VAT Rules for Dropshipping: Place of Supply Explained

One of the most misunderstood topics in dropshipping is whether the seller has to charge VAT when goods are shipped directly from a non-EU country to an EU consumer. The answer lies in the “place of supply” rule, set out in the EU VAT Directive.

The EU VAT Directive
According to Directive 2006/112/EC, Article 32:

“Where goods are dispatched or transported by or on behalf of the supplier, the place of supply of goods shall be deemed to be the place where the goods are located at the time when dispatch or transport of the goods to the customer begins.”

This means:

  • If goods are shipped directly from China to France, the place of supply is China, not France.

  • Therefore, the French dropshipper is not required to charge French VAT. Instead, VAT is due at import, collected by customs or the courier.

Practical Application

  • A German Shopify seller shipping €60 watches directly from China to German customers does not charge German VAT. DHL will collect VAT at import and invoice the end-customer.

  • For shipments under €150, the seller may opt into IOSS instead.

Why this matters
Many dropshippers incorrectly charge VAT on top of import VAT, effectively overpaying. Knowing the correct place of supply prevents double taxation and improves margins.

Legal source:

Conclusion
The place of supply rule is the legal foundation that allows dropshippers to structure their sales without charging VAT unnecessarily.

Want a compliance check for your dropshipping model? Our team can analyze your flows and confirm if VAT should apply.

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