Is Dropshipping Legal on Shopify?

Janak Uparkoti10 October 2023Last Updated: 10 October 2023

6 minutes read

The short answer is yes—dropshipping is completely legal both on Shopify and across all other ecommerce platforms. Dropshipping simply refers to a retail business model where you sell products online without keeping inventory. When an order is placed, you purchase the item from a third-party supplier and have it shipped directly to the customer. This fulfillment method allows anyone to start an online store without the overhead costs of purchasing stock upfront. While some sellers have raised concerns about the legitimacy of dropshipping, it is 100% legal and a common practice used by many successful ecommerce brands today.

Now let’s explore the legalities and logistics of running a dropshipping business on Shopify in more detail:

Why Is Dropshipping Legal?

Dropshipping is legal for a few key reasons:

You’re selling real products from legitimate suppliers. As long as the supplier is authorized to sell the product, reselling it does not violate any laws.
You fully transfer ownership to the buyer. When an order is placed on your store, the customer is purchasing the item from you. You then buy it from the supplier and have it shipped to the customer.
All required business guidelines are followed. As long as you register your business, collect and remit sales tax, and follow Shopify’s terms of service, dropshipping is perfectly legal.
There is no intent to mislead buyers. Dropshipping is legal as long as you are upfront about shipping times and do not make false claims about owning the inventory.

As long as you follow standard ecommerce regulations and practices, your dropshipping business faces no legal concerns. It provides an easy way for anyone to start an online retail store without huge upfront product investments.

Does Shopify Allow Dropshipping?

Yes, Shopify fully supports and allows dropshipping businesses to operate on their platform. In fact, the company has built features and partnerships to facilitate dropshipping:

Integration with Oberlo – Oberlo is a dropshipping app owned by Shopify that lets you easily import and manage products from suppliers like AliExpress. Shopify recommends it for all dropshippers.
Shopify Fulfillment Network – This new logistics network by Shopify handles warehousing and shipping for sellers. It offers a hybrid dropshipping model by storing top products then direct fulfilling orders.
Allowed 3rd party apps – Shopify permits the use of apps like Dropified and Spocket that connect your store with thousands of dropshipping suppliers.
Educational resources – Their ecommerce university and blog provide extensive guidance on how to successfully run a dropshipping business.

Clearly, Shopify enables and champions dropshipping as a core business model on their platform. Their tools and services make it easier than ever for new entrepreneurs to launch profitable dropshipping stores.

Common Dropshipping Product Sourcing Strategies

When building a dropshipping store on Shopify, you have a few options for sourcing products to sell:

Dropshipping from Chinese Suppliers

Sourcing inexpensive products on Chinese wholesale sites like AliExpress is common in dropshipping. The Oberlo app streamlines this process for Shopify. Pros are low item costs and bulk supplier selection. Downsides include long shipping times and occasional quality issues.

Dropshipping from US/EU Suppliers

For faster shipping to US/EU customers, many dropshippers source inventory from domestic suppliers via apps like Spocket. Products are higher quality and ship from local warehouses. However, unit prices are usually higher.

Dropshipping from Manufacturer and Wholesale Sites

Connecting directly with brand manufacturers via their wholesale programs can provide access to unique product selection, quality assurance, and custom branding options. Minimum order quantities often apply.

Dropshipping from Handmade Marketplaces

Sites like Etsy allow you to source one-of-a-kind handmade products from crafters, artists, and makers to differentiate your inventory. However, availability may be limited.

Hybrid Model

Many successful dropshippers use a mix of both overseas and domestic suppliers. This provides the cost benefits of overseas production along with faster shipping times from local warehouses for each market.

There are pros and cons to each approach. Carefully evaluate suppliers in terms of product selection, costs, shipping speed, reliability, and ease of use.

Is Dropshipping Allowed on Amazon, eBay, Walmart?

Yes, dropshipping is permitted on all major online marketplaces and retailers. However, each platform has specific guidelines and restrictions in their terms of service. Here are quick overviews of how dropshipping works on the top marketplaces:

Dropshipping on Amazon

Allowed but restrictions apply to ensure Prime shipping speeds.
Must use FBA program for order fulfillment.
Products must be shipped within 1-2 days of order.
High competition makes AMZ dropshipping challenging.

Dropshipping on eBay

Fully allowed but may face account restrictions if shipping times are slow.
eBay managed payments hold funds until product is delivered.
Low fees but less support offered than other platforms.

Dropshipping on Walmart

Becoming more dropshipping-friendly but restrictions still apply.
Must ship within advertised timelines to avoid order cancellations.
Potential opportunity as less competition than Amazon.

While dropshipping on marketplaces can provide huge exposure, the rules make high profit margins difficult. A self-hosted Shopify store gives dropshippers more control and flexibility.

Dropshipping Scams and Fraud Risks

Because dropshipping does not require buying inventory, some unethical sellers leverage it solely to take buyers’ money without fulfilling orders. Common dropshipping scams include:

Fake stores scamming credit card info – Scammers set up sham dropshipping stores just to collect credit card details during checkout. No products are ever shipped.
Selling non-existent products – Listing products with stock images that are never actually sourced or shipped to the buyer.
Bait and switch – Advertising one product but shipping a lower quality, cheaper item instead.
Splitting payments – Asking customers to pay via bank transfer first before shipping an order (and then disappearing with the money).

While these egregious frauds are rare, they unfortunately give dropshipping an undeserved negative reputation. Legitimate dropshippers avoid these illegal practices. You can protect customers and your business by:

Carefully vetting suppliers before listing their products for sale. Confirm they are authorized distributors.
Using escrow payments like Shopify Payments to hold funds until orders ship.
Proactively managing customer expectations on shipping timelines.
Refunding promptly if a supplier fails to deliver the right product.
Making it easy for customers to contact you with issues.

By maintaining transparent business practices and clear communication, dropshippers can provide a smooth ordering experience and avoid scams plaguing the industry.

Sales Tax Collection and Reporting

Properly collecting state sales tax is important for running a compliant ecommerce business. With dropshipping, there are a few particular guidelines to keep in mind:

If suppliers don’t charge sales tax, you are responsible for calculating and adding it at checkout based on destination. Shopify has built-in support for this.
You must collect and remit sales tax in any states where your business has a physical presence (known as nexus). In dropshipping, supplier warehouse locations establish nexus. Apps like TaxJar help manage this.
If selling on Amazon or other marketplaces, they will handle collecting sales tax from customers directly.
You must report sales taxes owed based on total sales in each state via your regular business tax returns.

Maintaining precise tax records and staying up-to-date on changing nexus laws is crucial. Consult an accountant knowledgeable in ecommerce and dropshipping to ensure full compliance. Never attempt to avoid collecting sales tax from buyers as this violates state regulations.

Is Dropshipping Legal Internationally?

Dropshipping is legal in most countries, with a few exceptions. Some key international guidelines:

Research import laws: Some countries restrict commercial importing without proper business licenses. Stay updated on latest customs regulations.
Check supplier bulk export policies: overseas suppliers may prohibit dropshipping orders above certain quantities due to their own customs rules.
Know permitted product categories: Certain products like pharmaceuticals, weapons, alcohol or hazardous materials often cannot be imported without licenses.
Collect accurate duties and taxes: Work with a local customs broker to ensure you collect any applicable import duties and taxes from international customers.
Follow marketplace rules: If selling via a global marketplace, carefully follow their latest international seller policies.

With proper preparation, global dropshipping can significantly expand your business reach. Seek assistance from a legal professional familiar with international trade laws to ensure full compliance across all countries you sell to.

Is Dropshipping Legal in the UK, Canada, Australia?

Let’s specifically look at the legality of dropshipping in some other major English-speaking markets:

Is Dropshipping Legal in Canada?

Yes, dropshipping is fully legal and popular across Canada. You must register your business, collect appropriate GST/HST sales tax, and follow Shopify payments rules. There are no specific dropshipping prohibitions.

Is Dropshipping Legal in the UK?

Dropshipping is completely legal and widely used in the UK. Register as a sole trader or limited company and follow VAT tax rules. Make suppliers aware products are for resale to ensure compliance.

Is Dropshipping Legal in Australia?

Australia also permits dropshipping under standard business guidelines. Ensure GST tax collection, and import any overseas goods through an Australian-based supplier to simplify compliance. Research import laws for prohibited items.

These countries represent huge additional addressable markets for scaled dropshipping stores. Just be sure to set up proper business registration and tax reporting based on local requirements.

Final Thoughts on the Legality of Dropshipping

In conclusion, dropshipping represents a perfectly legal ecommerce model both in the US and internationally. By purchasing genuine products from authorized suppliers and reselling to verified customers, dropshippers avoid legal risks prevalent in other industries.

The key is implementing standard business registration, tax collection, transparent marketing practices, and ethical supplier relationships. With the right knowledge and preparation, dropshipping provides an easy entry point for entrepreneurs to start and grow successful online businesses from anywhere. While inherently legit, be sure to follow all platform policies, customs regulations, and local business laws that apply as your operations expand globally.