The ‘dropshippers’ who buy cheap products on AliExpress and resell them more expensive without passing through their hands – a popular model among teenagers to whom certain ‘gurus’ promise very high returns – have new legal obligations since Thursday. This will complicate their operations and reduce their margins, which will cause them to raise prices, start selling outside Europe or leave the business.
“Some of our clients did it to get a bonus and they said: buff, I’m out of this mess,” says Fernando Matesanz, director of the Spanish VAT tax advisory firm. “Others have put the batteries and will professionalize”.
Until now, goods less than 22 euros imported from outside the European Union were exempt from VAT. So it was relatively easy to set up a ‘DropAli’, as AliExpress ‘dropshipping’ is known, or to work with a non-EU supplier and pass purchase orders to them. Some common products are sandals, “artisan jewels” or the trinket watches.
“For example: I am a Spanish company and I sell to a French consumer. I receive the money from the French, I buy from the Chinese supplier and the merchandise goes from China to France. Nobody paid VAT for products of less than 22 euros. And if they were worth more , it was said in customs that they were below that price because nobody checked all the containers “, adds the fiscal lawyer Alvaro Saez. “Now, if they use a platform or sell through their website, they will have to pay VAT. Those who can continue cheating are outsiders. But what does he do here, create a Chinese company and a website there to breach the Norm? Will they go to higher value items or will they sell in Latin America. It is goodbye to dropshipping as we know it in Europe. ”
Sáez, who has several ‘droshippers’ among his clients, says that cheap products – or “low value goods” in tax jargon – are no longer attractive for this business. “Dropshipping involves large advertising costs. Now you will no longer be able to offer a competitive price because you have to pay VAT. And if you want to dropship, you have to continue investing in marketing. It will compensate to sell less volume but of more value and spend to products such as bicycles, telephones or televisions, “he says.
The ‘dropshipping’ groups on Telegram are these days full of doubts. Some veterans ironically say that it is “the end of ‘dropshipping'” and encourage to sell all the stock. In fact, they believe that the new regulation eliminates trash from the market and benefits professionals, who will now simply pass that 21% on to the consumer. That is in the case that they import from outside Europe, because there are also ‘dropshippers’ who buy from European suppliers.
“We have everything stored in Spain and we work with quality European suppliers,” says Salvador Esteve, CEO of the Valencian company BigBuy, which advocates quality dropshipping. “Many clients come to us asking about the VAT, but here everything is resolved. The merchandise is in Europe and has paid all its taxes before. There are people who want to do dropshipping and are now looking for European suppliers because delivery is faster. The container crisis has benefited us and now this too. Anything that hinders dropshipping from China benefits us. ”
The new VAT rules are complicated. “I have been in this for many years and it is the most complex modification I have seen,” says Miguel Ferrández, partner in the Indirect Taxation and Corporate Tax area at KPMG Abogados. The disappearance of the cheap goods exemption is just one of the changes. It is intended to end a fraud of 7,000 million euros per year. “Studies have shown that this exemption is being abused, as unscrupulous sellers from outside the EU mislead shipments of goods, such as smartphones, to benefit from the exemption,” the European Commission explains in a release.
But there is more. Starting today, the platforms on which non-community companies sell will be in charge of collecting VAT on each product and paying it to the national Treasuries. Take as an example a non-European seller of the marketplace from Amazon or AliExpress that sells ceramic pots for 30 euros. Until now, neither that seller collected VAT nor the Treasury persecuted him.
With the modification, Amazon and AliExpress become tax collectors. “A small bag of fraud had been detected. To avoid it in certain operations of suppliers not established in the European Union, the exception will be made that the platform ‘buys’ the product and collects the tax,” continues Ferrández. This measure applies to products of less than 150 euros.
If this is not done, the products from outside would have to pay VAT at customs and it would be a nuisance for the end customer. That is why the European Union has enabled this option.
This is the reason why buying on AliExpress will be more expensive from today, as several media have pointed out in recent days. In statements to this newspaper, the Chinese company confirms that “as of July 1, AliExpress will collect VAT on imported products from consumers in the European Union and will forward it to the relevant tax authorities as appropriate, in accordance with these new regulations. Consumers will be able to see the applicable VAT cost during their purchase process “.
Sources close to Amazon explain that the American multinational has already informed its sellers of the change. “VAT will be calculated on items stored outside the EU, charged and governments will be able to better collect.”
The idea is that the products are sold with the corresponding VAT in each country. To avoid headaches for sellers, the EU creates a so-called “one-stop shop” where they can fulfill all their obligations.