I’ve recently been digging into dropshipping a lot more and one of the things that keep popping up in my mind is whether or not dropshipping is legal in South Africa. I did a bit of research, spoke to a few lawyer friends and this is what I found…
Yes, dropshipping as a business model is 100% legal in South Africa. In fact, many of the big online retailers have been making use of this business model for years. There are however some legal considerations that you do need to take into account as a dropshipper.
In this article I’m going to dig a bit deeper into those legal considerations that you should take note of when dropshipping products in South Africa and how to avoid getting into trouble as a dropshipper….
Disclaimer: Important to state up front that I am not a lawyer and should you need professional legal counsel on this matter, it would be best to consult with a lawyer. This article is merely a guide on what to avoid doing.
If you are interested in building a shipping business in South Africa, then make sure you read my article about profitable dropshipping in South Africa.
One of the attractions of owning a dropshipping business is that you don’t physically handle the product that you are selling on to the consumer. From the outside it does look like a very desirable type of business but there are pitfalls that you need to be aware of as a drop shipper in South Africa.
Let’s dig into those pitfalls now…
Can you get in trouble for dropshipping?
If you play by the book when building your dropshipping business in South Africa, it is difficult to fall foul of the law. however even though you’re not physically handling the product you do need to know exactly what is going on in your business.
It is possible to get in trouble for dropshipping if you break the law and don’t run a legitimate business operation. Dropshipping counterfeit goods, not paying income tax on your profits, avoiding import duties and not delivering the products you are selling are a handful of ways that can get you into trouble.
As an online retailer you need to be hyper aware of where the products are coming from that you are selling. If you dropship goods that are counterfeit or stolen even though you are not handling those products you are still complicit in a crime.
That is why it is of utmost importance to vet your suppliers extremely carefully.
It can also be tempting to dropship big-brand items if you are able to source them cheaper than the local distributor is currently selling them at. This is what is known as grey imports.
Dropshipping grey imports could get you into trouble because the local distributor and manufacturer tend to not honour warranties on any of their products that have not been imported through the official or correct channels.
In other words, you could end up with a very unhappy customer who has bought a product from you as the dropshipper but if/when the product fails, they aren’t able to get it replaced or repaired. If you do not disclose that these are grey imports you could also face legal action from that customer.
Do dropshippers need to pay tax?
Another very common question about dropshipping as a business model in South Africa is do dropshippers need to pay tax.
Yes, dropshippers do need to pay tax. There are a couple of tax liabilities that you need to be aware of as a dropshipper. The first would be import duties that are levied against the product that you are dropshipping (If the product is coming from a different country) and the second would be income tax on the profits that your business makes.
So let’s split those two types of tax and discuss each one individually.
So many dropshippers don’t take the import duties into account when starting the dropshipping business. If you are dropshipping products that are coming from outside of South Africa you need to know whether or not these products will attract in import duty.
the Department of trade and Industry have various trade agreements set up with countries around the world regarding the import and export of goods.
If a product that you are dropshipping falls into one of these categories the South African Revenue Service (SARS) will require you to pay itax commonly known as an import duty on that product.
So you may be wondering…
Who pays the import duties when dropshipping into South Africa
This is where the challenge comes in of dropshipping products from outside the borders of South Africa period because you are not handling the product and the manufacturer is shipping directly to the consumer, the consumer is liable for the import duty.
There are however ways around this and that is paying those duties before the product arrives at the consumer which does mean you need to include those duties in the price of your product.
Let’s now look at the second type of tax that dropshippers will have to pay and that is the tax on the profits that the company makes.
When you start any business in South Africa you need to pay tax on the prophets that you generate through your business operations. The exact same thing applies to drop shopping.
Having a legal business entity to run your dropshipping business through makes a lot of sense from a tax liability perspective. you are able to claim back business expenses incurred in the course of doing business as a dropshipper.
Avoiding your tax liability is a surefire way to get yourself into trouble legally with authorities.
In short, dropshipping is a wonderful business model but there does need to be taken in order to run it legally so that you don’t end up in trouble.
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