“Yes, dropshipping is legal.” At its simplest definition, it’s just a form of order fulfillment where the supplier handles shipping. Most big box stores do some dropshipping to supplement their online stores with additional low overhead products. Nothing illegal about it.
Do remember that you will have to consider taxation, customs, and legal procedures of the country you are based in.
Now, understand the concept of dropshipping in detail.
What is Dropshipping?
There are several definitions of Dropshipping you will find online and most are very closely related.
Shopify explains the concept as:
“a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer. As a result, the merchant never sees or handles the product.”
Entrepreneur.com explains the same concept as:
“An arrangement between a business and the manufacturer or distributor of a product the business wishes to sell in which the manufacturer or distributor–and not the business–ships the product to the business’s customers.”
Dropshipping is a model of eCommerce where a seller creates an online store but outsources manufacturing, warehousing, shipping, packaging, and delivery of products. The e-store buys orders from the third party supplier, who then ships the product to the buyer. The seller does not get involved in the supply chain process, but handles all marketing and customer support.
Dropshipping Pros and Cons
- Low restrictions and barriers to enter
- Start with a minimal investment with no inventory.
- It can operate from anywhere in the world with just an internet connection.
- No need to handle the issues warehousing and inventory.
- No technical work required to set up a dropshipping store.
- High competition
- Too much dependency on the supplier
- No control over inventory
Global Dropshipping Legal Issues You Should Know About
Before I begin, I want to inform reader that I am in no way legal counsel or authorized to offer legal advice to eCommerce businesses & entrepreneurs.
Depending on where you are operating your eCommerce business from there can be either no legal requirements to fulfill or a variety of dropshipping legal issues. That’s the state of the eCommerce industry currently.
While some nations promote, innovate, and facilitate the eCommerce industry, others, tend to limit the growth of eCommerce business with stern legal requirements. So, keep in mind that legal issues are a territorial thing.
For US eCommerce businesses the most common dropshipping legal issues/requirements include:
- Registering an official Trademark
- Strict Compliance with the Anti-Spam law – especially with email campaigns
- Management of Taxes
- Different US states have varying Tax rates
- Taxes also differ by business type – Sole proprietor, partnership, Private Ltd. & Public Ltd.
Is it illegal to dropship on eBay?
No, it is not illegal to dropship products on eBay. After considerable research I noticed that although it is allowed to publish products on eBay using the dropshipping model, it’s not profitable to do so. This is considering various factors that dropshipping stores experience, including:
- Supplier going out of stock – If your supplier goes out of stock and there are pending orders for a product this will end up in negative reviews and lower trust in buyers minds.
- PayPal holds the funds for eBay sales – PayPal is the ideal payment methods used by eBay. Whenever products are sold, payments are held till buyers have received the product(s) and are satisfied with them.
- Competition from supplier’s direct listings – Your supplier may already be dropshipping on eBay. This will lead to price wars and kill profit margins for both parties, with usually your supplier wins due to economies of scale.
- Close to $0 profit margins – One of the biggest problems when dropshipping on eBay. Profits are either zero or close to it. There is no use competing with manufacturers already listing products on eBay.
- eBay & Dropshipping are a TOXIC combination – Consider the fact that you are not the only dropshipper listing products on eBay. There may also be the case that other sellers are also using the same supplier you are. This simply kills off the profits with such fierce competition. Building profiles & trust in the customers’ minds takes longest and leads to losses.
Read more on these factors in details on eBay official blogs.
Is dropshipping legal on Amazon
Yes, it is completely legal to use the dropshipping model to list products on Amazon. The official Amazon policy for dropshipping reads as follows: “Drop shipping, or allowing a third party to fulfil orders to customers on your behalf, is generally acceptable.”
There are however some rules to observe when dropshipping on Amazon:
- You must be the seller of record (authorized seller) for the products listed
- You must identify yourself as the seller of products on receipts, slips, tags and other documentation
- You are responsible for accepting, processing, and returns of all products
- You must comply with all Amazon seller policies and agreements
Amazon’s policy statement identifies the two following methods as not dropshipping and hence illegal:
“Purchasing products from another online retailer and having that retailer ship directly to customers;
Shipping orders with packing slips, invoices, or other information indicating a seller name or contact information other than your own.”
Is dropshipping legal in Canada
Yes dropshipping is completely legal in Canada, given you are complying with all financial, business and legal regulations. There are even prominent “order fulfillment” or “warehousing” companies based in Canada to support your dropshipping business.
Prominent business support services like CanadaOne and Wholesale2B have subjectively answered the legality question for Canadian dropshipping prospects. Canadians can also use US baes, Chinese based, and other foreign sellers to dropship within the country.
You can read more in this dedicated Shopify guide to begin a dropshipping business in Canada. Also, check out this really brilliant guide to find country specific products for dropshipping.
Is dropshipping from AliExpress legal?
There is no other answer for this question but, yes, dropshipping from AliExpress is completely legal and very profitable when done right. AliExpress is the patriarch know for reinvigorating the concept of dropshipping among the masses. The two words have become synonymous with each other, because of their compatibility.
Powered by a massive number of suppliers based in China, AliExpress has offered sellers an easy process to sell merchandise online. Check aliexpress wiki for more queries
Is it legal to do dropshipping in USA from other countries?
Yes, it is perfectly legal to dropship products from other countries and sell them in the USA. There are however certain rules & regulations must be followed. In 2016 New Zealand based blogger IMRHYS, did identify some issues for dropshipping businesses in the USA:
- Credit Card & Payment merchant facilities for dropshipping businesses are still improving
- Dropshipping requires a USA Reseller Permit for e-store owners based outside USA
- Non-USA based dropshippers cannot qualify for credit with US based suppliers
- There are various tax issues for foreign based dropshipping businesses
You can read more on setting up a dropshipping business in the USA on the official IMRHYS blog.
See You Again Soon!
I hope you will find my Dropshipping wiki useful and it answer most of your basic queries. In case you have other questions feel free to post them in the comments section below. For feedback give me a shout out in your comment, and share this article using the social buttons provided above.
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