Disclaimer
I am not a lawyer or an accountant and this is not official legal advice. I have tried to keep this information as generalized as possible no matter which country you live in. However, each country’s laws and regulations will differ so it is important to check with your own government’s regulations before proceeding.
Always seek the advice of a lawyer or accountant for official advice.
Is Dropshipping Legal?
“Is that legal?” This is a very common question many people have when they first hear about dropshipping. I mean it sounds too good to be true. You can literally build a Shopify store in a day and start making sales right away with the potential of making millions. There is little barrier to entry, low start-up costs and anyone can do it. Of course, people assume it’s illegal.
Dropshipping is legal, you will, however, be required to abide by your country’s laws in regards to copyright policies, trademark infringements, safety regulations and taxes. Dropshipping is a retail fulfillment business model in which you sell products without holding inventory, making it perfectly legal.
Selling Trademark & Copyright Products from China
Copyright is protecting people who create something which can be artistic work, literature, movies, music, etc. In other words, reselling products with artwork, someone else has created is illegal which can be print on demand products for example. Trademark products refer to protecting a companies brand, logo, slogan and product names.
This is a mistake many beginner dropshippers make when they first start shopping for products to sell on their eCommerce stores. It’s easy to assume because they’re being sold all over AliExpress that it’s also legal for you to sell them. No, it’s definitely NOT.
China has a very different way of viewing trademark products and doesn’t really enforce these laws like they do in other countries. They can literally get away with selling any trademarked products without any repercussions.
Trademark and Copyright products are extremely profitable which makes them extremely tempting to sell. If you only made a few sales you may get away with it but once you start doing some serious volume, you might not be so lucky. You may receive a cease and desist letter from the companies lawyer or they may go straight to a lawsuit. If you were sued, you could then be liable for all the money you have made selling the items as well as other potential legal infringements.
Advertising on Facebook with trademarked items will also be very difficult with their very strict advertising policies. If Facebook does find out, your ad account will be shut down immediately and it may be difficult to open up a new one.
Examples of Trademarked items are; Pokemon, Nintendo, Harry Potter, Game of Thrones, Disney, Marvel, Star Wars and even all your favorite sports teams. There’s a reason they’re all profitable, all these companies have poured billions into their companies and they don’t want you taking a piece of their profitable pie.
This also goes for selling products with celebrities on them as celebrities are protected by a law which is generally referred to as, “personality rights”. They have the right to control the commercial use of their name, image and likeness. This can be especially prevalent on t-shirts and phone covers.
Here’s an obvious one, don’t try and sell pirated games, movies and music. These types of products are all over AliExpress so my advice is, avoid the temptation to make a quick buck out of these products or you may pay the consequence.
Counterfit and knockoff products are another area you’ll want to stay well away from. If you come across a branded piece of clothing that appears cheap and you can make a decent profit from it, think again. If it appears too good to be true, then it most likely is!
To know if a product is Trademarked, you can check your countries government website and they will have a search trademark section. You can then type in the brand to see if it’s trademarked in your country. Click on one of the links below for more information on your countries trade policy.
United States – USPTO
Canada – CIPO
Australia – IP Australia
UK – UK Trademark
New Zealand – IPONZ
How to Legally Sell Branded Products
You can legally sell branded products on your own store, as long as you are either accepted as an authorized seller from the company or your supplier has been accepted as an authorized dealer. This also means, you can legally sell trademarked products on your online store if you purchase them from a retail store, such as Walmart, as they have already been approved as an authorized seller of the products.
If you contact a supplier in your own country you can become a reseller of their products. They will send you a contract to sign which will give you the rights to sell branded products from their company. This will generally refer to smaller brands in the initial stages. It’s unlikely Disney or Nike will accept you as a reseller for their products when you’re just starting out.
Is Dropshipping on eBay and Amazon Allowed?
You can dropship on eBay and Amazon, however, they both have policies that make it difficult.You cannot list products from other marketplaces or retailers and have them ship products directly to the customer on your behalf. This means it’s against their policies to dropship from AliExpress to eBay and Amazon.
Dropshipping from AliExpress with both eBay and Amazon does still occur and they appear to allow it to happen as long as you are running a legitimate business and making sure their customers have a good experience.
These online marketing platforms expect their shipping to be fast and efficient and this can be a tough ask when shipping from China. Dropshipping products that have fulfillment warehouses in your country for faster shipping is your only real option. I suggest you read this article on dropshipping from scratch for a guide for beginners.
Dropshipping to Amazon and eBay using legitimate domestic suppliers is allowed. You must, however:
- Identify yourself as the seller on all packaging sent to the customer;
- Be responsible for all returns and refunds;
- Make sure all products are shipped to your customers in the time frame stated.
Safety Regulations
As a dropshipper, it is your responsibility to ensure the products you sell comply with your countries mandatory safety standards. Each country’s standards will vary so be sure to research your country’s government website for product safety rules and standards before deciding on products to dropship. You must comply with whichever countries you are dropshipping into, even if you are not a resident in that country.
The safety standards of each country also mean you cannot sell products that are prohibited in a country. Each country will have a list of prohibited and restricted products on its government website. Always do your research before proceeding, especially if you have any doubt about whether a product is permitted or not.
United States – Prohibited and Restricted Items
Canada – Restricted and Prohibited Goods
Australia – Prohibited Goods
UK – Banned and Restricted Goods
New Zealand – Prohibited and Restricted Goods
Taxes
If you’re a beginner and are wondering if you can get away with not paying your taxes as a dropshipper, think again! If you’re managing your first successful dropshipping store and your profits are high, be prepared for a shock at tax time.
Taxes can be a simple or complicated process depending on where you live in the world. Everyone will need to pay an income tax and a sales tax.
Income tax is the tax you are legally required to pay on the profit earned for the year. The amount you pay will vary on the amount you earn and your location.
Sales tax can be a little more complicated. Some countries such as Australia will have a GST which is a standard 10% tax Australia-wide. In the US it’s more complex as each state has a different sales tax. The amount of sales tax you charge your customers can vary depending on a number of factors, such as; the type of product, your location, where products are shipped from and where they’re being shipped.
There is a simple solution when it comes to sales tax. Using Shopify will make charging sales taxes to your customers a much simpler process. Once you set up all your options in the tax settings it will automatically charge your customers the appropriate sales tax.
For information on how your tax system works, click on your country’s government website below.
Canada Taxes
Product Images
Product images can be a confusing topic and it is one you have to tread carefully with. There are companies out there who will upload thousands of images to the Internet just to try to catch people using them without permission. They then make contact with these users demanding money and threatening legal action.
If you search in Google images, you’ll find most of the images have copyrights and cannot be used. Within the tools tab, you can search the usage rights of images as “Creative Commons license” or “Commercial and other licenses”.
As AliExpress is the most popular place for dropshippers to source products, many people question if using AliExpress images is fair game? Yes, images on AliExpress can be used on your eCommerce store as they are open source. You do, however, need to be cautious though as some images may have copyrights on them as some suppliers may have sourced the images illegally. I’ll discuss more about this in the next section.
China’s views towards copyright images are different from many other countries. Chinese suppliers will be happy that you’re using their images if it means you’re making more sales which are making them more money. The suppliers in China are actually stealing each other’s images and this is considered normal.
If you are looking for a large range of high quality images, there are several websites you can use but they can be expensive. Shutterstock is the most well-known with a massive selection of images, however, their prices are high. I have sourced images from multiple websites and I find 123rf the best value in terms of range, quality and price.
The following are free image websites;
- Pixabay
- Burst-Shopify
- Pexels
- Free Images
- Unsplash
Using AliExpress Images with Models
Images on AliExpress are open source, although some of the models in these images may not be. Many Chinese suppliers may find photos of models, celebrities or social media influencers across the Internet and use them as their product images. They get away with it because they are in China and can be tough to track down, you may not be so lucky!
If you start making some serious money on your dropshipping store when using one of these model images, you may be liable to pay back all the money you’ve profited if you’re caught.
Shipping Item Restrictions
Shipping item restrictions shouldn’t be an issue for the majority of products but it is something to be aware of. If you’re using domestic suppliers they should already know which products can and can’t be shipped to which locations. However, if you’re shipping from China they may not be aware of exactly which products have restrictions when being shipped.
Each shipping company has a different list of items that are restricted for shipping. If you’re unsure, they should have a list of restricted items on their website. Many shipping companies will ship certain items which are generally restricted for an additional cost and extra paperwork.
Dropshipping Contract
A dropshipping contract is an agreed upon contract between the supplier and the seller of the products. This contract is legally binding and covers terms such as pricing, shipping standards, minimum order quantity, minimum selling price and which platforms products can be sold on.
Dropshipping contracts are generally not used when dealing with suppliers in China.
Domain Name Trademark Infringement
A domain name trademark infringement is an easy one to avoid but it’s worth being aware of. With the number of .com domains out there, it can be difficult to find a clever, catchy and memorable domain name. If you have your heart set on a specific domain name and it’s taken, don’t try to make a slight change to the name with a slightly different spelling or by putting “The” in front of it, as this can still be considered a trademark infringement and you can be liable.
Any domain name that can be proved to cause confusion to the consumer is considered trademark infringement. So if you make the domain name www.Dizney.com selling Mickey Mouse products, good luck!
You can check if your domain name is conflicting with other domains via your country’s government website.
Age Restrictions
Selling products such as alcohol, adult products, tobacco, vapes or any other products to people under a certain age is illegal. If you plan on selling any of these products, Shopify has an age check app that enables you to add an age verification screen to your website to protect yourself.
Disclaimer
Again I want to reiterate, I am not a lawyer or an accountant and the information in this article is not official legal advice. For professional advice, get in touch with a lawyer or an accountant.
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