Dropshipping - Is It Legal?
Some beginners find it hard to believe that a business model where you never touch the items you're selling is legal, but in reality, dropshipping has been around for a long time and has always been legal.
At its heart, dropshipping is a business model where you (the retailer) do not keep stock of the goods you are selling, meaning that your customers orders are fulfilled by the manufacturer of the goods or a sourcing agent.
In this sense, it could be seen as obvious that dropshipping is not only a legal business model, but also an advantageous way of running a company - as there is no need to hold stock that won't sell, a smaller upfront investment is needed and you have the ability to list an enormous range of products on your website.
However, the legalities of dropshipping can get quite complicated, in this article we're going to cover all the common scenarios that you need to take into account.
Dropshipping From Your Own Website
Imagine you have a store hosted on Shopify or WordPress (which you might do already) and you want to dropship from it - You list products on your site, market your goods and get a sale. In this scenario, you are relying on your supplier (a store on AliExpress), to fulfill the order and have it arrive safely with your customer.
Provided you find the best supplier for your product, the customer should receive their item on time and be happy with their order. As dropshippers, we recommend you manage customer expectations properly, and let them know that your items will likely take 7-20 days to reach them.
In some cases, beginners think that selling products at a markup (a higher price than you bought it for) is an underhanded tactic. However, in reality, every single business on the planet sells their products at markups. That is exactly how businesses have operated and made money since the beginning of time.
Companies need to sell products at a markup to pay their employees and reinvest money back into the company, so they can make better products in the future. For example a Nike shoe may cost $17 to make in a factory, but is sold for $170 RRP, a designer handbag may cost $200 to make, but can be sold for $2500 or more. Similarly, most products you buy on Amazon can be bought on AliExpress for a fraction of the price.
The exact same product being sold on Aliexpress for $3.69 and $19.99 on Amazon.
To conclude, it is perfectly legal to sell & dropship products on your own website. But the question remains, what are the best products to sell?
Selling Restricted Goods
It should come as no surprise that you should not sell illegal or dubious goods when dropshipping, such as branded / trademarked items, counterfeit luxury goods, restricted imports. Even CBD oils / vapes require having an appropriate Age Check that complies with the policies of your country or territory (and, indeed payment processor). Below are a few examples of goods that cannot be sold using the popular payment processor Stripe (which therefore also includes Shopify Payments).
- IP Infringing Merchandise / Goods (e.g. Merchandise from your favourite TV Show)
- Counterfeit or Unauthorized Goods (e.g. Fake Designer Handbags)
- Regulated Items Such As Fireworks, GunPowder
- Drug Paraphanelia (e.g. Bongs, Vapes, Hookahs)
- Adult Toys and Entertainment
You can find the full list of restrictions here
Some of these, such as IP infringing or Counterfeit Goods, are not allowed at all by any reputable payment processor or website host; however the sale of drug paraphernalia and adult toys is not specifcally restricted by, for example, Shopify. In this scenario, you can do your own research as to which payment processor will allow your dropshipping store to take payments for goods such as these. For IP infringing goods especially, it is possible to get into serious legal trouble if you even list such items on your store.
Dropshipping Using Shopify & Aliexpress
If you hadn't already guessed by now, Shopify, Aliexpress & Oberlo support dropshipping businesses. Aliexpress is our favourite platform tosource products for beginner and intermediate dropshippers , the wide selection of products, increasing support for dropshippers and escrow system makes it perfect for selecting items to sell online.
In other words, using these platforms is the ideal way to make sure your business stays legally protected and PCI compliant.
Legality of Dropshipping In Your Country
There are no countries that explicity prohibit dropshipping, however you should look up the laws on specific items that could be prohibited to import into the country. Countries like Australia have strict import laws that have to be taken into account when dropshipping.
In addition to this, you will want to take a look at the tax laws related to dropshipping in your country. In the United Kingdom, for example, tax laws become much more favourable once you register an LLC. PayPal & Stripe will generally ask for your business details once you start making over a certain amount of money so that they can comply with these laws, it's useful to be prepared for this as these payment processors reserve the right to hold your money until they are certain about the legal status about your business.
Dropshipping is an excellent way to make money, as long as you take into account all the relevant laws regarding which items you can sell. In most cases, entrepreneurs end up starting successful dropshipping businesses without any legal issues.
A great way to not have to worry about the legality of what you are selling is to use SaleSource to browse vetted, trending products that are ready out-of-the-box to sell online.