Before July 1, 2021, shipments from outside the EU were exempt from import duties up to a total value of 22 euros (up to 45 euros for private gift shipments). The reason was the so-called customs franchise. However, from that date, everything changed drastically.
Elimination of the customs franchise and its implications for dropshipping e-commerce companies:
For companies whose business model is based on dropshipping, for example, shipping products from Asia, these changes have had serious consequences. The costs of most products increased by around 20%, depending on the country of destination.
In addition, the users themselves are responsible for providing the correct information. Therefore, they must be able to show invoices and transaction confirmations if requested. Therefore, any inspection by customs causes shipping delays, resulting in longer waiting times and consequently negatively impacting customer satisfaction.
On the other hand, long storage times mean increased storage costs for parcel companies, which will be passed on to online sellers. For these reasons, many dropshipping eCommerce businesses are now looking for alternative solutions, such as using the services of fulfillment service providers.
Why was duty-free import (up to 22 EUR) removed?
The elimination of the tax-free deduction from July 1, 2021, had as its main objective to stop VAT fraud. Furthermore, it means that online retailers and drop-shippers from outside the EU are no longer receiving preferential tax treatment.
For example, before the new regulations, a retailer did not have to pay tax when buying a €20 pair of headphones from China. But a German e-commerce company had to pay 19% tax when selling the same product at the same price.
French and Austrian online merchants would have to pay 20%, Spanish and Dutch 21%, Italian 22%, Poles 23% and Swedish 25%. This since mid-2021 is a thing of the past. In addition to greater equity, this of course also means additional revenue for the EU countries (Austria alone is expected to generate €150 million more in tax revenue; larger countries will generate considerably more than that).
Now I always have to pay import taxes for any amount?
In some cases you can still import goods without paying import VAT. If the customs payment (import VAT) amounts to less than 1 euro, you will be exempt from paying customs. So, for example, if you import goods into Germany from a non-EU country with a total value of up to 5.20 euros (with 19% VAT on importation into Germany), you will be exempt from paying import tax. , since this would amount to less than 1 euro.
Let’s take a closer look with four examples:
If you buy new sunglasses from an online store outside the EU. The price you paid for the glasses was 5.20 euros, so due to the abolition of customs duty, you have to pay an import tax of 19% (if you live in Germany). This is equivalent to a tax charge of 99 cents, but since the import tax is less than 1 euro, the regulation on small amounts applies and the tax is not applicable.
If you buy the sunglasses at a price of 7 euros, the regulations on small amounts lose their validity. The import tax would amount to 1.33 euros, exceeding the limit threshold by 33 cents. In this case, you (as a customer) will have to pay the German import VAT of 19%, and the shipping service provider (Deutsche Post, DHL, or similar) will collect this charge plus a flat out-of-pocket fee of €6.
Shipping service providers charge an out-of-pocket fee for all packages delivered from non-EU countries to the customer’s doorstep.
In this case, the customer buys a pair of sunglasses for a total price of 30 euros. Before and after the new regulation, this amount exceeds the tax-free allowance of 22 euros, so duties of 5.70 euros (30 x 0.19) had to be paid. In addition, you also have to pay the disbursement fee.
You decide to buy a pair of designer sunglasses worth 190 euros. Therefore, the order exceeds a total value of 150 euros and is no longer considered a low-value shipment. This, in turn, means that in addition to VAT (eg €190 x 19% = €36.10) and the disbursement fee, a certain percentage of the value of the purchase price must also be paid for customs.
As usual, the purchase price includes shipping costs. The amount of the percentage depends on the category of the product; some goods are even imported for free.
Dropshipping Ecommerce Reform 2021 – Everything You Need to Know