Is Dropshipping a legal business practice? As more sellers hop on board and find easy ways to make high profits, it can all seem too good to be true.
Indeed, dropshipping is becoming the best way to earn profits in the eCommerce world. The demand for products is soaring to the point that almost anyone can open a store and start earning right away.
But can reselling a product that you don’t own be legal? The truth is that overall dropshipping is a legal and mainstream business model. The key is to avoid the illegal pitfalls as you walk the profitable journey.
In this article, we’ll discuss how to run a dropshipping business that is legal. We’ll look at the different requirements a business must follow and the kinds of practices you should avoid, so you don’t crossover into the illegal side.
Is Dropshipping Legal?
Take it easy. Dropshipping is not only legal; it’s all around us. Both eCommerce stores and regular retail shops engage in dropshipping.
If you think about it, dropshipping is just a fulfillment method. You take the orders from customers and have your supplier ship the products directly to them. Therefore, plenty of retail stores prefer dropshipping. It’s an easier, quicker, cheaper, and less risky fulfillment method than holding inventory.
So, in that case, you must be wondering: is dropshipping legal on eBay, Shopify, Amazon, Wix, and Facebook?
At this point, major selling platforms like Shopify, and Wix support and encourage dropshipping. Shopify owns Oberlo, a dropshipping platform that helps you find products. For its part, Wix recently launched a comprehensive dropshipping platform.
Rest assured that such mainstream companies would not risk public promotion of illegal practices.
Additionally, eBay, a leading global online marketplace, encourages dropshipping from wholesale suppliers. Officially it forbids dropshipping from retail marketplaces like Amazon, but in reality, plenty of sellers do it without hindrance.
Nonetheless, there are ways that dropshipping on any platform can become illegal. For example, you’re not allowed to sell copyrighted or trademarked products.
With that in mind, let’s cover the legal obligations of dropshipping businesses and the kinds of activities they should avoid.
Do I Need To Pay Taxes?
When it’s all said and done, dropshipping is a business like any other. There are several obligations you have as a business owner to stay in compliance with its legal responsibilities.
For starters, the law requires you to file and pay dropshipping taxes. These taxes fall broadly into two categories: sales tax and income tax. Dropshippers collect sales taxes from customers on each purchase and send the funds to the government at the end of the year.
Many selling channels collect and pay sales taxes for you. However, some may not. Therefore, always check with your selling channel before you begin.
On the other hand, income taxes are a percentage of dropshipping profits the business owner pays at the end of the year. Governments do not automatically collect these funds from us. Instead, we must file our income tax at the end of the calendar year.
Should I Open An LLC?
While not a legal obligation like taxes, registering your dropshipping business as a Limited Liability Corporation (LLC) is a helpful way for you to avoid legal troubles down the road.
Once your company is a registered LLC, it becomes a separate entity for liability purposes. If the business gets sued for any reason, your personal assets won’t be in jeopardy.
Still, becoming an LLC does not replace good business practices. So don’t treat it as a free ticket to act recklessly. What’s more, this method does not completely shield you from liability in all cases.
What Is A Dropshipping Agreement, And Should I Get One?
Dropshipping agreements formalize the business relationship between you and the supplier and confirms that you are a legitimate reseller. It provides you an extra layer of protection so that if something goes wrong with shipping or the product itself, the agreement binds the supplier to correct the problem.
However, that’s not to say that a lack of a dropshipping agreement makes you illegitimate. Plenty of suppliers don’t offer a dropshipping agreement, yet some, like AliExpress, encourage dropshipping nonetheless.
Therefore, when a supplier offers a dropshipping agreement, you should get one. But don’t let the lack of an agreement stop you from utilizing other quality suppliers like Amazon or Walmart.
What Products Are Legal To Dropship?
Aside from keeping the business in order, you should also pay attention to what products you’re selling. We can’t just sell anything in a dropshipping store.
There are four critical elements of keeping your products legal:
- Staying away from copyrighted products
- Not selling products that are age-restricted or forbidden
- Avoiding listing dangerous items
- Don’t sell special categories like medical products or supplements
Let’s dive a bit deeper into each, so we know what to look out for.
We’ll start with copyrights because it’s a common mistake dropshippers make. As a rule, avoid listing or selling any item that you know is protected by copyright. Big brands like Nike or Adidas are more obvious, but there are many more that you may not guess on your own.
The eBay VeRO page contains a list of sellers and manufacturers whose products we cannot sell without express permission. The database includes detailed information on how each company intends to enforce copyright violations.
Needless to say that these companies are not concerned about where a violation occurs. It can be eBay, Shopify, or any other online selling channel.
So treat eBay VeRO as a helpful resource that can help protect you from copyright infringement regardless of which selling channel you currently use.
What Happens If I Sell A Copyrighted Product?
Consequences of violating copyright rules can range from having your listing removed, account suspended, or potential legal action. While the latter is less common, any of these are bad for business. So before listing something, double-check eBay VeRO.
It can become time-consuming to check eBay VeRO every time you list, especially if you’re trying to scale. That’s why your best bet is to use the AutoDS platform. Armed with an eBay VeRO detector, the system alerts you when you’re trying to list an item from the VeRO list.
For additional information on eBay VeRO and what to do when a violation occurs, follow our detailed eBay VeRO guide.
Age Restricted and Forbidden Products
Next on our list are age-restricted and forbidden products. While fewer dropshippers make this mistake, it can result in more significant consequences than copyright violations.
Most countries, especially in big markets like the US or Europe, have strict laws and regulations on selling age-restricted items to minors.
To illustrate, in some US states the sale of Alcohol or Tobacco products to minors is a misdemeanor that carries a fine or possible jail time.
And that’s beside the fact that selling tobacco online even to adults is a complex legal landscape. Typically, many states require tobacco retailers to have a license.
So do you need a license to dropship tobacco products? There is a chance that you do, and it depends on several factors. Only an attorney can give you a clear answer.
However, when you consider the risk of selling to minors, it is probably best to avoid dropshipping tobacco altogether.
As to prohibitions unrelated to age, some countries forbid the sale of sex toys or other adult-themed products. It can also vary from state to state within a country.
Furthermore, many advertising platforms ban ads related to adult content, so best to avoid dropshipping from this category. To make things simpler, refrain from selling anything listed in Facebook’s Commerce policies, which are applicable on all selling channels.
How Do Some Stores Sell Forbidden Items?
You might find online stores that sell forbidden categories. Don’t assume that it makes it ok. These stores are either fully compliant with complex regulations or are taking unnecessary risks.
Given how dropshipping works, it can become burdensome to comply with the complex rules. Therefore, you’re better off avoiding forbidden categories altogether.
With millions of fully legal products from an abundance of categories, there is simply no need to take risks.
Can I sell Firearms, Ammo, And Other Dangerous Weapons?
Weapons and ammo are a super risky category you should avoid like the plague. Some require that both you and the buyer have special licenses, while others are forbidden outright.
Given the strict penalties for violating these laws, one wrong move can make you criminally liable. And that’s in addition to the possibility that you can be liable for damages and injuries resulting from using these weapons.
Can I Sell Medical Supplies And Similar Categories?
While not as risky as weapons, Medical Devices and Supplements are additional categories you should avoid selling in your dropshipping store.
Special laws and regulations govern the sale and marketing of such products. You’ll have to be extra careful with the claims you make in an ad or product description. In some cases, you may need a special license to sell them.
In addition, once customers receive a medical product or supplement, they may ask for guidance and instruction on using or troubleshooting it. Without the proper knowledge, you can’t help them.
Finally, in rare injury events resulting from the use of a medical product, you and your business can become liable. So best to stick to the simple categories that you can sell and market at your discretion.
Dropshipping Counterfeit Products And Scams
Other than avoiding specific categories of products, you should be watchful of scams and counterfeit products. Keeping to this rule is essential to maintaining a dropshipping store that is legal and profitable.
Unfortunately, in today’s massive eCommerce market, it’s not uncommon to find suppliers who sell knockoffs of popular brands. Selling such items is illegal, and both you and the supplier are complicit, even if you did not know.
Another way a supplier can scam a dropshipper is by not fulfilling an order at all. Instead, the supplier can collect payment and never send out the item.
To protect yourself from such scams, start by going with trusted and proven suppliers. AutoDS supports over twenty-five suppliers, and it’s best to stick with those.
However, that won’t protect you a hundred percent of the time. So do your product research by checking the seller’s reputation and avoid major brands or their knockoffs. That should keep you in a good spot.
Is Dropshipping Legal In The US, UK, Canada, And Australia?
The vast majority of countries allow sellers to use the dropshipping model. However, each can have its own regulations in place.
For example, every country sets its own tax laws. Income tax structure can differ depending on where you live. Conversely, the import tax depends on where the end customer lives.
Like taxes, each country can differ on how it regulates online selling. The UK, for instance, sets strict consumer protection and anti-competitive laws, while other countries may not be as strict.
Thankfully, many suppliers and selling channels handle country-specific rules for us. However, some may not. To avoid surprises, try to familiarize yourself with the laws of each country before expanding into new markets.
What Is Price Gouging? Is It Legal?
It’s becoming all too common to hear about natural disasters these days. Unfortunately, such devastation often results in supply shortages of all kinds.
For some dropshippers, an emergency can seem like an excellent opportunity to increase profits by raising prices on goods in high demand. However, depending on the level of increase and the local laws, such a practice can be considered price gouging.
Some notable examples of price gouging include raising prices on batteries in a hurricane. Likewise, the early stages of the Covid19 pandemic saw a shortage of hand sanitizer and toilet paper for some odd reason. Some sellers raised prices to unreasonably high levels, only to find out it was illegal.
Keep in mind that price gouging laws vary by country and locale. Each sets its own thresholds for what percentage increase is forbidden. Similarly, the products and categories that the restrictions apply to vary from place to place.
The lesson is to strictly follow local price gouging laws, the majority of which apply in a state of emergency.
However, in most cases, you can and should raise prices on your products. A good pricing strategy can go a long way in increasing your profits and sales.
Dropship Legally And Earn
There you have it, a comprehensive guide on dropshipping legally. It may seem like a lot of information, but remember that some selling channels already cover many legal hurdles.
Additionally, the scenarios we presented are pretty rare. Most dropshippers don’t want to sell weapons. Likewise, it’s not common for a supplier to stiff you without the order or send out a fake item.
At the end of the day, dropshipping is legal and profitable. So why get scared off by regulations?
Follow the articles and video below to start a legal dropshipping store with trouble-free products: