How does VAT work when dropshipping into the EU?

The rule in two lines

Since 1 July 2021 there is no low-value exemption in the EU. Every commercial import is taxable, and the value of the consignment decides who collects the tax:

• Up to EUR 150: you can register for IOSS and charge the customer’s local VAT rate at checkout, then remit it through one monthly return covering all 27 member states.
• Above EUR 150: VAT plus any customs duty is assessed at the border and billed to the recipient, unless you ship delivered-duty-paid.

Almost everything sold by dropshippers sits under EUR 150, so IOSS is the setup that matters.

What IOSS actually changes

Import One-Stop Shop is a single registration that replaces registering for VAT in every country you sell to. You collect the buyer’s local rate at checkout, file one return a month, and the parcel clears customs without a tax stop.

Non-EU sellers usually cannot register directly and go through an intermediary established in the EU. That costs roughly EUR 50-200 a month depending on volume and provider, which is a real line item on top of your platform and app costs.

The alternative is not “no VAT”. It is your customer being asked for EUR 7.60 of VAT and a EUR 6-12 handling fee before the courier releases a parcel they already paid for. Some pay it. Many refuse, and refused parcels become chargebacks.

Price it in before the first campaign

This is where stores lose money quietly. You sell at EUR 39.99, keep all of it in your head, and discover months later that EUR 6.38 of every German order was never yours.

The arithmetic on a typical product:

• Selling price: EUR 39.99 including 19% German VAT
• VAT owed: EUR 6.38 (39.99 x 19 / 119)
• Net revenue: EUR 33.61
• Landed cost: EUR 13.00
• Gross profit before payment fees: EUR 20.61, not the EUR 26.99 you get by ignoring VAT

Break-even ROAS moves from 1.48 to 1.94 on the same product. That is the difference between a campaign that works and one that never could, and it is decided before you write a single ad.

Put VAT into the break-even calculator as a per-order cost so the number you scale against is the number you keep. The wider margin arithmetic is in dropshipping profit margin explained.

Which rate you charge

The customer’s country, not yours. A German buyer pays 19%, an Irish buyer 23%, a Hungarian buyer 27%. Shopify and WooCommerce both handle destination-based EU VAT once you enter your registrations, but neither configures itself — check it with a test order to each of your top three markets before launch.

If a market’s rate makes the product unsellable, exclude the market. Selling a EUR 24.99 impulse product into Sweden at 25% VAT is a decision, not an accident.

The parts people miss

Marketplace rules do not cover you. AliExpress collecting VAT on the seller side has nothing to do with the sale you made to your customer. You are the seller of record for that transaction.

Distance selling thresholds are separate. If you hold stock inside the EU, a different regime applies (OSS, and the EUR 10,000 union-wide threshold). IOSS is specifically for goods imported from outside the EU.

Customs duty is not VAT. Above EUR 150, duty applies on top and varies by product category — commonly 0-12% on the goods dropshippers sell.

Delivery time interacts with tax. A parcel held for a tax payment sits at the depot for days. That is on top of the 7-15 day window covered in AliExpress shipping time to Germany.

What to do, in order

1. Decide your target EU markets before launch, not after.
2. Price with VAT included and check break-even ROAS at the highest rate you will sell into.
3. Register for IOSS through an intermediary if you are outside the EU.
4. Configure destination VAT in your platform and place a test order per market.
5. State clearly at checkout that VAT is included and no further charges apply on delivery.

Step five is worth as much as the other four. “All taxes included, no charges on delivery” removes the single biggest objection an EU buyer has to ordering from an unfamiliar store. The rest of the pre-launch sequence is on the 10-step launch roadmap.

General information, not tax advice. IOSS registration and VAT treatment depend on your specific setup and country — see our terms.