Dropshipping is legal but it has been regulated. You have to know the rules that regulate dropshipping in your country to avoid getting into trouble.
If you are having doubts about the legality of dropshipping, it is legal. There are no government organizations that are implementing laws that make the business illegal. Dropshipping works just like any other eCommerce or retail website. You buy a product at a certain price and sell it at a higher price to earn a profit. This is what all businesses selling physical goods are doing. The only difference is that, when dropshipping, you don’t maintain the inventory and handle the packing and shipping of products to customers. It’s the suppliers that handle them all for you.
Is dropshipping legal in my country?
Although drop shipping is legal in many countries, they differ when it comes to rules that regulate dropshipping. You should familiarize yourself with the policies of your country before you get started. For example in the United States, dropshipping is legal but, there you have to get a USA reseller permit and comply with relevant tax laws. While in the UK, dropshipping businesses are mandated to complete their VAT registration before selling dropshipping products to people.
Should I get a business license to start selling on Shopify?
Technically, no. However, it’s not a good idea to operate a dropshipping business without one. A business license serves as proof that the government allows you to operate in a specific location. It is issued by the state or city government office where you choose to run your business, regardless if it’s online or a brick-and-mortar store. The government requires the procurement of permits and licenses so they can monitor what goes on in your business. Read our post on the importance of getting a business license before selling to customers here.
Are there illegal aspects of dropshipping that I have to avoid?
Yes, there are a few aspects of dropshipping that are considered illegal. These include:
#1 – Not paying your tax liabilities
As a business owner, you must know the tax liabilities in your country for eCommerce businesses. Being tax compliant can help you avoid consequences that can lead to huge fines or worse, getting jailed for tax evasion. There are two types of taxes that you need to pay when dropshipping: the income tax and the sales tax. I recommend that you consult a tax professional or lawyer who has the knowledge and expertise on these matters.
#2 – Selling products with copyright and trademark
Dropshipping trademarked or copyrighted products can be very tempting especially to newbie drop shippers. As these are already popular products, the market is already there and all they have to do is to sell them at lower prices. However, as the logo and tagline are legally registered for use by a company or product, these cannot be used by other entities without permission. There are legal liabilities on selling these types of products. The copyright or trademark owners can sue you for infringement resulting in huge financial losses for your business. Learn more about the risks of dropshipping trademark products in this article.
#3 – Selling of illegal, regulated, or prohibited products
Shopify prohibits the use of their services by businesses engaging in any of the following:
- Intellectual property or proprietary rights infringement
- Counterfeit or unauthorized goods
- Regulated products and services
- Adult content and services
If you’re planning to build a dropshipping business around them, it will be considered illegal and you can get penalized. Also, Shopify’s financial partners or recognized payment providers like Stripe or PayPal prohibit products and services specified below.
- Drug paraphernalia
- Event Tickets
- Government Services
- High-risk businesses
- Multi-level marketing
- Pharmaceuticals or Pseudo pharmaceuticals
- Social media activity
- Substances designed to mimic illegal drugs
- Video game or virtual world credits
To know more about these prohibited products and services, read the Shopify Payments Terms of Service.
#4 – Breaching contracts with unreliable suppliers
A contract with your dropshipping supplier is binding. If you are not satisfied with your supplier’s delivery of service, you cannot breach the terms of your contract because you can get sued for it. Therefore, you have to make sure that you choose your suppliers carefully to avoid these inconveniences in your business.
Dropshipping is legal. Yet, you have to consistently research and follow ethical business practices. By avoiding the illegal aspects of dropshipping, you can prevent any negative consequences they can cause your dropshipping business. Adhere to the set rules and regulations in your country, and the platforms and payment processors that you use to prevent legal troubles to arise. As a precaution, always get professional advice when it comes to legal and tax matters so you’ll get the correct and complete interpretation of the laws and know your rights.