1. Introduction: What Is Dropshipping?
Dropshipping is an increasingly popular e-commerce model in which the online retailer does not maintain stock or manage shipping. Instead, customer orders are sent to a third-party supplier, who ships the goods directly to the final consumer.
While efficient, dropshipping logistics create complex VAT (Value Added Tax) implications, particularly for cross-border transactions within the EU. One of the most challenging aspects involves chain transactions and how to correctly determine the place of supply for VAT purposes.
2. Legal Structure of a Typical EU Dropshipping Chain Transaction
Scenario Example:
A German online seller (D) purchases products from a Polish manufacturer and sells them to private consumers located in different EU countries.
Actors Involved:
| Role | Party |
| 1 | Polish Supplier (Manufacturer) |
| 2 | German Reseller (D) |
| 3 | EU-based Private Consumer |
Though three parties are involved, this is not a triangular transaction under §25b German VAT Act (UStG), because the end customer is not an entrepreneur. Instead, it qualifies as a chain transaction under EU VAT law.
3. What Is a Chain Transaction under EU VAT Law?
A chain transaction involves:
– Three or more parties selling the same goods in succession,
– But with a single physical movement of the goods — from the first supplier to the final purchaser,
– Each sale is documented separately by invoice.
Only one of the sales in the chain qualifies as an intra-Community supply, which is exempt from VAT under Article 138 of the EU VAT Directive.
4. How to Determine the Place of Supply in Chain Transactions
4.1 General Rule under VAT Law
According to §3(6) UStG and Article 36a VAT Directive:
– The place of supply is the location where transport starts.
– This applies only to the movement transaction — the sale that triggers the transport.
4.2 Identifying the Movement Transaction
The movement transaction is the “active” sale in the chain that causes the goods to be shipped.
If the Polish supplier ships the goods directly to the consumer, then:
– The first sale (Poland → Germany) is the movement transaction.
– It may be 0% VAT if all intra-Community supply conditions are met (valid VAT number, transport evidence, etc.).
5. VAT Treatment of Non-Movement (“Inactive”) Deliveries
5.1 Transactions Before the Movement
| Sale | Place of Supply |
| Polish supplier → D | Poland |
5.2 Transactions After the Movement
| Sale | VAT Responsibility |
| D → Private Consumer | VAT due in consumer’s country |
Thus, the German reseller (D) must either:
– Register for VAT in the destination Member State, or
– Use the OSS (One-Stop Shop) to report local VAT.
6. VAT Rates and Liability in EU Dropshipping
| Transaction | Parties | VAT Rate | VAT Responsibility |
| Movement Transaction | Polish Supplier → D | 0% (intra-Community supply) | Polish Supplier (must prove transport) |
| Final B2C Sale | D → Private Consumer | Local rate (e.g., 21% NL, 20% AT) | German Reseller D (must register or use OSS) |
7. Summary Table: VAT Treatment in Dropshipping Chain Transactions
| Step | Parties | Type of Sale | VAT Treatment | Place of Supply |
| 1 | Polish supplier → D | Movement transaction | 0% intra-Community supply (with proof) | Poland |
| 2 | D → Consumer | Final B2C sale | VAT due in consumer’s country | Country of residence |
Key Takeaways for E-Commerce Sellers
– Chain transactions in dropshipping are common in EU cross-border e-commerce but require precise VAT classification.
– Correctly identifying the movement transaction is essential to claim VAT exemption.
– German dropshippers (and others) must ensure they comply with OSS registration or register for VAT in each destination country.
– Proper invoicing and evidence of transport are critical to avoid unexpected tax liabilities.
Dr. Katona Géza, LL.M. ügyvéd (Rechtsanwalt / attorney at law)
___________________________________
Katona és Társai Ügyvédi Társulás
(Katona & Partner Rechtsanwaltssozietät / Attorneys’ Association)
H-1106 Budapest, Tündérfürt utca 4.
Tel.: +36 1 225 25 30
Mobil: + 36 70 344 0388
Fax: +36 1 700 27 57
Chain Transactions in Dropshipping – Part One: Understanding EU VAT Rules
1. Introduction: What Is Dropshipping?
Dropshipping is an increasingly popular e-commerce model in which the online retailer does not maintain stock or manage shipping. Instead, customer orders are sent to a third-party supplier, who ships the goods directly to the final consumer.
While efficient, dropshipping logistics create complex VAT (Value Added Tax) implications, particularly for cross-border transactions within the EU. One of the most challenging aspects involves chain transactions and how to correctly determine the place of supply for VAT purposes.
2. Legal Structure of a Typical EU Dropshipping Chain Transaction
Scenario Example:
A German online seller (D) purchases products from a Polish manufacturer and sells them to private consumers located in different EU countries.
Actors Involved:
| Role | Party |
| 1 | Polish Supplier (Manufacturer) |
| 2 | German Reseller (D) |
| 3 | EU-based Private Consumer |
Though three parties are involved, this is not a triangular transaction under §25b German VAT Act (UStG), because the end customer is not an entrepreneur. Instead, it qualifies as a chain transaction under EU VAT law.
3. What Is a Chain Transaction under EU VAT Law?
A chain transaction involves:
– Three or more parties selling the same goods in succession,
– But with a single physical movement of the goods — from the first supplier to the final purchaser,
– Each sale is documented separately by invoice.
Only one of the sales in the chain qualifies as an intra-Community supply, which is exempt from VAT under Article 138 of the EU VAT Directive.
4. How to Determine the Place of Supply in Chain Transactions
4.1 General Rule under VAT Law
According to §3(6) UStG and Article 36a VAT Directive:
– The place of supply is the location where transport starts.
– This applies only to the movement transaction — the sale that triggers the transport.
4.2 Identifying the Movement Transaction
The movement transaction is the “active” sale in the chain that causes the goods to be shipped.
If the Polish supplier ships the goods directly to the consumer, then:
– The first sale (Poland → Germany) is the movement transaction.
– It may be 0% VAT if all intra-Community supply conditions are met (valid VAT number, transport evidence, etc.).
5. VAT Treatment of Non-Movement (“Inactive”) Deliveries
5.1 Transactions Before the Movement
| Sale | Place of Supply |
| Polish supplier → D | Poland |
5.2 Transactions After the Movement
| Sale | VAT Responsibility |
| D → Private Consumer | VAT due in consumer’s country |
Thus, the German reseller (D) must either:
– Register for VAT in the destination Member State, or
– Use the OSS (One-Stop Shop) to report local VAT.
6. VAT Rates and Liability in EU Dropshipping
| Transaction | Parties | VAT Rate | VAT Responsibility |
| Movement Transaction | Polish Supplier → D | 0% (intra-Community supply) | Polish Supplier (must prove transport) |
| Final B2C Sale | D → Private Consumer | Local rate (e.g., 21% NL, 20% AT) | German Reseller D (must register or use OSS) |
7. Summary Table: VAT Treatment in Dropshipping Chain Transactions
| Step | Parties | Type of Sale | VAT Treatment | Place of Supply |
| 1 | Polish supplier → D | Movement transaction | 0% intra-Community supply (with proof) | Poland |
| 2 | D → Consumer | Final B2C sale | VAT due in consumer’s country | Country of residence |
Key Takeaways for E-Commerce Sellers
– Chain transactions in dropshipping are common in EU cross-border e-commerce but require precise VAT classification.
– Correctly identifying the movement transaction is essential to claim VAT exemption.
– German dropshippers (and others) must ensure they comply with OSS registration or register for VAT in each destination country.
– Proper invoicing and evidence of transport are critical to avoid unexpected tax liabilities.
Dr. Katona Géza, LL.M. ügyvéd (Rechtsanwalt / attorney at law)
___________________________________
Katona és Társai Ügyvédi Társulás
(Katona & Partner Rechtsanwaltssozietät / Attorneys’ Association)
H-1106 Budapest, Tündérfürt utca 4.
Tel.: +36 1 225 25 30
Mobil: + 36 70 344 0388
Fax: +36 1 700 27 57