Questions about dropshipping

Company is buying products from China and then, they are directly send to the customers.

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Let's say that LTD company is buying products from China (on Aliexpress) and then those products are shipped directly from China to the customer. Problem is that LTD company is not able to get invoices from this service.

1. Can I book such transactions via a bank account? I mean to transfer from bank statement all costs of purchase of those products and all payments from sales of those products, to a special balancing account and settle them on a difference basis? The difference between sales and purchase (margin) will be taxable (company profit is a margin).

2. What if company buy goods in this way and then sell them to Poland? They wouldn't be taxable for VAT in UK, right? The shipping is directly from China to Poland.

3. Does the company have to issue invoices to individual customers? Or only if they request an invoice company will have to issue it? 

Replies (6)

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By paul.benny
09th Jun 2021 14:53

1) No. You should book your sales as sales and your purchases as cost of sales.
2) Correct. No UK VAT if goods shipped direct from CN to PL. There may be Polish VAT - in practice, depends on value of shipment and and vigor with which Polish customs ensure on imports is collected.
3) This will be a local requirement - in some countries (eg Italy) it is mandatory to issue an invoice.
4) You should consider getting an accountant with some experience of international trade. There are many pitfalls for the unwary

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Replying to paul.benny:
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By MarkPo
10th Jun 2021 09:50

Thank you for the answer.

I want to add that my LTD company will be selling products from Alliexpress on my Internet shop. The customers are only from Poland. The products are shipped directly from China to the customer. So I am the Sales agent.

1) So as I understand I need to get invoices from Chinese contractors, right? What if, in case when I buy products on Alliexpress and they didn't want to issue an invoice for me? Can I use some Web plug-in which will create invoice?

According to:
FRS 105 Section 18 paragraph 18.4
"A micro-entity shall include in revenue only the gross inflows of economic benefits received and receivable by the micro-entity on its own account. A micro-entity shall exclude from revenue all amounts collected on behalf of third parties such as sales taxes, goods and services taxes and value added tax. In an agency relationship, a micro-entity (the agent) shall include in revenue only the amount of it commission. The amount collected on behalf of the principal are not revenue of the micro-entity"

FRS 102 Section 23 paragraph 23.4
"An entity shall include in revenue only the gross inflows of economic benefits received and receivable by the entity on its own account. An entity shall exclude from revenue all amounts collected on behalf of third parties such as sales taxes, goods and services taxes and value added taxes. In an agency relationship, an entity (the agent) shall include in revenue only the amount of its commission. The amounts collected on behalf of the principal are not revenue of the entity "

With reference to these paragraphs, I am still unable to account for my company via a balancing account (all inflows minus all outflows regarding the sale)?

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Replying to MarkPo:
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By Leywood
10th Jun 2021 09:58

[quote=MarkPo]

''I am still unable to account for my company via a balancing account (all inflows minus all outflows regarding the sale)''

Thats why you need an Accountant.

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Replying to MarkPo:
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By lionofludesch
10th Jun 2021 10:05

What does your contract say ?

If I go in to a corner shop and buy a Mars bar, the whole 50p is their sales, not just the profit. Because I'm contracting with the corner shop.

I'll say again, you need an accountant. You are very clearly out of your depth.

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RLI
By lionofludesch
09th Jun 2021 14:57

Let's say that you need an accountant.

This is complex stuff for a DIYer.

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By DKB-Sheffield
09th Aug 2021 16:31

Firstly, as has been stated, you need an accountant, and one who deals with overseas trade at that.

Secondly, and as important you need to decide what you are doing.

- If you are truly dropshipping, you are acting as principal. Your customer contract is the supply of goods to ghe consumer. Your supplier contract is with the company supplying the goods. The fact the supplier ships directly to the customer is simply "convenient".

- If, as you later suggest, you are acting as agent, that is different - you are an intermediary. However, based on the information provided, this does not appear to be the case in your situation.

Incidentally, you may also wish to clarify that AliExpress is actually the supplier of your specific goods and that they are not actually acting as an intermediary "marketplace"

Finally, and I repeat, engage an accountant!

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