Dropshipping - how to show income tax income?
Dropshipping is a sales model that is becoming more and more popular among entrepreneurs, especially those who sell online. However, Polish tax regulations lack regulations that would regulate the issue of dropshipping. Therefore, answers to questions regarding this sales model should be sought in tax interpretations and general regulations.
Dropshipping - what is it?
Dropshipping is considered an online sales model where the shipping process is transferred from the seller to the supplier. Simply put, the shipment of goods to the customer is transferred from the e-shop to the wholesaler. This means that the customer buys in the on-line store, but receives the goods from the warehouse.The entrepreneur does not have to physically have the goods he sells, nor does he have to pack them and send them to customers, because all this is done by the wholesaler with which the taxpayer cooperates under dropshipping. Hence, there is no need to run a warehouse. The only obligation of the entrepreneur is to acquire customers who will want to buy these goods. It is a convenient solution for him, but it has many advantages and disadvantages.
In the practice of using this model, there are two methods of settling dropshipping, namely:
provision of commercial brokerage services,
sale of goods on one's own behalf.
Dropshipping as the provision of commercial brokerage services
If this sales model is used, the role of the entrepreneur is reduced to accepting payments and collecting orders, which are transferred to the supplier of the goods. The taxpayer does not sell in his own name or on his own account. Therefore, it does not purchase goods, but only acts as an intermediary in the transaction.
In this case, the sales invoice is issued by the wholesaler and it is responsible for any complaints or returns. The entrepreneur acts as an intermediary and issues an invoice to the wholesaler for a commission due to the fact that the goods have been sold by his store. If, therefore, it provides brokerage services, its income from its activity is the commission obtained and this is the basis for taxing the profit.
The taxpayer shows income on general principles, in accordance with art. 14 sec. 1c of the Income Tax Act, which says that the date on which the income arises is the date of issue of the item, sale of property rights or performance of a service or partial performance of a service, but no later than the date of invoice or payment of receivables.
Sale of goods on your own behalf - dropshipping
This dropshipping model is where the store owner purchases and sells goods on his own behalf and for his own account. This means that the sales contract is concluded directly between the entrepreneur and the customer. The wholesaler only sends the goods to the customer.
Thus, the taxpayer purchases the goods from the supplier and resells them to customers. Therefore, he issues a sales invoice with his data and he is responsible for all obligations related to a possible complaint or return of goods.
With this dropshipping model, two events take place, that is, the trader buys commercial goods and sells them to the customer. Therefore, such a transaction will be settled differently under the income tax than in the dropshipping model based on brokerage.
Revenue from the sale of goods will be shown by the taxpayer pursuant to art. 14 sec. 1c of the Personal Income Tax Act, which has already been mentioned above. Pursuant to the Act, the income obtained from the sale of goods via the Internet using this dropshipping model is the income in the amount that the buyer paid to the taxpayer for the goods excluding VAT. This income arises when the funds are credited to the bank account, unless a sales invoice has previously been issued. Therefore, the date of the occurrence of the earlier of these events determines the moment when the revenue arises.
However, what does the issue of settling tax deductible costs from the sales model, which is dropshipping, look like? Well, in order to book an expense in the KPiR, it must be incurred in order to generate income or to maintain or secure the source of income. The purchase of commercial goods undoubtedly meets this condition. In addition, this expense must be properly documented, usually by invoice or bill.
The printout generated from the banking system confirming the payment for the purchased goods cannot be the basis for recording the expenditure in the tax book. Because it does not meet the requirements provided for in the Regulation of the Minister of Finance of August 26, 2003 on keeping a tax book of revenues and expenses.
It should be remembered that the type of dropshipping the entrepreneur deals with depends on the provisions contained in the contract between him and the supplier of the goods (wholesaler). Therefore, you need to carefully analyze the provisions contained in the contract.
Dropshipping - advantages and disadvantages
Dropshipping, like many business solutions, has both pros and cons. Among its benefits, the following can be distinguished:
no need to maintain your own warehouse,
no obligations related to the packaging and shipment of goods,
the entrepreneur does not keep goods that nobody wants to buy,
the possibility of focusing attention primarily on the promotion of the store.
However, the main and fundamental disadvantage of the dropshipping sales model is that the entrepreneur will not have full influence over his own business. Some things will surely be imposed by the supplier. In addition, if he causes delays in the delivery of goods or sends a defective product to the customer, the customer will blame the entrepreneur. Therefore, before entering into a contract, it is a good idea to gather as much information as possible about the supplier with whom you are going to work.
Dropshipping agreement - what should be included
The basis of dropshipping is a properly written cooperation agreement between the entrepreneur and the supplier of the goods.
The most important thing is that the contract clearly defines the terms of cooperation between the parties, that is:
the method of transferring orders placed by customers in the e-store,
rules for packing and shipping goods by the supplier to customers,
a method of settling cooperation between the entrepreneur and the supplier,
terms and conditions of the supplier's liability in the process of returns and complaints of goods.
In addition, the cooperation agreement regarding the sale in the dropshipping model must also contain a clause entrusting the supplier's personal data by the entrepreneur. In order to send the parcel, the supplier will need the customer's data. However, in order to be able to receive them, these data must be entrusted for processing to the extent necessary to perform the contract. Otherwise, if such a provision was not included in the content of the contract, and the data was transferred, then the provisions on the protection of personal data would be violated. Therefore, it is important to keep this in mind.
However, in a situation where the supplier provides the entrepreneur with some materials that he uses in the promotion of the e-shop, e.g. photos of goods, it is worth including a provision in the contract on granting permission to use these materials.
Dropshipping is a fairly new sales model, but it is becoming more and more common. It contributes to lowering the costs of entrepreneurs related to the storage of goods. Everything indicates that this solution will be increasingly used by entrepreneurs.