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Is dropshipping legal? The straightforward answer is an affirmative Yes! And it’s also a legitimate business.
Are there risks to running a dropshipping online store? It’s also a definitive yes. After all, life itself is a risk.
No matter what you’ve heard or read, dropshipping is perfectly legal. It’s a popular online business model that revolves around selling and shipping products to customers without keeping any inventory.
In this arrangement, the seller is a sort of intermediary in charge of marketing the products being sold, the shipment, the delivery, and the packaging of the products being outsourced.
Set up correctly, the dropshipping business model can make you a sizable fortune. However, dropshipping comes with legal liability and lots of risks you need to be aware of. Knowing this risk – and preparing ahead of time for them – will improve your odds of success.
In this post, we will be discussing the legal side of dropshipping. We will also be highlighting some of the risks involved in dropshipping and how you can circumnavigate them to keep your dropshipping store going.
It promises to be an interesting read.
Keep in mind that the tips we share here do not constitute professional legal advice. If you have the means, we recommend you consult with legal professionals.
What really is dropshipping? Don’t get us wrong, we know you are probably a blackbelt dropshipper who knows the ins and outs of the business and can create an Udemy course on it.
But for the sake of those that need a little refresher, dropshipping is the act of reselling products for a markup without actually keeping those products. We have a detailed guide on starting a dropshipping business, which we believe you will find really useful.
One of the vital keys to a successful dropshipping business is finding the right wholesale suppliers. We also have a guide on finding the best dropshipping companies you will find useful.
Even if having a dropshipping business may seem very approachable, (dropshippers making thousands of dollars daily from reselling items listed on AliExpress are notorious) the reality is a bit different. And this type of business has its own risks that cannot be neglected.
Yes, dropshipping is legal. However, there are certain steps you need to take so as not to err on the wrong side of the law as an e-commerce retailer. Some of them are as follows:
Is a Business License Necessary?
Dropshipping is a legit business, but having a business license is not compulsory. Hence, it’s useful because it will strengthen your eCommerce business. In fact, it’s quite common in the industry not to have a license, particularly among beginner merchants.
It’s recommended to check on your state legislation and the requirements of the platform where you plan to list your eCommerce store. Then act accordingly. Having a business license is the basis for paying your taxes, liability, and legitimacy.
Even if technically you don’t need a business license, having one will establish you as a serious business partner in relation to suppliers and help you gain the attention of your clients more easily. Plus, this is a solid foundation for promoting a professional and reputable business.
Pay Your Taxes
A legit business pays its taxes. And you want to be perceived as a legit business. Recognized as such by customers and state authorities. The level of your taxes depends on your geographic location and may be very different from your direct competitors established in other countries.
Once your business is set up you will have to pay taxes on sales and taxes on income. Consult with a specialized lawyer and an accountant to know exactly what taxes you have to pay, so you can establish the prices for the products you sell accordingly.
Dropshipping businesses operate most often with multiple products and multiple suppliers. Consequently, prices, shipping, and taxes quickly become complicated tasks. As such, consider using a dropshipping platform to help you automate your processes and repetitive tasks.
Your Liability
Having a business license reduces your liability as a person, a fact that may become important if legal issues related to your store appear. Most probably you will work with suppliers operating in foreign countries and problems like poor-quality products are common. Thus, it’s wise to be protected in any case.
Besides your business license, it’s probably a good idea to consider a Product Liability Insurance. Its role is to defend your dropshipping business in front of legal and financial risks related to the quality of the items your business sells.
Your Legitimacy as a Business
This is another area where a business license comes in handy. No one wants to make business with shadow companies, everyone looks for legit business partners that respect their promises and deliver what was agreed.
And you want healthy, successful, and profitable business relationships with your partners. Consequently, the first step is to prove your business adheres to these principles and is trustworthy and a legitimate entity. Reputable brands work just with legitimate businesses. And consumers have a strong preference for them.
Being a registered eCommerce entity shows that you are serious and that is the best answer to the “Is dropshipping legal” question.
While dropshipping is totally legal in the United States, it’s natural to wonder if it’s also legal in Europe, particularly in countries like Germany, France, Switzerland, and the UK.
The good news is, dropshipping is perfectly legal in Europe and even in the aforementioned countries.
If a good number of your customers are based in Australia, you might be wondering if dropshipping is also legal in Australia. Dropshipping is perfectly legal in Australia, provided you don’t violate consumer protection laws and you are not selling counterfeit goods.
Dropshipping might be legal, but is it ethical? What are some of the ethical concerns you should keep in mind while running your dropshipping business?
The truth is that it is entirely up to you to decide if you want to make your dropshipping hustle ethical or not. Here are a couple of tips that can help you make it as ethical as possible to build and maintain trust with your customers.
Well, the answer to that question depends on if you are using a dropshipping platform or selling directly from your website. It also depends on the promotional method you use.
For instance, if you are dropshipping via Amazon and you default on some of Amazon’s laid-down rules, your might end up losing your online store.
How can you avoid getting banned on Amazon? Here are a couple of tips that can help:
Another common place where dropshippers get banned is Facebook. You can get yourself into trouble with Facebook when promoting your product/business there for the following reasons:
Aliexpress is definitely one of the biggest online marketplaces and makes it easy to connect with lots of dropshipping suppliers. Plus, it’s dropshipping-friendly and easy to use.
Nonetheless, there are precautionary steps you need to take when dropshipping via Aliexpress to avoid legal and court costs. They include:
The following requirements are not expressly necessary, but it is highly recommended to have them for your business health and your peace of mind as a business owner. They are supplementary layers of protection.
Your online store should display the following sections:
You don’t need a “Terms and Conditions” section on your store, but you can’t skip it if you want to protect your business in unforeseen situations. Plus, it’s an excellent way to let your customers know what your business practices are and what they can expect.
This is a document required by law in some countries for protecting the information you are collecting. Since your shop can be accessed globally, a Privacy Policy is necessary, even if in your state or country it is not.
As various situations beyond your control may appear and unsatisfied clients may claim refunds, you should have such a policy in place. It is a useful tool to help you find a solution to your client’s requests. Do yourself a favor and protect yourself and your brand as much as you can.
Clients will be eager to know how fast they can receive the items they ordered. It’s not a must to have a shipping policy, but you will receive this question lots of times and it’s better to have it clearly written.
Your shipping policy should include information regarding domestic and international shipping. For example, domestic shipping takes on average 4-12 days depending on the client’s residency and international shipping takes on average 2-3 weeks.
Offering your clients the possibility to track the shipment of their item in real-time avoids supplementary questions that your client service should answer. Insert a link or a tracking widget allowing verifications of the shipment status. Customers will be grateful for this attention.
Adding a business disclaimer to your website can also help guard your dropshipping business against any legal liability.
A business disclaimer is basically a legal document that warns shoppers against the risk of using your products, letting them know you won’t be held liable if something bad happens.
For example, let’s say you sell electronic products and a customer gets hurt from using one of your products. If you have a business disclaimer on your site, that customer can’t take any legal action against you.
In general, dropshipping businesses rely on highly popular platforms like Amazon and eBay. If you ask yourself “is dropshipping legal on these platforms?”, you should know that, yes, they are. Moreover, a large part of the retailers selling their products via Amazon and eBay are dropshippers.
The rule of thumb is that you have to respect their requirements and rules and resell just items from wholesalers not from other retailers. For example, you can source your products on Alibaba – a wholesaler and not from AliExpress – a retailer.
The problem with retailers is that the reseller just adds a markup and it’s not ethical from the customer’s point of view. Not to mention that the markup might simply not be worth the effort.
eBay and Amazon are very tempting because they offer access immediately to a massive audience. And they are a good starting point for a dropshipping business if you source unique products direct from manufacturers. Later you can build your own brand, with your own store and use other marketing venues like social media, content marketing, email marketing, influencer marketing, etc.
The most obvious reason why eCommerce businesses get into legal trouble is that they sell products that either belong to others or are prohibited by laws.
One such situation is selling products protected by trademark and/or copyright. They are trending products or a large number of people want them, but you need special authorizations to commercialize them. These types of products are usually associated with sports teams, world-renown brands, with international stars and influencers. Think Lionel Messi’s t-shirt or toys like Barbie dolls or Lego sets.
Potential lawsuits come most often from counterfeit products or replicas. Customers are misled that they get the original product at a good price and later they notice that the things are not exactly what they were expecting.
If you insist on selling these types of products and want to avoid all potential troubles related to them you should first get a License for Reselling. Then contact the manufacturers and wholesalers entitled to produce and distribute these items.
Another situation that has a high potential for trouble is selling restricted products without the corresponding license. Restrictions are due to the necessity of having certain manufacturing or distribution conditions. Such products are medicines, some food products, or special types of alcoholic beverages.
Here are some of the regular questions we get from wannabe and experienced dropshippers.
Is dropshipping a legal and safe business?
Yes, dropshipping is a totally legal e-commerce business anyone can do, regardless of your level of experience. So you will likely never get into any trouble for setting up a dropshipping store. The only time you might get into is if you start selling trademarked, counterfeit, or contraband products.
As for safety, well, it’s totally up to you. If you use reliable payment gateways like PayPal or Stripe and also protect your personal information, your security concerns would be very minimal.
Is my dropshipping income taxable?
Dropshipping is a form of e-commerce, so your income is very much taxable. However, whether you pay tax or not largely depends on where you are operating your business from. If you are running your business from Africa or some countries in Asia where tax laws are weak, you can get away with not paying taxes.
But it’s a completely different case in the US or Europe – you might lose your business for good if you fail to remit taxes on your income. So it makes sense to collect taxes each time you make a sale.
Is dropshipping ethical?
Dropshipping isn’t some kind of scam or pyramid scheme you use to fleece people of their hard-earned money. It’s purely e-commerce, and so it’s very ethical.
It only becomes unethical when you start selling fake, illegal, or trademarked products in your store. So, you are never going to get arrested for floating a dropshipping store and marketing it veraciously.
Should You Let Customers Know You Only Dropship?
The truth is, more often than not, customers don’t pretty much care if you are dropshipping or actually own the products they buy from your store.
However, it’s best to state clearly on your site that you only dropship. It can be your saving grace should any legal issue arise in the future.
Having a prosperous dropshipping business involves lots of effort and respecting a long list of dropshipping legal requirements.
To ease your burden, count on a dropshipping platform like Sell The Trend especially designed to help you respect all the legal and ethical practices in the industry. And support you in choosing the right winning products and also selecting some trusted suppliers.
