If you are planning to start a drop shipping business, how to deal with customs duties and drop shipping sales tax will always be one of the primary concerns. You want to make sure your products are not held hostage in the customs office most especially if you are drop shipping valuable items which have expensive price tags. One would automatically assume expensive products are prone to tax problems in dropshipping as well which could eventually offset your businesses since it may catch the customers off guard. Always check for the option of importing a larger quantity of private or white label goods yourself to avoid these problems.
In this wiki article, we will discuss how to deal with customs duties and tax issues when you are drop shipping from China. Get to know the ins and outs of the business model particularly when dealing with the customs office.
Dealing with Tax Problems in Dropshipping
Whenever you are shipping high-priced items to a country where the taxation-free barrier is relatively low such as EU countries, as long as the total order value is lower than the maximum value set by their customs office then your goods won’t be held by the customs office and would be considered as tax free. The threshold in Europe varies from 10 euros to 22 euros, depending on the European country. But if you are going to drop ship items which are more expensive than the standard customs limit then you should expect to pay drop shipping sales tax and obey drop shipping tax laws.
The main tip in dealing with customs duties and tax issues is to be fully transparent in stating your products are coming from some other country. There is no reason for you to hide you are sending a commercial item and keeping it as a secret will only spell disaster for your customers and company in case the customs office find out about it. For example, if you are drop shipping from China then do not try to systematically under declare the value since the customs authorities often inspect and compare items’ prices. Then these small tax problems in dropshipping become a big problem if traced back to you.
On the other hand, it is also your responsibility as a drop shipping business owner to inform your customers they should expect to pay drop shipping sales tax on top of their order’s value so everything is clear and there would be no issues in the long run. You can also choose to right away include the drop shipping sales tax in the product price but simply present a value breakdown for transparency with your customers. However, that means that you have to import all items yourself first and do the paperwork for each.
In order to avoid complaints from customers who are new to purchasing items from abroad and are ignorant of custom duties and drop shipping tax laws, create a policy page in your website or provide a copy of it on your sales document which clearly declares customers are responsible for paying custom duties and additional drop shipping sales tax in their country. This policy gives drop shipping businesses the leverage in case customers file for a complaint or asks for a refund out of drop shipping customs costs.
Drop shipping is not new in the trade business industry. People know for a fact they should expect to pay custom duties and import taxes when ordering items from abroad. If the items have a relatively low value, it could be tax-free and this becomes a bonus for most customers. However, there are people who are not knowledgeable of this norm and may end up arguing about drop shipping sales taxes charged on their behalf. Establishing your drop shipping customs policy is must to protect your business from these nosy customers and negative reviews.
Dealing with customs duties and tax problems can be big deal for drop shipping businesses unlike other companies that order in bulk. You definitely have to consider the regular import of a bulk quantity if you have a product that is above the tax-free threshold of your clients’ country. It can be a bad experience for your customers to get their product seized because its value is under-declared. Especially if you want to establish a long-term business, tax problems in dropshipping are an important reason to not follow this business model. Try to build your own brand with the help of private label manufacturers instead of drop shipping factories.
Transparency and being honest of your business is the key in dealing with custom duties and tax issues. Customers including the customs authorities always appreciate honesty and will not be tight on your drop shipping business. Simply keep in mind these are normal issues you have to face since you are doing business in an international scale. Also keep in mind that you’re subject to political risk and changes in postal fees as just recently happened in the US, where the cost for international shipments particularly from China increased a lot.