Many dropshippers use an Estonian OÜ. It is quick to register, you can run it from anywhere, and profit is not taxed until you distribute it. None of this changes the VAT position, and VAT is where most dropshipping problems start.
What decides the VAT treatment of a sale?
Two facts decide the VAT treatment of a dropshipping sale: where the goods are when you sell them, and where they go. The rest follows from that.
- Goods shipped from outside the EU straight to an EU consumer: this is a distance sale of imported goods. If the consignment is worth €150 or less, IOSS (the Import One Stop Shop) applies. Above €150, normal import VAT and customs duty apply at the border.
- Goods already in the EU when sold, sent to a consumer in another member state: this is an intra-EU distance sale. The €10,000 threshold applies, and you can report these sales through the One Stop Shop (OSS).
- Goods in Estonia sold to an Estonian consumer: ordinary Estonian VAT at 24%.
Many dropshippers assume that the supplier's shipping arrangement decides the tax. It does not. What matters is who the supplier is for VAT purposes. That is usually you, unless a marketplace takes on that role.
IOSS and the €150 limit
The Import One Stop Shop (IOSS) covers goods imported into the EU in consignments with an intrinsic value of €150 or less. With IOSS you charge VAT at the customer's country rate at checkout. You give the IOSS number to the carrier, and the parcel clears customs without VAT being collected again on delivery.
Without IOSS, the courier invoices the customer for import VAT plus a handling fee, often €10 to €20 on a small order. A fair share of these parcels are refused, and you pay for the return. That is why IOSS is usually treated as a must in this model.
Intrinsic value means the value of the goods alone, without transport and insurance shown separately. Splitting one order into two parcels to stay under €150 does not work. Consignments meant to be delivered together are assessed together.
When is the marketplace liable instead of you?
If you sell through a platform such as Amazon, eBay or Etsy, the platform is treated as the supplier for some sales and accounts for the VAT itself. The two main cases are imported consignments up to €150, and goods already in the EU sold by a seller not established in the EU.
In those cases you must not declare the VAT as well. That would mean paying twice, and getting the money back is slow. Which of your sales fall into this depends on where you are established and where the stock is. It has to be worked out from your actual sales reports.
How is dropshipping profit taxed in Estonia?
An Estonia OÜ pays no corporate income tax on dropshipping profit left in the company. When it distributes profit, it pays 22/78 of the net dividend, which is 22% of the gross amount. Personal purchases paid through the company count as distributions and are taxed the same way. This often catches founders who use the business card for the odd private order.
Where do dropshippers usually lose money?
Dropshippers usually lose money in five places, and all five are VAT mistakes, not corporate tax.
- No IOSS registration, so customers pay VAT twice and refuse delivery.
- Sales to consumers in other member states still charged at the Estonian rate after the €10,000 threshold was crossed.
- Supplier invoices from outside the EU treated as if no VAT applies, when reverse charge and import VAT rules do apply. Reverse charge means you declare the VAT on the purchase yourself.
- Advertising invoices from platforms outside Estonia not put through reverse charge. This understates both output and input VAT.
- Refunds not deducted in the country where the original sale was reported.
What should be in place before the first sale?
Four things should be in place before the first sale: a written decision on who the supplier is, IOSS registration, threshold tracking and bookkeeping by destination country.
- Decide in writing whether you or the marketplace is the supplier for each sales channel.
- Register for IOSS before the first import if you ship consignments under €150.
- Track cross-border sales to consumers (B2C, business to consumer) against the €10,000 threshold from the first day, added up across all countries.
- Set up bookkeeping that shows sales by destination country and VAT rate, net of refunds, every quarter.
If you would rather not set this up yourself, e-commerce accounting starts at 99 EUR a month.
Frequently asked questions
Can an Estonia OÜ be used for dropshipping?
Yes. Many dropshippers use an Estonian OÜ because it is quick to register, can be run from anywhere and does not tax profit until you distribute it. None of this changes the VAT position, which is where most dropshipping problems start.
How is an Estonia OÜ taxed on dropshipping profit?
Profit left in the company is not taxed. When you distribute it, the tax is 22/78 of the net dividend, which is 22% of the gross amount. Personal purchases paid through the company count as distributions.
Do I need to register for VAT in Estonia to dropship?
Not automatically. Estonian VAT registration is required above €40,000 of taxable turnover, or earlier for some cross-border purchases. IOSS registration is separate. It depends on whether you ship imported consignments of €150 or less.
What is the €150 dropshipping rule?
Goods imported into the EU in a consignment worth €150 or less can go through IOSS, with VAT charged at checkout instead of at the border. Above €150, normal import VAT and any customs duty are due on arrival.
Does Amazon pay the VAT on my dropshipping sales?
For some sales, yes. Where the marketplace counts as the deemed supplier, it accounts for the VAT itself and you must not declare it again. Which sales these are depends on where you are established and where the goods start.
Tagsdropshipping tax EstoniaIOSSEU VATe-commerce
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