Dropshipping has become a fast-growing ecommerce business model in France, with a market share of over €10 billion in 2024. That same year, the government enacted a new finance law to provide a tax framework for dropshipping, particularly with regard to value-added tax (VAT) collection.

This article outlines the rules for dropshipping and VAT in France, including who has to file VAT and how to avoid penalties.

What’s in this article?

• How dropshipping works
  
• Tax regulations for dropshipping and VAT
  
• Who pays VAT for dropshipping?
  
• How to file VAT for dropshipping
  
• Penalties for noncompliance
  
• How to ensure proper VAT filing for dropshipping
  
• How Stripe Tax can help
  

How dropshipping works

Dropshipping is an ecommerce model where a seller buys goods from a third-party supplier (often located outside the EU) that ships them directly to customers within Europe. The seller acts as an intermediary in the transaction, handling only the marketing and sale of the goods.

In other words, dropshipping involves a transaction between three parties:

• The seller, aka dropshipper: Markets and sells goods purchased from a third-party supplier, without ever physically possessing those goods (no stock, no delivery). The dropshipper’s revenue comes from the margin earned on sales to customers.
  
• The third-party supplier (often based outside the EU): Fulfills purchase orders from the dropshipper and delivers the products directly to customers. The supplier’s revenue comes from the sale of goods to the dropshipper.
  
• The customer: Buys goods from the dropshipper, without necessarily being aware of the existence of the third-party supplier.
  

Just like with any other ecommerce business, dropshippers must ensure that orders are fulfilled correctly and comply with a number of transparency requirements for customers, including general terms and conditions of sale (CGV), legal information, return policy, privacy policy, delivery information, and right of withdrawal.

Tax regulations for dropshipping and VAT

Tax requirements for dropshipping, defined as distance selling of imported goods (VAD BI), are provided for in the 2024 Finance Act (Act 2023-1322 of 12-29-2023). This law specifies that dropshipping professionals must file for and pay VAT on goods imported and sold in France when the VAT collected upon importation (when the goods arrive at customs in France) is lower than the local VAT charged for an equivalent sale that would have taken place within French territory.

In other words, there are two possible scenarios for the dropshipper regarding dropshipping and VAT:

• If the amount of VAT in France (for a direct sale in France) is higher than the amount of VAT on an import (for a dropshipping sale), the dropshipper must pay the difference between the two VAT amounts.
  
• If the amount of local VAT is lower than the import VAT, the dropshipper only has to pay the import VAT.
  

For example, an online seller buys a pair of shoes from Colombia for €20 and sells them dropshipped to a customer in France for €50. In this case, the e-seller must pay €4 import VAT (20% rate on €20, which corresponds to the supplier’s purchase price, i.e., the customs value). If the sale had taken place in France, the seller would have had to pay €10 VAT (standard rate of 20% on €50, which corresponds to the customer sales price). Since the amount of import VAT is lower than the amount of VAT due for a sale in France, the e-seller must pay the tax office the difference between the two amounts, which is €6.

The 2024 Finance Act strengthens regulations on VAT for dropshipping. It’s intended to provide new regulatory requirements for this fast-growing business.

The provisions of the 2024 Finance Act don’t apply when a sale is facilitated by an electronic interface (such as a marketplace or dropshipping platform) and the goods being delivered to the customer are already located in France. They also don’t apply when the seller uses the Import One Stop Shop (IOSS), regardless of the transaction value. In that case, the dropshipper is responsible for paying the import VAT.

The act also seeks to make certain distance selling transactions that were previously classified as occurring outside the EU subject to French VAT. The dropshipper, who acts as an intermediary in the transaction between the supplier and the end customer, isn’t part of the customs clearance process, as they’re not involved in the logistics of delivering the imported goods. As a result, import VAT is generally based on the sale between the third-party supplier and the dropshipper, and not on the sale between the dropshipper and the end customer.

This means that the dropshipper’s margin isn’t taxed, even though it forms part of the price paid by the end customer in France and can be very high, depending on the goods sold. This absence of VAT also benefits online platforms that host dropshipping stores, which take a cut for every sale.

Therefore, the legislation aims to:

• Combat VAT fraud
  
• Guarantee fair competition between various market players (by eliminating tax advantages for dropshippers) and fair taxation of all transactions (French, intra-EU, and international)
  
• Simplify the collection of VAT for distance selling
  
• Hold online platforms accountable
  

Who pays VAT for dropshipping?

The entity liable for VAT on a sale to a customer in France is either the dropshipper or the platform that facilitates dropshipped sales. When the dropshipper sells products directly on its own website, the dropshipper is liable for VAT, levied at the French VAT rate. If the dropshipper goes through a platform or marketplace, that entity is responsible.

The type of VAT to be filed will depend on the amount of the sale. When the dropshipper sells imported goods to a customer in France via the dropshipper’s own website:

• If the sale is less than or equal to €150, the dropshipper can use the IOSS to file and “prepay” VAT to customs. In this case, the import transaction is exempt from VAT. On the other hand, if the dropshipper doesn’t use the IOSS system, the dropshipper must file import VAT and might have to pay VAT on the sale in France.

• If the sale is over €150, the IOSS can’t be used. The dropshipper must then file VAT on the import and on the sales transaction.

When the dropshipper sells goods imported from other EU countries on the dropshipper’s own website:

• If the sale is less than or equal to €150, the dropshipper can use the IOSS to file VAT at the current rate in the customer’s country of residence.
  
• If the sale is over €150, the dropshipper can’t use the IOSS system to file VAT at the current rate in the country of residence. The dropshipper must instead register for VAT in the customer’s member state and file local VAT.
  

When the dropshipper sells imported goods via a dropshipping platform or marketplace, that entity is considered the supplier. This means that the platform or marketplace must pay VAT. If the sale is less than or equal to €150, the platform or marketplace must file VAT on the import and the sales transaction; if the value of the sale exceeds €150, it only has to file import VAT. The professional dropshipper will have to file VAT on the sales transaction.

Note that self-employed people can benefit from the VAT exemption regime and not file VAT for their dropshipping businesses. To qualify, self-employed dropshippers must have sales less than or equal to:

• €85,000 for the prior calendar year
  
• €93,500 for the current calendar year
  

French tax authorities typically revise thresholds every three years. The thresholds above reflect the period from January 1–March 1, 2025. If your self-employed dropshipping business meets these conditions, you can invoice your sales excluding tax.

How to file VAT for dropshipping

The process for filing VAT for dropshipping varies depending on the country where VAT applies:

• If the customer is in France, the business must file VAT on the CA3 or CA12 form.
  
• If the customer lives in another EU country, the business must file the foreign VAT, and can make use of the VAT One Stop Shop (OSS), then request reimbursement for this intracommunity VAT.
  

To make filing easier, professional dropshippers can ask the tax office to apply the rate applicable in France to their sales, provided the company is established in France.

Penalties for noncompliance

In the event of noncompliance with the VAT and dropshipping tax requirements, the dropshipper risks several types of penalties:

• Tax penalties: In the event of failure to file or late filing, there is a risk of fines ranging from €750 to €1,500. In the case of tax fraud, the fine can be as high as €75,000.
  
• Administrative penalties: Failure to comply with tax requirements could result in a tax audit and tax adjustment.
  
• Criminal penalties: VAT fraud can result in a prison sentence of up to five years.
  
• Commercial penalties: In the event of noncompliance, dropshipping or web hosting platforms can suspend or block a business’s account.
  

How to ensure proper VAT filing for dropshipping

To avoid the risk of VAT penalties for your dropshipping business, make sure you do the following:

• Ensure that your invoices are in compliance with French regulations.
  
• Check whether VAT is applicable (French or foreign) and which entity is responsible for filing it (you or the sales platform you use).
  
• Verify what VAT regime is applicable to determine whether you’re exempt from basic VAT under the simplified regime or whether you have to file via the OSS.
  
• File VAT at the right time.
  
• Keep customs and tax receipts for six years.
  
• Stay informed about regulatory changes to keep up to date on tax requirements.
  

How Stripe Tax can help

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