Dropshipping is a very popular form of making money online nowadays. However, where there are revenues, there is also a tax office and the need to pay income tax. The only exception when you do not need to register your business and pay tax is if your dropshipping income is less than half of the minimum wage. However, assuming the scenario that you want to earn a bit more, you have to take into account the procedures for setting up a sole proprietorship and the need to choose the form of taxation. What are the taxes in dropshipping? What does dropshipping and VAT look like? And how to settle dropshipping?
Dropshipping - what is it?
Dropshipping is a relatively new phenomenon that involves the sale of goods. But the owner of the online store does not have a warehouse, storage point or any of its products. In the case of dropshipping, the import of goods is usually involved, and the seller is only an intermediary between the wholesaler and the customer. He does not physically possess the goods or have any contact with them, because his role is limited to finding recipients, collecting money from them and transferring the funds to the warehouse. The owner of the goods is therefore still the wholesaler, which sends the products directly to customers on behalf of the seller. Such a model of operation is commercial intermediation, because the owner of the online store does not purchase goods.
This is the definition most associated with dropshipping, however there are other dropshipping models that resemble a more traditional type of self-selling. In contrast to commercial intermediation, where the owner does not purchase goods, here the seller sells goods on his own account. He also owns them. Sometimes he introduces minor modifications, e.g. adding his own logo and resells the products.
The growing popularity of these commodity selling models has made many people wonder what things look like, such as:
- dropshipping and business activity,
- dropshipping accounting,
- dropshipping - what form of taxation,
- dropshipping tax settlement.
In today's article, we will answer questions related to dropshipping and introduce you to tax issues related to this form of earning online. So how do you account for dropshipping?
Dropshipping - economic activity
Is it necessary to run a registered business in the case of dropshipping? As with any other gainful activity that exceeds the income limit of half the minimum wage, it is necessary to register the company. Due to the fact that dropshipping is income from non-agricultural economic activity, you must submit an application to CEIDG and choose the appropriate form of taxation.
When setting up your own one-man business, you may encounter some ambiguities related to defining dropshipping in the regulations. That's why it's worth taking advantage of our help! We have been supporting entrepreneurs for years - both beginners and those already operating on the market. Our experts will help you correctly complete the necessary applications and choose the appropriate forms of taxationso that you can focus on running your business and not on secondary, but extremely important, issues related to accounting. Company registration and accounting services online with Open Profit is convenience and a guarantee of professionalism!
Dropshipping - costs
really the costs associated with dropshipping are associated in particular with the need to set up a business. Mandatory contributions, which must be paid by the entrepreneur, and tax are added automatically. Regardless of whether it is a sole proprietorship or you plan to hire employees, you must pay personal income tax.
In addition, the costs may also include fees related to running the website, any fees to the warehouse or returns or exchanges. In addition, it is worth remembering about finances that would be good to spend on marketing and advertising activities.
Dropshipping - what tax?
In the case of dropshipping, the income tax issue is the same as with any other business. At the time of company registration, you must indicate which type of taxation you choose. You can choose from options such as:
The tax scale, or tax on general terms, is the basic form of taxation in Poland. It is used by the largest number of entrepreneurs who run small businesses. This is an option that the office automatically assigns to a business entity, if the business owner does not select a different tax form. Income tax is 12% or 32% if the income exceeds PLN 120,000. In addition, this type of tax has many advantages, such as the possibility of annual settlement with a spouse, child relief, or the possibility of deducting tax deductible costs. There is also a tax-free amount and currently it is PLN 30,000. The health insurance premium in this variant is 9% on the premium rate, i.e. income.
In this case, the amount of tax is 19% - it is a fixed value that does not depend on the amount of your income. The amount of the health insurance contribution is 4.9% from the contribution assessment base. For people earning more than PLN 120,000 a year from dropshipping, it is a more favorable option due to the lower amount of tax. The flat tax also allows you to deduct tax deductible costs, but it does not take into account joint settlement with your spouse or tax reliefs.
Lump sum on registered income
A lump sum is a form of taxation that offers several different amounts of income tax that depend on the type of business. In the case of dropshipping, as a trade brokerage, the flat rate is 8.5%, while for the sale transaction on its own behalf, the flat rate is 3%. The amount of the health contribution is 9% from the contribution amount. However, the flat-rate settlement of the contribution base looks a bit different:
- with annual revenues not exceeding PLN 60,000, the contribution amount is 60% of the average monthly salary,
- with annual revenues in the range of PLN 60-300 thousand, it is 100% of the average salary,
- with annual revenues of over PLN 300,000 per year, the contribution amount is 180% of the average salary.
How to settle dropshipping with Aliexpress?
Dropshipping is often associated with intermediation between foreign stores and Polish customers. A fundamental question arises – how to account for dropshipping from China? In this case, the method of settling income tax depends on the same factors as when selling domestic products. Regardless of whether you sell goods on your own behalf or rather only through intermediation, it is necessary to apply the deduction resulting from the previously selected form of taxation. However, it is worth remembering that VAT is different in the case of imported goods.
Dropshipping and VAT
First of all, a lot depends on whether you are dealing with an active VAT payer. In such a situation, many aspects will be related to which dropshipping model you have chosen. If you are only an intermediary, the VAT rate will be 23% in Poland. The amount of the commission for the brokerage service provided is taxable. However, if you sell on your own behalf, the type of goods you sell is also important here. It may happen that it will also be 23%.
However, there is a possibility of VAT exemption. Both in the agency model and in the own sale model, the revenue limit of PLN 200,000 per year cannot be exceeded. In addition, the sale of goods on own account has additional restrictions depending on the type of products sold. The VAT exemption cannot be used, among others, by entrepreneurs dealing in traditional online trade in products such as:
- electronic and optical products,
- cosmetic and toilet preparations,
- electrical devices,
- non-electric household appliances.
If the goods come from China and you deal with dropshipping in the form of an intermediary, then as the owner of the store you have no contact with this product, so you do not have to worry about VAT.
Dropshipping - how to book?
Dropshipping accounting is not too different from accounting in a traditional online store. As in any other business, you are interested in the costs incurred and the income obtained. Therefore, you should keep an eye on a monthly summation of net facts plus VAT received from wholesalers, and net invoices plus VAT received from customers.
Accounting office - dropshipping
Our specialists at Open Profit are very familiar with accounting related to dropshipping. In addition, you will also find with us Consulting services and services such as staff and payroll. We guarantee a professional approach, experience and thorough knowledge, thanks to which we are able to properly settle and record income from dropshipping. You can focus on the development of your business - we will take care of tax matters! You are looking for accounting officethat meets your requirements? Open Profit is what you need!
- What is dropshipping?
Dropshipping is a form of online commerce, in which the seller usually only acts as an intermediary between the customer and the wholesaler and is not the owner of the goods at any stage. There is also a dropshipping model where the retailer buys the products and resells them under his own brand.
- How to account for dropshipping?
If your income exceeds half of the minimum wage in a given year, you must register your company and pay income tax. In this case, dropshipping is settled in the same way as any other activity, i.e. according to the previously selected form of taxation.