Does AliExpress handle IOSS and VAT for dropshipping in the EU and USA?

[Greyhawk]

Dear staff, dear trading professionals! 🤠

I have a few questions for you that I couldn't find definitive answers to during my research in the past few days.

I hope I'm posting in the right forum section?

I want to start dropshipping both in the EU and the USA, initially using AliExpress via DSERS.

I'm a newbie, so please bear with me if some questions sound a bit silly 🙂

My first set of questions concerns AliExpress and IOSS:

I was planning to register for IOSS until I read that AliExpress handles IOSS, meaning AliExpress is already registered for IOSS and collects the VAT at the time of purchase, then (hopefully) properly remits it to the customer's country.

Now, I have 5 questions related to this:

1. So, do I really not need my own IOSS number anymore, or can I save myself the trouble of registering for IOSS?
2. Whether a customer is from Germany, France, USA, Australia, or Southwestern Samoa and orders from my shop, will AliExpress automatically remit the VAT to the customer's country?
3. In your experience, does the import process through AliExpress-IOSS work without issues and any potential customer repayments? Does AliExpress reliably handle this process, in your experience, or will I end up paying taxes twice...?
4. To avoid customs problems, does the shipping method play a role here? I read somewhere that there might be issues with ePacket (for some reason). However, I don't see why that should be the case since the IOSS procedure through AliExpress should remain the same, regardless of the chosen shipping method or carrier. Is that correct?
5. How do I obtain evidence of the VAT amounts I paid to AliExpress? Will AliExpress provide invoices showing the VAT I paid? Can I get a refund for this VAT from my tax office, or am I misunderstanding something?

And then I have a question regarding the HT code and HTS code:

It seems that each package requires these codes. In my Shopify panel, there are fields for entering them for individual products. Do I need to do something manually, or will they be automatically applied to each package by the supplier or the shipping carrier?

I hope that wasn't too many questions all at once 😥

Thanky you very much! 🤗

[Greyhawk]

Suzanne, I thank you very much for your tips and invaluable practical experiences! You have truly helped me a lot. And yes, I actually have another question, which I'll send to you via private message. In any case, thank you! 

[Rostislav]

Hi Greyhawk

I will try to answer you questions one by one , you seem to have a wrong understanding about IOSS. 

Q:

 I was planning to register for IOSS until I read that AliExpress handles IOSS, meaning AliExpress is already registered for IOSS and collects the VAT at the time of purchase, then (hopefully)p roperly remits it to the customer's country.

A: I do not know DSers app , but if it is only dropshipping , then Aliexpresse's IOSS number is of no use for you. Normally drop shipping works this way : you buy from dropshipper's underlying supplier and sell it yo your customer through your checkout. You are responsible for IOSS in this case. Dropshipper should use your IOSS number for delivery. To simplify the matter ,  to determin VAT responsibility in the whole supply chain the most important thing is to determine who collects VAT in the checkout  - so far it is you in your Shopify store.    

Now, I have 5 questions related to this:

Q:

1. So, do I really not need my own IOSS number anymore, or can I save myself the trouble of registering for IOSS?

A:   If this is a usual dropshipping solution , then see above. You need to register for IOSS and and apply it when items come through customs. 

Q:

1. Whether a customer is from Germany, France, USA, Australia, or Southwestern Samoa and orders from my shop, will AliExpress automatically remit the VAT to the customer's country?

A:

No.  Moreover USA and  Australia  do not have VAT a\they have sales tax which is handled differently and fo above reasons ALiexpress has nothing to do with these taxes.

Q:  In your experience, does the import process through AliExpress-IOSS work without issues and any potential customer repayments? Does AliExpress reliably handle this process, in your experience, or will I end up paying taxes twice...?

A: Again see above . Should be your IOSS. 

Q:To avoid customs problems, does the shipping method play a role here? I read somewhere that there might be issues with ePacket (for some reason). However, I don't see why that should be the case since the IOSS procedure through AliExpress should remain the same, regardless of the chosen shipping method or carrier. Is that correct?

A: Irrespective of the which IOSS scheme is used  , as discussed above,  you need to make sure that your IOSS number is properly used by the logistics operator. Most dropshippers mishandle IOSS numbers and often misuse clients IOSS numbers. Again I do not know much about this particular one.  IOSS number should be properly input as part of electronic customs data set and all carriers handle it differently.  

Q: How do I obtain evidence of the VAT amounts I paid to AliExpress? Will AliExpress provide invoices showing the VAT I paid? Can I get a refund for this VAT from my tax office, or am I misunderstanding something?

A: Not applicable - your purchase from AIliexpress should be B2B and you should  not remit any VAT to them . You should remit VAT to your fiscal representative in EU who will settle VAT payment with EU tax authorities. 

There are many other issues with dropshippers. For example they might ship an item from within EU  out of their own warehouse and then IOSS is not applicable, but you might even not know about such a situation. 

Do contact us at www.easproject.com and we can properly handle your VAT schemes . 

[Greyhawk]

"your purchase from AIliexpress should be B2B and you should not remit any VAT to them . You should remit VAT to your fiscal representative in EU who will settle VAT payment with EU tax authorities."

That's what I thought, actually - until I saw that AliExpress charges taxes, along with a note that they're obligated to pay them to the appropriate countries.

And hence my insecurities about this topic.

If AliExpress charges taxes and I have to pay them as well - then taxes will be paid twice for each order.

[Greyhawk]

On the DSERS website:

"All packages imported into EU countries or sent cross-border within the EU must pay VAT via IOSS." AliExpress has completed the IOSS registration and can take care of the customs clearance while helping dropshipping companies to pay the taxes. This means that all packages are ready to go.

To general customers:

If the goods are shipped directly from outside the EU to EU buyers and the value of the goods is less than EUR 150, VAT will be collected and paid by AliExpress. Buyers can see the specific VAT on the checkout page.

To drop shippers:

1. The EU VAT will be collected by AliExpress and then paid to the requested EU party. The dropshipping business can operate normally and the end customers don't have to pay EU VAT at all.

Dropshippers do not need to do any additional operations on AliExpress or DSers. AliExpress handles all customs clearance.”

[Rostislav]

HI Greyhawk,

I have seen it all with dropshippers:  you can check them one by one and you will find all the same nonsense in the descriptions of their operations.  DSERS puts everything in one place and only looks at  the whole situation through supply chain point of view. They clearly have little idea about what they are talking about. Their main business seems to be a dropshipper for Aliexpress and connecting Aliexpress to other platforms as underlying supplier. 

But let us look at this in detail.

If you are an underlying supplier to Aliexpress then , yes , Aliexpress is responsible for VAT and has to pay it to the EU tax authorities via their own IOSS registration, Dropshippers/logistics operators  that deliver such orders have to quote AliExpresse's IOSS number at customs. The payment is done via AliExpress's checkout and it is them who collect money. 

But in your situation  (you sell through your own Shopify store) it is you who make the sale , it is you who collect the money and it is you, who are responsible for the VAT. Aliexpress acts,  in essence , as your underlying supplier and they do not use their checkout. 

n that setting they cannot really be responsible. In according to the Article 14a of the EC VAT directive it is you who facilitate the sale. 

Dropshippers lie DSERS do not understand that and lead you into breaking the law. 

One practical thing to consider here which should make everything right about the underling legislation. You obviously want to mark up the sale of Aliexpress items sold by you? 

Imagine you sell the item at 100 EUR . The base for the VAT calculation is your retail price  , so you would charge 20 EUR worth of VAT . 

Aliexpress sell the item to you at 50 EUR (let us put away inclusion of VAT in that price for the time being) . If , as DSERS claims it, Aliexpress will pay VAT on the sale , how they would know you retail  price (that being 100 EUR) ?

If , as it is claimed, that is the case and Aliexpress pays 10 EUR VAT ,  then you (yes, you)  underpaid VAT to EU......

In this setting your relations to the underlying supplier (Aliexpress) should be B2B and dropshipper,  when delivering your items to EU,  should use your IOSS number and quote 100 EUR as the customs value  to the EU customs. Using Aliexpress's IOSS number in this case is a clear violation.  

[Greyhawk]

Rostislav, thank you for your valuable thoughts.

"But in your situation (you sell through your own Shopify store) it is you who make the sale , it is you who collect the money and it is you, who are responsible for the VAT. Aliexpress acts, in essence , as your underlying supplier and they do not use their checkout.
Aliexpress sell the item to you at 50 EUR (let us put away inclusion of VAT in that price for the time being) . If , as DSERS claims it, Aliexpress will pay VAT on the sale , how they would know you retail price (that being 100 EUR) ?
If , as it is claimed, that is the case and Aliexpress pays 10 EUR VAT , then you (yes, you) underpaid VAT to EU......"

Absolutely right!
I completely agree with you on this one! Because that's exactly the thought I had:
I am indeed selling the product at a higher price than AliExpress, which would result in higher taxes.

However, AliExpress still charges the tax. How should I handle these expenses?

🤔Okay, summing it all up - am I understanding it correctly (I would really appreciate your opinion on this):

Ultimately, what matters is the final sale (B2C). I understand that part.

So, the customer orders from me (item for €100, I collect tax, 20% = €20).
I order the item from AliExpress (item for €50, AliExpress charges 20% = €10 tax).
The transaction between AliExpress and me is a B2B action.

I report the tax revenue of my shop-sale using MY IOSS number to the EU - and the EU receives €20 (not €10).

And the tax I paid to AliExpress: Can I declare it in my tax return and offset it as an expense or input tax credit? 📜

Would that be mostly correct then?

There's just one cosmetic issue remaining:

If AliExpress indeed forwards its share of the tax to the EU (or any other country) - then the EU is being paid twice.

And then, there are these questions as well:

1. It's said to be complicated to register as a seller on AliExpress and deliver through your OWN IOSS instead of AliExpress's IOSS.

2. It's reportedly difficult to obtain accurate invoices from AliExpress, with the tax paid to AliExpress properly indicated.

Unfortunately, AliExpress doesn't make the process easy, it seems (to do everything correct).

That's why many dropshippers proceed like this:

First, they use AliExpress's IOSS for delivery - even though, as you correctly pointed out, that doesn't seem to be entirely correct.
Once a product sells well, they collaborate with an agent who now organizes deliveries through the dropshipper's own IOSS.

[Rostislav]

HI ,  I will try  your questions one by one  

Q:

So, the customer orders from me (item for €100, I collect tax, 20% = €20).
I order the item from AliExpress (item for €50, AliExpress charges 20% = €10 tax).
The transaction between AliExpress and me is a B2B action.

I report the tax revenue of my shop-sale using MY IOSS number to the EU - and the EU receives €20 (not €10).

And the tax I paid to AliExpress: Can I declare it in my tax return and offset it as an expense or input tax credit? 

A: 

No,  you cannot treat your payments to Aliexpress as input that  (VAT on the purchases) . 1. IOSS scheme does not allow any input VAT reimbursements. 2. VAT , technically , is always a national tax . so the only way you can treat payments to Aliexpress as input VAT if both of you are registered for VAT in a single EU country and supply happens in this country.    

The only way to treat this "VAT" is to absorb it into the cost , because it is not VAT in all practical terms. 

So the cost of the item is 60 EUR to you , net of VAT , You sell it for 100 EUR plus 20 EUR VAT, your revenue is 40 EUR .  No other way to treat it. 

Q:

There's just one cosmetic issue remaining:

If AliExpress indeed forwards its share of the tax to the EU (or any other country) - then the EU is being paid twice.

A: 

Yes , but it is not even traceable to the EU authorities .  Aliexpress will use their own IOSS number and at customs the item will be attributed to them, not to you. Moreover sooner or later the EU customs will realize that   you pay VAT but there are no items coming through customs with your IOSS number. Most probably they will do nothing about it , but still . 

Q: 

And then, there are these questions as well:

1. It's said to be complicated to register as a seller on AliExpress and deliver through your OWN IOSS instead of AliExpress's IOSS.

A: 

One  cannot register as aseller at ALiexpress , sell through them and use seller's IOSS number. It should be the Aliexpress's number if the Aliexpress's checkout is used.    

Q: 

2. It's reportedly difficult to obtain accurate invoices from AliExpress, with the tax paid to AliExpress properly indicated.

A: 

That I cannot help you with . They have an invoicing and settlement system for underlying suppliers , but in this case it would be the "dropshipper" who would be arranging for invoices. You are not Aliexpress's seller.  You are a buyer from them. 

Q:

Unfortunately, AliExpress doesn't make the process easy, it seems (to do everything correct).

That's why many dropshippers proceed like this:

First, they use AliExpress's IOSS for delivery - even though, as you correctly pointed out, that doesn't seem to be entirely correct.
Once a product sells well, they collaborate with an agent who now organizes deliveries through the dropshipper's own IOSS.

A:

"Dropshipper"  is not supposed to have the IOSS number at all  - they are not in the process of the sale , at all. Even if some of them do register for IOSS they  break the law. 

And the last. DSERS , CJDropshipping and many others in most cases  are not dropshippers at all. They do not have warehouses , they do not touch physicall packages, they do not own/order any transport .  They provide SaaS service to connect a source of goods (real underlying suppliers or maerketpalces ) and you. They may do paperwork (issue invoices ) and transfer data , but they do not touch anything physicall. 

Delivery in most cases is done by big delivery solution providers : SF express, China post ,Yanwen,  YoTO etc etc etc. These real delivery companies never know anything about "dropshippers" for whom you think they work  - delivery is ordered by  Aliexpress or the underlying suppliers not the "dropshippers".   

These "dropshippers" sometimes even put tracking through their site , but tracking number is still the one that is obtained via OMP (Aliexpress  etc) . 

Dropshipper's revenue is to sell you the app on monthly bases and percentage of the sales (for some of them) . No logistics or real goods handling .  

Sorry to disappoint you 🙂

[DutcherGames]

Hi Rostislav, thanks for answering the questions!

If I understand you (and our local tax authorities) correctly, it is necessary that customs have my IOSS number when importing the package.

Yet we all assume that Aliexpress sellers will always use the Aliexpres IOSS number. Doesn't that make dropshipping via Aliexpress practically impossible?

Because then nothing will be received on my IOSS number, but I will still properly report all sales. I do pay taxes, but my IOSS number is not used further. That seems like a problem, doesn't it?

[Rostislav]

You got it right ,it is exactly what happens. Dropshipping via Aliexpress is not strictly speaking is legal.
You will pay taxes on your IOSS number but there will be no items coming through customs on your IOSS number. And the tax authorities and customs in EU do try to match  the volume of reported sales on your IOSS fiscal report  and the volume of customs imports.  


Yours, 
Rostislav

[Pablo1801]

Hi, how did you resolve all your issues? I'd like to talk to you about it.

[Rostislav]

Hi Pablo , 

Unfortunately, it is not really possible to resolve the above issue within the context of existing legislation. One need to ensure that Aliexpress  (or their logistics operators) use your IOSS number , but they will never do so  due to the fact that they have no idea that you exist .....  Moreover whoever takes your order to customs  needs to report your sales price to the EU customs , not Aliexpress's , and they do not know your retail price.

The only practical legally sound situation - you receive items to your location and post them yourself , but then the whole meaning  of drop shipping is lost.       

[Pablo1801]

Another interesting solution is to ask the seller on Ali to send the item to your shipping agent, the agent will specify your IOSS and the price you say.
How do you like this strategy, I am waiting for your answer.

[DutcherGames]

That is an interesting method, worth considering. It can possibly be done with a UPS (for example) delivery that I would then arrange myself.

I have to admit that I see the advantage of dropshipping evaporating slightly. Of course, this slows down the process considerably and there is little automation.

[Pablo1801]

I think it's good that dropshipping is dying out thus weeding out most of the competitors who won't be able to organize a working dropshipping system.
There will be more adequate dropshippers on the market and the rest will give up and give up their hands

[Rostislav]

It depends on where your agent is (inside or outside EU). if the agent is outside EU that would work , provided that the agent will also use your retail price for customs clearance. One more thing - Ali and the big shipping agents actually do handle reimbursement of VAT for Chinese suppliers , which is another story , but your agent perhaps should be there to  handle it. 

[Aa98]

Oh really?