if you are a sole proprietor, you are subject to a flat-rate tax that includes both income tax and social security contributions. For a company (SASU, EURL, etc.), the tax is calculated on net profits, either through corporate tax or income tax, depending on the option you choose.

In the United States, dropshippers must declare their income to the IRS. Depending on your business structure (LLC, sole proprietorship, corporation), VAT rules vary.

How to Calculate Income Tax in Dropshipping?

Income tax is calculated based on your net profit, which is your revenue minus expenses.

Example:

You make €100,000 in revenue.
You have €30,000 in expenses (advertising, Shopify subscription, transaction fees, cost of goods sold, etc.).
Your net profit is €70,000.

The tax is then calculated on this €70,000, according to the applicable tax rate for your status and country.

In France, a sole proprietor may pay a 12.8% flat-rate tax on revenue (plus social security contributions). A company pays tax on net profit, with corporate tax rates starting at 15% up to €42,500, then 25% beyond that.

How to Legally Optimize and Reduce Income Tax?

There are several strategies to optimize your dropshipping taxes:

Dropshipping tax calculator: deduct all possible expenses through Facebook ads, software (Shopify SEO tools), transaction fees, subscriptions, suppliers, etc.
Choose the right legal status: a company may offer better tax optimization compared to a sole proprietorship.
Open a special business bank account: better accounting management helps predict income tax payments and avoid unpleasant surprises.
Invest in your business: reinvesting in advertising or e-commerce tools can reduce your taxable profits.
Consult an accountant: seek professional advice if your business takes off to structure your finances effectively.

Sales Tax and Dropshipping VAT

When a customer buys a product, a tax may apply to the sale. Depending on the country you’re selling in, dropshipping taxes take different forms:

VAT (Value Added Tax) in the EU country..
Sales tax in the United States and Canada.

Each region has its own rules, making it difficult for dropshippers selling internationally.

How does dropshipping taxes Europe work?

In Europe, every sale to an end customer is subject to VAT. If you sell in France, you apply a 20% French VAT rate on your products. But if you sell to a customer in Germany, the German VAT rate applies.

Since July 2021, the €10,000 threshold has been removed, and all online stores must charge sales tax based on the customer's country from the first sale.

Dropshippers can simplify this management through the VAT One-Stop Shop (OSS), which allows them to declare and pay VAT for all EU countries in one place.

Sales Tax in the United States: A Complex System

In the United States, sales tax does not automatically apply to the entire process. It depends on your tax nexus, which refers to your connection with a state:

If you have a physical nexus (office, warehouse, employees), you must source tax from that state.
If you exceed a revenue threshold in a state (usually $100,000 or 200 transactions), you must also collect dropshipping sales tax there.

Each state sets its own rules and tax rates, ranging from 0% to 11%.

How to Collect and Declare These Taxes?

Platforms like Shopify, WooCommerce, and other e-commerce platforms help automate VAT and sales tax collection. -using the dropshipping tax calculator.
In Europe, the OSS registration simplifies the declaration process.

Outside the EU, tools like TaxJar or Avalara assist in managing state-by-state tax obligations.

Ignoring these dropshipping taxes can lead to penalties, so it’s vital to understand when and where you need to collect them.

Customs Duties and Import Taxes in Dropshipping

Importing dropshipping products seems simple on paper: your supplier in China or in non EU countries sends the order directly to your end customer. But in practice, some packages can be held up in customs, and additional fees may apply.

Many dropshippers overlook this aspect, often leaving the final customer to pay these fees upon delivery. The result? Unhappy customers, forced refunds, and repeated disputes.

Why Are Some Packages Taxed and Others Not?

Customs duties and import dropshipping taxes are calculated based on several criteria:

The package value: In Europe, for example, orders below €150 are exempt from customs duties but still subject to VAT. In the United States, imports under $800 are usually not taxed.
The type of product: Certain items, such as electronics or cosmetics, have higher tax rates.
The country of origin: Some trade agreements allow for reduced or exempt taxes on certain imported products.

But what dropshippers really want to know is who pays these dropshipping taxes and how to avoid them.

Who Pays Customs Duties in Dropshipping?

In dropshipping, the final customer is often the one responsible for paying customs duties upon delivery. However, many customers are unaware of this and might refuse to pay, which can block delivery and cause disputes.

Some suppliers, especially on e-commerce platforms like AliExpress, mark packages as "gifts" or declare a lower value to avoid taxes. While this may work in the short term, it’s risky in the long run. If the package is inspected, it might be blocked or destroyed, causing harm to your business.

Dropshipping sales tax: How to Avoid Bad Surprises?

To prevent your customers from facing hidden fees at delivery, here are some best practices:

Be transparent with your customers: Clearly state in your terms and conditions that customs fees may apply. This helps avoid disputes and protects your reputation.
Use suppliers with local warehouses: Some suppliers offer stock in Europe, the United States, or Canada. Although the price is slightly higher, you completely avoid customs fees for your customers.
Check the sales tax rates before shipping: If you’re selling an expensive product, check the customs rules of your customer’s country. Tools like TARIC (Europe) or USITC (United States) provide the exact tax rates by product.
Choose the right Incoterm: In dropshipping, the most common term is DAP (Delivered At Place), where the customer handles the customs fees. However, to offer a better customer experience, you can opt for DDP (Delivered Duty Paid) and pay dropshipping sales tax fees in advance.

It’s better to foresee these costs than to leave your customers with unpleasant surprises. Proper management of import taxes will help you avoid disputes, improve the shopping experience, and build trust with your customers.

Invoices and Documents in Dropshipping Taxes

When talking about dropshipping taxes, people often think of taxes and duties… but there’s another key point: managing invoices and tax documents. Managing these documents poorly can lead to issues with tax authorities, disputes with customers, and problems with your supplier.

If you want to avoid problems and manage your business properly, here’s everything you need to know.

Who Should Issue the Invoice in Dropshipping?

This is a key question, and many dropshippers fail to let their supplier handle the invoices. Bad idea! As the seller, you are responsible for invoicing your customer.

The customer buys from your dropshipping store → You need to issue an invoice.
You buy from your supplier → They send you a purchase invoice.

This means you must issue a drop shipping commercial invoice for each sale, even if your supplier is the one shipping the product.

What Should an Invoice Include?

A proper drop shipping commercial invoice include mandatory details:

Your business information (name, address, Aliexpress VAT number if applicable).
The customer’s information (name, address).
A detailed description of the product sold (name, quantity, unit price).
The total amount with and without dropshipping sales taxes (VAT if applicable).
A unique and sequential invoice number.

If you are selling internationally, it’s also recommended to issue drop shipping invoices in English… and in the currency of the chain transaction.

Should You Include a Drop Shipping Invoice in the Package?

The answer depends on the shipping method and the supplier.

AliExpress and other Asian suppliers: Generally, no paper invoice is included in the package, which can be problematic if the customer requests one.
European or American suppliers: Some include a drop shipping invoice, but it’s often in the supplier’s name, not the dropshipper’s.

In all cases, it’s better to offer a downloadable invoice directly on your website or send it via email after the order.

How to Automate Drop Shipping Commercial Invoice?

Manually creating invoices for each order can quickly become a nightmare. Luckily, there are tools that automate the drop shipping invoice creation and sending process:

Shopify: Has apps like Sufio, Order Printer Pro, or Invoice Falcon to create and automatically send invoices to customers.
WooCommerce: Plugins like WooCommerce PDF Invoices & Packing Slips to create compliant drop shipping invoices.
Accounting systems (QuickBooks, Sage, Zoho Books): Allow you to integrate invoicing directly into your accounting management.

These solutions save time and ensure dropshipping VAT compliance with current tax regulations. Proper invoice management avoids administrative issues and builds customer trust.

Optimizing Dropshipping taxes Management

Dropshipping taxes can quickly become a headache. Too many entrepreneurs end up with tax surprises because they don’t know what to pay or how to optimize it. Yet good news: there are simple and 100% legal ways to pay less while staying compliant.

Choose the Right Business Status: Don’t Get Trapped in the Wrong System

The status of your business plays a huge role in your tax situation. Many people start as self-employed because it’s simple, but it’s not always the best solution when your business takes off.

Self-employed: Easy to manage, but watch out for limits and flat-rate taxation (which can be a trap if your margins are low).
SASU/EURL (Dropshipping Taxes Europe): More paperwork, but allows for more expense deductions and better tax optimization.
LLC in the USA: If you sell mostly to the US, this can be an interesting option, but you need to fully understand how dropshipping taxes work..

Takeaway: If you’re just making a few sales, being self-employed might be enough. But if your business starts making significant income, switching to a company structure will save you a lot on dropshipping taxes in the long run.

Deduct Your Expenses: Stop Paying More Than Necessary

One of the biggest mistakes in dropshipping is failing to declare expenses. However, every euro you invest in your business can be deducted from your taxes:

Facebook, TikTok, Google Ads ads → 100% deductible.
Shopify fees, WooCommerce, softwares, subscriptions.
Stripe, PayPal commissions, bank fees.
Product costs and shipping fees.
Training, seminars, e-commerce events.

The more expenses you deduct, the less tax you pay on your profits.

Manage VAT and Sales Tax without the Hassle

If you’re selling internationally, you need to manage VAT regulations and dropshipping sales tax smartly.

In EU countries: The IOSS (One-Stop-Shop) helps centralize VAT management for all your sales in the EU. A must in this particular state.
In the USA: Sales tax varies by state, and it can get worse. Automate with TaxJar or Avalara to avoid errors.
Ship from Local Warehouses: Avoid VAT and customs fees for your customers by sourcing from suppliers with warehouses in Europe or the US.

Automate to Save Time

No one wants to spend their days managing invoices and file taxes. Luckily, there are tools that handle the work for you:

QuickBooks, Xero, Zoho Books → For automated accounting management and dropshipping tax calculator.
Sufio, Order Printer Pro (Shopify) → To automatically create and send invoices.
TaxJar, Avalara → To automate sales tax collection and filing VAT returns in the USA.

Dropshipping Taxes: The Worst Mistakes to Avoid

Taxes are tricky enough… so avoid these common mistakes that can cost you dearly.

Not Collecting VAT or Sales Tax

Thinking you can avoid taxes and collect revenue quietly in dropshipping? Bad idea.

In Europe: Any sale to a final consumer is subject to VAT. Not charging it can lead to tax audits.
In the USA: If you have a tax nexus in a state, you must collect dropshipping sales tax there.

Make sure to verify your tax obligations and use tools like TaxJar or Avalara to automate collection.

Not Declaring Your Income

Thinking you can pocket 'easy money' from dropshipping taxes without declaring? Not a good idea.

Payment platforms (Stripe, PayPal…) report your income to the tax authorities.
A simple audit can cost you a lot in back taxes and penalties.

It’s essential to declare your income and keep your books updated with a tool like QuickBooks or Xero.

Letting Your Supplier Handle Invoicing

It’s your dropshipping store, and you’re selling to the end customer, so you’re the one who needs to issue the invoice, not your supplier.

Many dropshippers rely on AliExpress tax refund system or Alibaba, but these platforms don’t issue invoices in your name. You’re in for trouble if a B2B customer or local governments request one.

Using a tool like Sufio, Order Printer Pro (Shopify), or WooCommerce PDF Invoices can automate this task and avoid issues.

Ignoring Customs Duties and Import Taxes

Your customers order, and surprise! The package gets stuck at customs with additional fees. Who pays?

If you sell under DAP (Delivered At Place) → The customer pays the customs fees. Bad experience if they weren’t informed.
If you sell under DDP (Delivered Duty Paid) → You cover the costs, but these must be planned in advance.

Add a clear disclaimer on your website explaining that import VAT may apply, or work with suppliers who have local warehouses to avoid these fees.

Not Optimizing Your Tax Situation

Too many dropshippers pay more taxes than necessary because they don’t deduct their expenses.

Facebook Ads, Shopify, Stripe, training… All of that is deductible.
Staying self-employed too long can cost more than setting up a well-optimized business.

It’s essential to maximize your deductions and consider a more profitable legal status if your business grows.

Conclusion

Managing dropshipping taxes is a key step to avoid bad surprises and maximize profits. Here’s what to keep in mind:

Income Declaration: You must declare your income, even if you’re selling only online.
Dropshipping VAT and Sales Tax: Know your sales and VAT obligations based on your country and use tools to automate collection.
Customs Duties: Inform your final customers or choose suppliers with local warehouses.
Invoicing: It’s up to you to issue a compliant drop shipping commercial invoice, not your supplier.
Tax Optimization: Deduct your expenses and choose the right business status to pay less taxes.

By applying these best practices, you avoid common mistakes and manage your business professionally and profitably.

FAQ on Dropshipping Taxes

How to Recover Dropshipping VAT?

If you purchase products from suppliers outside the EU, you will pay import VAT. To recover it, you need to:

Be VAT-registered and have an intra community regular or Aliexpress VAT number.
Include VAT perspective on your invoices and account for it in your VAT returns.
Use the reverse charge mechanism if you buy from a European supplier.

If you're using the IOSS (One-Stop-Shop), VAT is collected directly on your sales, to smoothen the entire process.

How to Declare Income in Dropshipping Taxes?

All income earned from drop shipping must be declared to the tax authorities, even if you have an online store and your suppliers are overseas.

Self-employed: Monthly or quarterly declaration through URSSAF (gross revenue).
Company (SASU, EURL, etc.): Annual income declaration and mandatory accounting.
Tax resident outside France: Declaration according to the rules of the country where your business is registered.

Failing to declare income can lead to tax sanctions and penalties.

What Profit Margin for Dropshipping?

The margin in dropshipping sales tax depends on several factors:

Cost of the product + shipping fees.
Advertising and customer acquisition costs (Facebook Ads, Google Ads, etc.).
Taxes and transaction fees (VAT, Stripe, PayPal, etc.).

In general, a margin of 30-50% is recommended to keep making profits. Some products can reach 70% or more if you target low-competition niches.

Is Dropshipping Profitable?

Yes, dropshipping can be very profitable, but it’s not a passive income. To succeed, you need to:

Choose products with good margins and strong demand.
Optimize advertising costs to maintain profitability.
Pay income taxes and issue proper drop shipping commercial invoices and avoid losses.

Income Tax in Dropshipping

Like any business activity, dropshipping generates income, and this income is taxable. Income tax is one of the main tax obligations you face as a dropshipper.

How Does Income Tax Work for Dropshippers?

Income tax in dropshipping depends on several factors:

Your legal status: sole proprietor, company, freelancer, etc.
The country where you are registered: tax rates vary from country to country.
Your revenue and profits: the more you earn, the higher your tax burden.

For example, in France, if you are a sole proprietor, you are subject to a flat-rate tax that includes both income tax and social security contributions. For a company (SASU, EURL, etc.), the tax is calculated on net profits, either through corporate tax or income tax, depending on the option you choose.

In the United States, dropshippers must declare their income to the IRS. Depending on your business structure (LLC, sole proprietorship, corporation), VAT rules vary.

How to Calculate Income Tax in Dropshipping?

Income tax is calculated based on your net profit, which is your revenue minus expenses.

Example:

You make €100,000 in revenue.
You have €30,000 in expenses (advertising, Shopify subscription, transaction fees, cost of goods sold, etc.).
Your net profit is €70,000.

The tax is then calculated on this €70,000, according to the applicable tax rate for your status and country.

In France, a sole proprietor may pay a 12.8% flat-rate tax on revenue (plus social security contributions). A company pays tax on net profit, with corporate tax rates starting at 15% up to €42,500, then 25% beyond that.

How to Legally Optimize and Reduce Income Tax?

There are several strategies to optimize your dropshipping taxes:

Dropshipping tax calculator: deduct all possible expenses through Facebook ads, software (Shopify SEO tools), transaction fees, subscriptions, suppliers, etc.
Choose the right legal status: a company may offer better tax optimization compared to a sole proprietorship.
Open a special business bank account: better accounting management helps predict income tax payments and avoid unpleasant surprises.
Invest in your business: reinvesting in advertising or e-commerce tools can reduce your taxable profits.
Consult an accountant: seek professional advice if your business takes off to structure your finances effectively.

Sales Tax and Dropshipping VAT

When a customer buys a product, a tax may apply to the sale. Depending on the country you’re selling in, dropshipping taxes take different forms:

VAT (Value Added Tax) in the EU country..
Sales tax in the United States and Canada.

Each region has its own rules, making it difficult for dropshippers selling internationally.

How does dropshipping taxes Europe work?

In Europe, every sale to an end customer is subject to VAT. If you sell in France, you apply a 20% French VAT rate on your products. But if you sell to a customer in Germany, the German VAT rate applies.

Since July 2021, the €10,000 threshold has been removed, and all online stores must charge sales tax based on the customer's country from the first sale.

Dropshippers can simplify this management through the VAT One-Stop Shop (OSS), which allows them to declare and pay VAT for all EU countries in one place.

Sales Tax in the United States: A Complex System

In the United States, sales tax does not automatically apply to the entire process. It depends on your tax nexus, which refers to your connection with a state:

If you have a physical nexus (office, warehouse, employees), you must source tax from that state.
If you exceed a revenue threshold in a state (usually $100,000 or 200 transactions), you must also collect dropshipping sales tax there.

Each state sets its own rules and tax rates, ranging from 0% to 11%.

How to Collect and Declare These Taxes?

Platforms like Shopify, WooCommerce, and other e-commerce platforms help automate VAT and sales tax collection. -using the dropshipping tax calculator.
In Europe, the OSS registration simplifies the declaration process.

Outside the EU, tools like TaxJar or Avalara assist in managing state-by-state tax obligations.

Ignoring these dropshipping taxes can lead to penalties, so it’s vital to understand when and where you need to collect them.

Customs Duties and Import Taxes in Dropshipping

Importing dropshipping products seems simple on paper: your supplier in China or in non EU countries sends the order directly to your end customer. But in practice, some packages can be held up in customs, and additional fees may apply.

Many dropshippers overlook this aspect, often leaving the final customer to pay these fees upon delivery. The result? Unhappy customers, forced refunds, and repeated disputes.

Why Are Some Packages Taxed and Others Not?

Customs duties and import dropshipping taxes are calculated based on several criteria:

The package value: In Europe, for example, orders below €150 are exempt from customs duties but still subject to VAT. In the United States, imports under $800 are usually not taxed.
The type of product: Certain items, such as electronics or cosmetics, have higher tax rates.
The country of origin: Some trade agreements allow for reduced or exempt taxes on certain imported products.

But what dropshippers really want to know is who pays these dropshipping taxes and how to avoid them.

Who Pays Customs Duties in Dropshipping?

In dropshipping, the final customer is often the one responsible for paying customs duties upon delivery. However, many customers are unaware of this and might refuse to pay, which can block delivery and cause disputes.

Some suppliers, especially on e-commerce platforms like AliExpress, mark packages as "gifts" or declare a lower value to avoid taxes. While this may work in the short term, it’s risky in the long run. If the package is inspected, it might be blocked or destroyed, causing harm to your business.

Dropshipping sales tax: How to Avoid Bad Surprises?

To prevent your customers from facing hidden fees at delivery, here are some best practices:

Be transparent with your customers: Clearly state in your terms and conditions that customs fees may apply. This helps avoid disputes and protects your reputation.
Use suppliers with local warehouses: Some suppliers offer stock in Europe, the United States, or Canada. Although the price is slightly higher, you completely avoid customs fees for your customers.
Check the sales tax rates before shipping: If you’re selling an expensive product, check the customs rules of your customer’s country. Tools like TARIC (Europe) or USITC (United States) provide the exact tax rates by product.
Choose the right Incoterm: In dropshipping, the most common term is DAP (Delivered At Place), where the customer handles the customs fees. However, to offer a better customer experience, you can opt for DDP (Delivered Duty Paid) and pay dropshipping sales tax fees in advance.

It’s better to foresee these costs than to leave your customers with unpleasant surprises. Proper management of import taxes will help you avoid disputes, improve the shopping experience, and build trust with your customers.

Invoices and Documents in Dropshipping Taxes

When talking about dropshipping taxes, people often think of taxes and duties… but there’s another key point: managing invoices and tax documents. Managing these documents poorly can lead to issues with tax authorities, disputes with customers, and problems with your supplier.

If you want to avoid problems and manage your business properly, here’s everything you need to know.

Who Should Issue the Invoice in Dropshipping?

This is a key question, and many dropshippers fail to let their supplier handle the invoices. Bad idea! As the seller, you are responsible for invoicing your customer.

The customer buys from your dropshipping store → You need to issue an invoice.
You buy from your supplier → They send you a purchase invoice.

This means you must issue a drop shipping commercial invoice for each sale, even if your supplier is the one shipping the product.

What Should an Invoice Include?

A proper drop shipping commercial invoice include mandatory details:

Your business information (name, address, Aliexpress VAT number if applicable).
The customer’s information (name, address).
A detailed description of the product sold (name, quantity, unit price).
The total amount with and without dropshipping sales taxes (VAT if applicable).
A unique and sequential invoice number.

If you are selling internationally, it’s also recommended to issue drop shipping invoices in English… and in the currency of the chain transaction.

Should You Include a Drop Shipping Invoice in the Package?

The answer depends on the shipping method and the supplier.

AliExpress and other Asian suppliers: Generally, no paper invoice is included in the package, which can be problematic if the customer requests one.
European or American suppliers: Some include a drop shipping invoice, but it’s often in the supplier’s name, not the dropshipper’s.

In all cases, it’s better to offer a downloadable invoice directly on your website or send it via email after the order.

How to Automate Drop Shipping Commercial Invoice?

Manually creating invoices for each order can quickly become a nightmare. Luckily, there are tools that automate the drop shipping invoice creation and sending process:

Shopify: Has apps like Sufio, Order Printer Pro, or Invoice Falcon to create and automatically send invoices to customers.
WooCommerce: Plugins like WooCommerce PDF Invoices & Packing Slips to create compliant drop shipping invoices.
Accounting systems (QuickBooks, Sage, Zoho Books): Allow you to integrate invoicing directly into your accounting management.

These solutions save time and ensure dropshipping VAT compliance with current tax regulations. Proper invoice management avoids administrative issues and builds customer trust.

Optimizing Dropshipping taxes Management

Dropshipping taxes can quickly become a headache. Too many entrepreneurs end up with tax surprises because they don’t know what to pay or how to optimize it. Yet good news: there are simple and 100% legal ways to pay less while staying compliant.

Choose the Right Business Status: Don’t Get Trapped in the Wrong System

The status of your business plays a huge role in your tax situation. Many people start as self-employed because it’s simple, but it’s not always the best solution when your business takes off.

Self-employed: Easy to manage, but watch out for limits and flat-rate taxation (which can be a trap if your margins are low).
SASU/EURL (Dropshipping Taxes Europe): More paperwork, but allows for more expense deductions and better tax optimization.
LLC in the USA: If you sell mostly to the US, this can be an interesting option, but you need to fully understand how dropshipping taxes work..

Takeaway: If you’re just making a few sales, being self-employed might be enough. But if your business starts making significant income, switching to a company structure will save you a lot on dropshipping taxes in the long run.

Deduct Your Expenses: Stop Paying More Than Necessary

One of the biggest mistakes in dropshipping is failing to declare expenses. However, every euro you invest in your business can be deducted from your taxes:

Facebook, TikTok, Google Ads ads → 100% deductible.
Shopify fees, WooCommerce, softwares, subscriptions.
Stripe, PayPal commissions, bank fees.
Product costs and shipping fees.
Training, seminars, e-commerce events.

The more expenses you deduct, the less tax you pay on your profits.

Manage VAT and Sales Tax without the Hassle

If you’re selling internationally, you need to manage VAT regulations and dropshipping sales tax smartly.

In EU countries: The IOSS (One-Stop-Shop) helps centralize VAT management for all your sales in the EU. A must in this particular state.
In the USA: Sales tax varies by state, and it can get worse. Automate with TaxJar or Avalara to avoid errors.
Ship from Local Warehouses: Avoid VAT and customs fees for your customers by sourcing from suppliers with warehouses in Europe or the US.

Automate to Save Time

No one wants to spend their days managing invoices and file taxes. Luckily, there are tools that handle the work for you:

QuickBooks, Xero, Zoho Books → For automated accounting management and dropshipping tax calculator.
Sufio, Order Printer Pro (Shopify) → To automatically create and send invoices.
TaxJar, Avalara → To automate sales tax collection and filing VAT returns in the USA.

Dropshipping Taxes: The Worst Mistakes to Avoid

Taxes are tricky enough… so avoid these common mistakes that can cost you dearly.

Not Collecting VAT or Sales Tax

Thinking you can avoid taxes and collect revenue quietly in dropshipping? Bad idea.

In Europe: Any sale to a final consumer is subject to VAT. Not charging it can lead to tax audits.
In the USA: If you have a tax nexus in a state, you must collect dropshipping sales tax there.

Make sure to verify your tax obligations and use tools like TaxJar or Avalara to automate collection.

Not Declaring Your Income

Thinking you can pocket 'easy money' from dropshipping taxes without declaring? Not a good idea.

Payment platforms (Stripe, PayPal…) report your income to the tax authorities.
A simple audit can cost you a lot in back taxes and penalties.

It’s essential to declare your income and keep your books updated with a tool like QuickBooks or Xero.

Letting Your Supplier Handle Invoicing

It’s your dropshipping store, and you’re selling to the end customer, so you’re the one who needs to issue the invoice, not your supplier.

Many dropshippers rely on AliExpress tax refund system or Alibaba, but these platforms don’t issue invoices in your name. You’re in for trouble if a B2B customer or local governments request one.

Using a tool like Sufio, Order Printer Pro (Shopify), or WooCommerce PDF Invoices can automate this task and avoid issues.

Ignoring Customs Duties and Import Taxes

Your customers order, and surprise! The package gets stuck at customs with additional fees. Who pays?

If you sell under DAP (Delivered At Place) → The customer pays the customs fees. Bad experience if they weren’t informed.
If you sell under DDP (Delivered Duty Paid) → You cover the costs, but these must be planned in advance.

Add a clear disclaimer on your website explaining that import VAT may apply, or work with suppliers who have local warehouses to avoid these fees.

Not Optimizing Your Tax Situation

Too many dropshippers pay more taxes than necessary because they don’t deduct their expenses.

Facebook Ads, Shopify, Stripe, training… All of that is deductible.
Staying self-employed too long can cost more than setting up a well-optimized business.

It’s essential to maximize your deductions and consider a more profitable legal status if your business grows.

Conclusion

Managing dropshipping taxes is a key step to avoid bad surprises and maximize profits. Here’s what to keep in mind:

Income Declaration: You must declare your income, even if you’re selling only online.
Dropshipping VAT and Sales Tax: Know your sales and VAT obligations based on your country and use tools to automate collection.
Customs Duties: Inform your final customers or choose suppliers with local warehouses.
Invoicing: It’s up to you to issue a compliant drop shipping commercial invoice, not your supplier.
Tax Optimization: Deduct your expenses and choose the right business status to pay less taxes.

By applying these best practices, you avoid common mistakes and manage your business professionally and profitably.

FAQ on Dropshipping Taxes

How to Recover Dropshipping VAT?

If you purchase products from suppliers outside the EU, you will pay import VAT. To recover it, you need to:

Be VAT-registered and have an intra community regular or Aliexpress VAT number.
Include VAT perspective on your invoices and account for it in your VAT returns.
Use the reverse charge mechanism if you buy from a European supplier.

If you're using the IOSS (One-Stop-Shop), VAT is collected directly on your sales, to smoothen the entire process.

How to Declare Income in Dropshipping Taxes?

All income earned from drop shipping must be declared to the tax authorities, even if you have an online store and your suppliers are overseas.

Self-employed: Monthly or quarterly declaration through URSSAF (gross revenue).
Company (SASU, EURL, etc.): Annual income declaration and mandatory accounting.
Tax resident outside France: Declaration according to the rules of the country where your business is registered.

Failing to declare income can lead to tax sanctions and penalties.

What Profit Margin for Dropshipping?

The margin in dropshipping sales tax depends on several factors:

Cost of the product + shipping fees.
Advertising and customer acquisition costs (Facebook Ads, Google Ads, etc.).
Taxes and transaction fees (VAT, Stripe, PayPal, etc.).

In general, a margin of 30-50% is recommended to keep making profits. Some products can reach 70% or more if you target low-competition niches.

Is Dropshipping Profitable?

Yes, dropshipping can be very profitable, but it’s not a passive income. To succeed, you need to:

Choose products with good margins and strong demand.
Optimize advertising costs to maintain profitability.
Pay income taxes and issue proper drop shipping commercial invoices and avoid losses.