You are maybe thinking of starting a dropshipping business and wondering “Is dropshipping legal or not”?
Whether you run your own dropshipping business, or you want to dropship on Amazon, eBay, Aliexpress, etc. There are different restrictions in each area.
In this article, we are going to dive deep into dropshipping legitimacy, taxes, legal agreements, legal aspects of dropshipping in specific countries, and so much more.
Is Dropshipping Legal in 2021?
To clarify this question, yes, dropshipping is perfectly legal. Although, there is always a risk attached to every given answer.
Nearly every retail giant worldwide uses dropshipping as a method to fulfill customer orders. Although, there are dropshipping rules we have to all follow.
If we don’t follow these rules, we can put our dropshipping business into serious trouble.
What Is Illegal in Dropshipping?
Here are a few dropshipping practices that you should avoid at all costs.
Selling Unauthorized Products
The biggest mistake you can make while dropshipping is to sell unauthorized products. This is 100% illegal.
You need to initially get authorization from the supplier that possesses these products, and then, it is considered legal.
Here is an example of unauthorized selling:
You find car parts from a brand that sells them. You decide to sell these car parts on your dropshipping store, without finding a supplier to fulfill these orders. This is 100% illegal.
There are countless dropshipping businesses that do this. Although, if you don’t have an agreement or build a partnership with suppliers or a brand, your dropshipping business will be down faster than you think.
Not only that but you may also get sued and have to pay very high fees.
It is not that difficult to become an authorized seller, all you have to do is to contact suppliers and ask them what they need from you for authorization.
You can avoid anything, but not taxes. Just like any other business, dropshipping requires you to pay taxes.
Taxes all depend on the amount of profit you make, so always consider writing down or calculating what revenue you will earn and how much will go to taxes.
Each state has a different tax law. Taxes might also change from year to year, so always be sure to contact an attorney who is specialized in e-commerce tax law.
Failing to represent an item can be a complete failure for your dropshipping business. Misinformation can include anything from selling fake products to selling an item with a different description.
Selling fake products without a doubt is 100% illegal. Although, even misrepresenting or misinforming about an item can lead to you getting sued.
It can result in you paying fines and closing down your dropshipping business.
Examples of misinformation:
Fake product- You sell a fake Gucci belt or bag. Instead of it being more expensive, you lie to your customers that it is cheaper but the product is actually fake. There are cases where some dropshippers will charge the same price a Gucci belt would cost but the product is actually fake.
Misinformation- You sell a laptop but include specifications that the laptop doesn’t possess. This is an example of misinformation.
Do You Need a License to Dropship?
No, you don’t need a license to dropship. Whether you dropship on eBay, Shopify, or any other platform, you don’t need any specific license.
Most dropshipping platforms like Shopify, eBay, etc, will only require you to create an account, provide your social security number, and bank account information.
Although, even though you don’t need a business license to set up your dropshipping store, it’s a good idea to have one.
You need to take 3 things into consideration if you are thinking of obtaining a business license:
When you have a business license, your personal liability decreases. Registering your business as a Small Corporation or a Limited Liability Company (LLC) decreases your liability for any item sold on your dropshipping store.
A great way to manage your liabilities is to seek in working with suppliers that already have a legit product and have an established presence in your local country.
Many dropshippers will try and work with other dropshipping sites and get all the blame when a product is not what they expected. Like the case with AliExpress, the blame will go to you, not to a supplier they never heard of before.
Successful retail giants like Amazon, Walmart, all have developed good relationships with their suppliers. This is what keeps liabilities low.
If you want to work with great suppliers, you will also need to build a legitimate dropshipping business.
If suppliers see you as a small corporation or LLC, they will see your legitimacy and want to work with you. That is a step closer to achieving your business license.
Once you become a dropshipping business owner and start earning revenue, the dropshipping taxes will be your biggest expense. When you acquire a business license, paying taxes is inevitable.
Unless you are not taking your business seriously, you will have to always calculate revenue after you pay taxes.
How to Prove Your Dropshipping Business is Legal and Legitimate?
If you want your dropshipping business to be legitimate and completely legal, here are a few tips we recommend:
In case your product is defective, a refund policy is not mandatory by law. Although, it is good to have one because it increases customer trust.
You don’t need to worry about creating one from scratch, there are many refund policy generators. Shopify has a great well-written refund policy, which you can get here.
Or in other words, terms & conditions are legal documents that state the responsibilities and rights of your dropshipping business.
Even though just like a refund policy, it isn’t mandatory, it is good to have it. It may help you in case you face any legal issues.
You can generate a legal agreement policy by Shopify.
You can generate one here.
Is Dropshipping an Opportunity?
For many dropshippers, it doesn’t make sense for them to take on shipping expenses. Especially when you are shipping big products. It doesn’t seem worth it, doesn’t it? Here you can find out if dropshipping is still worth it.
With dropshipping, online sellers actually can enjoy the benefit of making revenue without having to worry about shipping costs and storage.
Must-read: If you are on a budget, here’s our ultimate guide on starting a dropshipping business for free.
Suppliers on the other hand get to enjoy having an energetic flow of customers.
How Profitable Is Dropshipping in 2021?
Dropshipping without a doubt is still profitable in 2021. The rise of online purchases around the world keeps increasing year by year.
E-commerce revenues have surpassed $4 billion, nearly a 10% increase since 2014.
Dropshipping in Specific Countries
Is Dropshipping Legal in the USA?
Dropshipping in the USA is definitely legal. One of the highest e-commerce revenues is made through dropshipping in the US.
The only thing you should watch out for is the goods and services you are selling. Avoid selling illegally, and the other illegal practices we mentioned above.
Since there is a potential risk with dropshipping, Paypal doesn’t support the dropshipping business because of the risk control policy.
You can try other payment methods instead of Paypal. Google Wallet or Apple pay is a good alternative to avoid getting punished by Paypal.
Is Dropshipping Legal in Canada?
Dropshipping is 100% legal in Canada.
However, just like we mentioned with dropshipping in the USA, you want to make sure the products you are selling can be legally sold in Canada. Follow all policies that are linked to taxes, declarations, and import restrictions.
You may visit the Canada Border Services Agency website to read more about policies linked with dropshipping in Canada.
Is Dropshipping Legal in Germany?
Absolutely, it is 100% legal. A business model that isn’t hurting anyone or anything.
Just like any other country, whether you sell internationally or locally, you will have to worry about taxes.
Taxes differ in every country, so you will have to consult with a tax professional or check your local tax law policies. The regular VAT charge for all EU countries is 19%.
Try to avoid selling products that contain offensive words, brand replicas, alcohol, etc.
Don’t forget to check if the items that you are selling are not subject to import duty in the country your customers are from. Even if they are, inform your customers about it.
Is Dropshipping Legal in the UK?
Yes, it is! Just like in the USA and every other country, you want to check if the goods you are selling are against dropshipping rules.
Other than that, you need to agree with the UK’s competition and consumer laws, also, all online, distance-selling, and data protection rules required by the United Kingdom.
Check our ultimate list of 20+ Dropshipping Suppliers In the UK.
Is Dropshipping Legal in Australia?
Yes, dropshipping is legal in Australia.
Other than checking if the product you are selling is legal, you need to comply with the Australian Consumer Law and Competition and Consumer Act.
Is Dropshipping Legal in Spain?
Dropshiping is definitely legal in Spain. It follows rules like any other EU country.
Just like we mention in every country around the world, follow the legal guidelines.
EU countries, except France, all have the same VAT of 19%. Sell legally and don’t try to avoid taxes to dropshipping in Spain!
These were our answers to see if dropshipping is legal or not. We covered what is mandatory to have, and what isn’t.
What makes your dropshipping business more legitimate, and if dropshipping is legal in the specific countries we mentioned.
If you are concerned about starting a dropshipping business in a specific country, you can visit our “Start Dropshipping In” section on our website, and read all articles that show you how to start a dropshipping business in different countries.