Is Drop Shipping legal? UK and USA – things you may want to consider

November 19, 2021
Anna B

Whenever you think about starting a new business, especially in the online world, you must have in mind the question: Is it legal?

And when it comes to dropshipping, a lot of truths and lies covered the internet around this topic.

The last thing you want as an online merchant is to get sued. But this did happen in certain dropshipping business cases. We’ll go together to the main things you may want to look at before starting your dropshipping business from the legal point of view.

Disclaimer: The information in this article is purely informative and has an educational role. For accurate data regarding the laws in your country, please contact a lawyer before taking any decisions for your business.

Is dropshipping legal?

The general short answer to this question is yes. Dropshipping is a legal business model as long as it follows the appropriate laws in the country of operation. In this article, we are going to look purely at the USA and UK markets.

 Do I need to register my dropshipping business in the UK?

The answer is yes. You should register your dropshipping business in the UK to avoid any legal consequences. The basic business structures in the UK would be Sole Trader, Partnership, and Limited Company. It is ALWAYS important to check with a lawyer to correctly identify the type of your business.

Is dropshipping legal in the USA?

It is recommended to set up an LLC (Limited Liability Company), which is probably the easiest way to start. You can find more information about an LLC here.

Dropshipping taxes

Do you have to pay taxes on drop shipping to the UK? Yes, you do.

In the UK, Import taxes and VAT are to be paid by the importer on record. If your customer is the importer on record, then he will cover the taxes.

As a general rule, the taxation part must always be double-checked with your accountant and lawyer first. The reason for this is that it does contain three parts involved – Supplier, Business, Customer, and all these three parties may be located on completely different sides of the world.

When it comes to the USA, there may be different fees and taxes from state to state.

The USA-based online sellers will all have to pay, however, the income and sales taxes.

Faulty products?

When you are drop shipping, you need to take into account that your supplier’s production laws and regulations may differ from the country where you are selling your products.

Therefore, taking as an example some of the biggest platforms for dropshipping products, AliExpress or Alibaba, and fact that products are shipped from China, you may want to protect your business and have Product Liability Insurance. This way you will have a backup in case things go wrong.

How do I deal with dropshipping returns?

When it comes to the UK, then you must offer your customers a guaranteed refund as long as they have requested this within 14 days since the purchase. You can find out more data about accepting refunds and giving returns right here.

On the other hand in the USA, states do not require by law the presence of a refund policy. However, this is a thing that can scale up your business, as it does build brand loyalty and customer trust. If you want to read more about USA regulations regarding return policies, simply visit this.

Can you get in trouble for dropshipping?

As with anything else, dropshipping can have an illegal part as well. The most common issue with this is the niche of products you choose to sell.

Let’s see what niches you should avoid when doing e-commerce.

  • Drugs – the vast majority of the e-commerce platforms in both the UK and USA will not allow you to sell any drugs. Doing so, you may not only get banned from a certain platform but also meet legal implications.
  • Guns – in the USA, your business must have an FFL license in order to be allowed to produce or import anything related to firearms and ammunition. The same applies to the UK, where you will need to be registered as a Firearms dealer before thinking of selling guns online.
  • Humans medicines – To sell this in the EU, your business must be a certified recognized pharmacy, otherwise, this is illegal. After Brexit, you can still check if a website sells illegal medicines online on the UK Government website. When it comes to the USA, then the online pharmacy must have a U.S. state-licensed pharmacist available to answer any questions your customers may have. You can find more details about the signs of a Safe Online Pharmacy right here.

Read more about drop shipping:

More useful information on legal stuff:

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