Can you avoid paying EU VAT when dropshipping?

[Hydrox]

Hey guys,

I've been engaged in dropshipping from China to Germany, and I've had a successful first year. Currently, my company is registered in Germany, and the good news is that in the first year, I had the option to be exempt from paying the 19% VAT, so I didn't have to pay it. However, starting next year, I'll have to pay the regular 19% VAT on every sale to the government because I've exceeded the threshold.

At the moment, my profit margin is approximately 23%, so paying the VAT would significantly reduce my profits (almost all of it). I've been considering the only legal solution I can think of, which is selling my items to the US to avoid this VAT. However, since I want to continue selling in Germany, I'd like to ask for your advice on how I can minimize or eliminate the VAT and continue selling here.

Kind Regards, Hydrox

 

[JohnnyDoe]

You can’t. Don’t even think of evading VAT unless you are a serious criminal organization that can compete more or less at parity with the other criminal organization claiming VAT.

 

[Sols]

No. The business model is flawed if you can't multiply your prices by 1/(1-0.19)~=1.24x, charge 19% VAT, and continue to pocket the same profit. Or slightly lower multiplier and slightly lower profit margin.

If the German tax authority catches you dodging VAT, they'll do this fun thing where they simply send you an invoice plus an administration fee on top. The invoiced amount is a rough estimate and it's due immediately. You can appeal to them and fight in court if the amount they invoiced is too high.

Your business is clearly doing well. Don't mess it up by committing tax evasion. Focus on growing your business. Raise your prices a bit. Focus marketing efforts on non-EU/EEA clientele if you feel that's right.

 

[Hydrox]

No. The business model is flawed if you can't multiply your prices by 1/(1-0.19)~=1.24x, charge 19% VAT, and continue to pocket the same profit. Or slightly lower multiplier and slightly lower profit margin.

If the German tax authority catches you dodging VAT, they'll do this fun thing where they simply send you an invoice plus an administration fee on top. The invoiced amount is a rough estimate and it's due immediately. You can appeal to them and fight in court if the amount they invoiced is too high.

Your business is clearly doing well. Don't mess it up by committing tax evasion. Focus on growing your business. Raise your prices a bit. Focus marketing efforts on non-EU/EEA clientele if you feel that's right.

Thank you for the answer, i will surely try to pump up my margins and do better marketing to account for the 19% VAT but it will still hurt.

I´m gonna probably open a second store selling to the US and see how that goes as well.

I´ve recently written with another guy who sells ecommerce Coachings and he told me that many people he knows just register a US LLC and dont pay VAT when they sell to germany/the EU. When i asked him if he knows if anyone ever got caught he said "no everyone is doing it smoothly".

So in a hypothetical scenario how likely is it that someone with an US LLC, who officially doesn´t live in germany anymore gets fucked for not paying his VAT?

Let me hear your opinion

 

[JohnnyDoe]

Thank you for the answer, i will surely try to pump up my margins and do better marketing to account for the 19% VAT but it will still hurt.

I´m gonna probably open a second store selling to the US and see how that goes as well.

I´ve recently written with another guy who sells ecommerce Coachings and he told me that many people he knows just register a US LLC and dont pay VAT when they sell to germany/the EU. When i asked him if he knows if anyone ever got caught he said "no everyone is doing it smoothly".

So in a hypothetical scenario how likely is it that someone with an US LLC, who officially doesn´t live in germany anymore gets fucked for not paying his VAT?

Let me hear your opinion

You can’t do that with Amazon because you are forced to register for VAT, but it might (illegally) work through other sales channels.
More often, people open and close companies to remain under the registration threshold or they just plainly evade VAT for 12-18 months and then repeat with a new company.

 

[Sols]

I´ve recently written with another guy who sells ecommerce Coachings and he told me that many people he knows just register a US LLC and dont pay VAT when they sell to germany/the EU. When i asked him if he knows if anyone ever got caught he said "no everyone is doing it smoothly".

Rest assured that this guy is not a tax adviser, and just some schmuck peddling half-baked ideas to anyone willing to listen.

If the business isn't paying VAT, the customers are. So your customers end up having to go to the Zoll to pick up their items, have their packages inspected, and pay 19% VAT then and there. It works but you won't get many repeat customers that way.

So in a hypothetical scenario how likely is it that someone with an US LLC, who officially doesn´t live in germany anymore gets fucked for not paying his VAT?

Your US LLC is tax resident in Germany, meaning it has the exact same tax obligations as a German company. So the tax authority is going to have a field day with you. On top of that, your customers are angry because they suddenly have to pay VAT on things they buy from you. So your business is taking damage from multiple diretions.

 

[jafo]

You can’t. Don’t even think of evading VAT unless you are a serious criminal organization that can compete more or less at parity with the other criminal organization claiming VAT.

Truer words have NEVER been spoken!

OP, don't mess around with this! It won't end well. The VAT-collecting org. will be attacking you with ammunition "extorted" from ALL your German neighbors and by neighbors I mean, ALL of Germany!
Don't mess up a good thing! Do as @Sols tells you: "multiply your prices by 1/(1-0.19)~=1.24x, charge 19% VAT" or do as I do...get the necessary discount from your Chinese supplier.

 

[Hydrox]

Truer words have NEVER been spoken!

OP, don't mess around with this! It won't end well. The VAT-collecting org. will be attacking you with ammunition "extorted" from ALL your German neighbors and by neighbors I mean, ALL of Germany!
Don't mess up a good thing! Do as @Sols tells you: "multiply your prices by 1/(1-0.19)~=1.24x, charge 19% VAT" or do as I do...get the necessary discount from your Chinese supplier.

Seems like you also do e-commerce with to the EU; judging by the cars in your profile picture, you're doing well too. Currently, I am paying this IOSS VAT on the product price of my supplier, and we are using my supplier's IOSS number as well. I am not an expert on this yet, but with this setup, customers don't have to pay VAT to the Zoll, and they get their items smoothly.
When I'm already paying this iosss vat, do I still have to pay 19% on every sale?

It would be awesome if you could provide me with some clarity.

 

[fshore]

You say you're shipping from China to the EU, in that case you don't necessarily have to charge VAT, as you can leave that to the customers (however that's a hassle for customers so your sales might decrease).

 

[Hydrox]

You say you're shipping from China to the EU, in that case you don't necessarily have to charge VAT, as you can leave that to the customers (however that's a hassle for customers so your sales might decrease).

I am a little bit confused because right now i dont pay VAT on my sales since i have an exception for this year and the customers still smoothly get their items because my supplier has his IOSS number on the sold products.

My supplier however only gets the IOSS Vat from me for the actual purchasing price of the product. So its much cheaper than paying it on the sale price.

So when i already pay this IOSS to my supplier do i still have to charge my customers with extra VAT on the sale?

 

[jafo]

Seems like you also do e-commerce with to the EU; judging by the cars in your profile picture, you're doing well too

+95% of my business is wholesale. See Bio. Yes, I do have some B2C mostly to North America (e.g. Amazon, Shopify, Aliexpress), South America (e.g. Amazon, MercadoLibre, Mercadolivre), Europe (Amazon, tutti.ch plus so many other options ), and Asia (excluding China), but compared to the B2B revenues it's negligible. I pretty much live off the B2C income as I don't "really know" if my "customer" is a revenue agent trying to establish a "trap". There is NO winning anything against ANY government gang members. Even when you win, you lose valuable time and money. Think of Tyson Fury putting his title on the line to fight a bum off the streets for a "purse" of $0.00. Makes NO sense!

Currently, I am paying this IOSS VAT on the product price of my supplier, and we are using my supplier's IOSS number as well.

Hard to understand, but I'll give it a shot...
I don't want to assume anything, so here are my questions....
Taking into account this: One Stop Shop
Example: Supplier price is ¥100.
You sell to the EU customer for ¥300
You pay the IOSS VAT of 19% based on what? The
(1) ¥100
(2) ¥300
(3) ¥200 (300 - 100)

?????

My supplier however only gets the IOSS Vat from me for the actual purchasing price of the product. So its much cheaper than paying it on the sale price.

Which purchasing price? (1), (2), or (3)????

So when i already pay this IOSS to my supplier do i still have to charge my customers with extra VAT on the sale?

The VAT has to be paid to the member state. If I walk into MediaWorld Milano Piazza Lodi at the Centro Piazza Lodi in Milano and buy an APPLE iPhone 15 512GB Nero for €1359 the VAT paid to Italy is €245.07. When I ship to Italy, this is the VAT I pay to the member state. Not a penny more and not a penny less. If in doubt, I round up, of course.

Source: Italian VAT calculator - VATCalculator.eu

So, I'm not sure how you are calculating your VAT, but maybe you can give us an example. It's easier to answer accurately if we can see your variables.

 

[ShillGates]

(2) ¥300

 

[Hydrox]

Which purchasing price? (1), (2), or (3)????

Right now my supplier only charges me VAT on 1) the supplier price of ¥100. I thought this is the fee so we can use his ioss number on the packets

But I know that i probably have to pay the VAT on my end price of ¥300 by next year but what happens with the VAT that my supplier already charges me (see above).

This year i dont have to pay the 19% VAT anyways because i have the "Small business regulation" but for next year this gets important.

 

[jafo]

Right now my supplier only charges me VAT on 1) the supplier price of ¥100. I thought this is the fee so we can use his ioss number on the packets

Are you sure he's paying this VAT or he's just pocketing it? This would NOT surprise me in the least! I've been dealing with the Chinese since I was a kid. I used to deliver food (using my bike) on behalf of the Chinese restaurant in my neighborhood.

You 100% need to find out if he is indeed paying this VAT! You need to find out with the tax authorities. Asking anyone in China whether they are complying is willful ignorance

Triple-check this

But I know that i probably have to pay the VAT on my end price of ¥300 by next year but what happens with the VAT that my supplier already charges me (see above).

This can be answered AFTER you confirm the above IN WRITING from the tax authorities.

 

[ShillGates]

Right now my supplier only charges me VAT on 1) the supplier price of ¥100. I thought this is the fee so we can use his ioss number on the packets

But I know that i probably have to pay the VAT on my end price of ¥300 by next year but what happens with the VAT that my supplier already charges me (see above).

No already for the last many years this vat had to be charged. So if you as German company sells to private individual in Belgium, you charge 21%(or have to pay 21% of the end selling price via MOSS)

This year i dont have to pay the 19% VAT anyways because i have the "Small business regulation" but for next year this gets important.

Not relevant, this is for German customers only, everyone else in europe you charge the countries vat. FOr outside Europe no vat (unless that country got some rules)

 

[fshore]

No already for the last many years this vat had to be charged. So if you as German company sells to private individual in Belgium, you charge 21%(or have to pay 21% of the end selling price via MOSS)



Not relevant, this is for German customers only, everyone else in europe you charge the countries vat. FOr outside Europe no vat (unless that country got some rules)

Only required to use OSS if sales are above 10000eur.

And still, using IOSS when shipping from China is not mandatory. He can ship from China not vat paid.

 

[ShillGates]

Only required to use OSS if sales are above 10000eur.

And still, using IOSS when shipping from China is not mandatory. He can ship from China not vat paid.

if this is b2c you are wrong. even 1 euro is reportable. Distance sales have no threshold since 1 july 2021.

EU withdraws VAT distance selling thresholds 1 July 2021 - vatcalc.com

The EU has now withdrawn its e-commerce distance selling thresholds from 1 July 2021. This is part of its e-commerce VAT package reforms. EU or non-EU

www.vatcalc.com

 

[fshore]

if this is b2c you are wrong. even 1 euro is reportable. Distance sales have no threshold since 1 july 2021.

EU withdraws VAT distance selling thresholds 1 July 2021 - vatcalc.com

The EU has now withdrawn its e-commerce distance selling thresholds from 1 July 2021. This is part of its e-commerce VAT package reforms. EU or non-EU

www.vatcalc.com

There is a 10000 EU wide threshold.

VAT One Stop Shop

Enter the world of VAT One Stop Shop

vat-one-stop-shop.ec.europa.eu

New EU-wide threshold of EUR 10 000​

The previous thresholds for distance sales of goods within the EU have been abolished and replaced by a new EU-wide threshold of EUR 10 000. Below this EUR 10 000 threshold, supplies of TBE (telecommunications, broadcasting and electronic) services and distance sales of goods within the EU may remain subject to VAT in the Member State where the taxable person is established

 

[ShillGates]

There is a 10000 EU wide threshold.

VAT One Stop Shop

Enter the world of VAT One Stop Shop

vat-one-stop-shop.ec.europa.eu

New EU-wide threshold of EUR 10 000​

The previous thresholds for distance sales of goods within the EU have been abolished and replaced by a new EU-wide threshold of EUR 10 000. Below this EUR 10 000 threshold, supplies of TBE (telecommunications, broadcasting and electronic) services and distance sales of goods within the EU may remain subject to VAT in the Member State where the taxable person is established

This is for eu resident companies called micro businesses. First 10k is on domestic return of vat- so not that there is no vat. Non eu companies cannot avail of this.

EU 2021 One Stop Shop VAT return for e-commerce - Avalara

At the heart of the 2021 e-commerce EU VAT reboot is the introduction of the One-Stop-Shop (‘OSS’) single EU VAT return and the withdrawal of the Distance Selling thresholds. This is one of three reforms as part of the 2021 EU e-commerce VAT package.

www.avalara.com

 

[fshore]

This is for eu resident companies called micro businesses. First 10k is on domestic return of vat- so not that there is no vat. Non eu companies cannot avail of this.

EU 2021 One Stop Shop VAT return for e-commerce - Avalara

At the heart of the 2021 e-commerce EU VAT reboot is the introduction of the One-Stop-Shop (‘OSS’) single EU VAT return and the withdrawal of the Distance Selling thresholds. This is one of three reforms as part of the 2021 EU e-commerce VAT package.

www.avalara.com

If the company doesn't have to charge domestic vat then it doesn't on sale to other countries either, on these first 10k.