In last few years, re-export and dropshipping have been very popular business topics and business models all over the world, but also in Serbia. The fact that you do not have to own or rent a warehouse and keep goods in stock was certainly an initial trigger for many to engage in such forms of trade. Of course, not all attempts were equally successful, but a significant number of those who timely took advantage of all benefits, and on the other hand minimized disadvantages of these business models and consequently made profitable and sustainable systems.

What is re-export?

Although the term re-export is not defined by current Serbian regulations, re-export is considered when a domestic entity buys certain goods abroad and then sells and delivers them to a foreign buyer, in the country where the goods were purchased or another foreign country.

Depending on whether the goods enter the customs territory of Serbia and in which customs procedure they are, we can distinguish several types of re-export. The basic division that is found in practice is the division into direct and indirect re-export.

Direct re-export is the purchase of goods abroad and delivery of same goods abroad, without their entry into the customs territory of of Serbia, or shipment of goods from one country to another through the territory of Serbia in transit. Therefore, we can conditionally distinguish two types of direct re-export, depending on whether the goods cross the customs territory of Serbia in the transit procedure or not.

Indirect re-export involves the purchase of goods abroad, entry of those goods into the customs territory of Serbia without placing on the market and their re-shipment abroad. The entry of goods into the customs territory of Serbia takes place either through the procedure of customs warehousing, in which case the goods may or may not change its owner or through the procedure of active refining or finishing – i.e. the re-export finishing.

Concerning re-export, this type of foreign trade is regulated by the Article 39 of the Law on Foreign Trade, which stipulates that a domestic entity for goods purchased in another country or customs territory does not have to: (i) import it if the goods are delivered directly to another state or customs territory, based on contract, or (ii) to place it on the market, if those goods will be dispatched from the territory of the Republic of Serbia after the appropriate customs procedure.

In this way, our legislation has clearly supported direct re-export and need of domestic businessmen to deliver goods purchased abroad directly to foreign buyers without delivery to Serbia, thus achieving significant savings in delivery time and money needed for transport and customs procedures.

What is dropshipping?

Although it has been one of the most popular models of online business in recent years, many are still unfamiliar with general details of dropshipping.

Serbian Law on Trade defines three (3) categories of electronic commerce, as follows:

  • Online/internet store, as the sale of goods/services through an electronic store,
  • E-commerce platform, as the sale of goods/services through an electronic platform that connects traders and consumers, and
  • Dropshipping electronic sales, as the sale of goods through an electronic store or through an electronic platform, where the goods are delivered to the consumer directly from manufacturer/wholesaler.

The difference between the first two forms and dropshipping is because dropshippers do not come into contact with goods at all, but forward the orders they receive directly to manufacturers or traders together with the instruction to which address they should deliver goods.

So, the essence of dropshipping is that a certain trader has goods that are only visible on his website and that he does not keep any of those goods in stock. When he receives an order from his customer, he buys those goods from the manufacturer or some other party, and then that entity delivers the goods directly to the customer. The dropshipper practically never physically touches the goods that he sells. It deals exclusively with web marketing, i.e. bringing potential customers to its electronic store/platform. On the other hand, the goods and stock are owned by someone else (e.g. the manufacturer) and the droppshiper cooperates closely with that entity, because it deals with packing and sending of packages to buyers’ addresses.

Similarities and differences between re-export and dropshipping?

From the above, it can be concluded that direct re-export and dropshipping have certain similarities, given that in both cases there is trade in goods that have not entered the customs territory of Serbia. The main difference is that dropshipping is a slightly more complex business model than direct re-export, due to additional obligations related to the management of the e-shop/platform and its best possible web advertising.

It should also be pointed out that there are no obstacles for entrepreneurs to do re-export and dropshipping, as well as companies.

What is the VAT treatment of transactions, when goods that are traded do not enter the customs territory of Serbia?

In this case, the legal rules regarding the determination of the place of supply of goods should be applied.

According to the provisions of the Article 11, Paragraph 1, Item 1) of the Serbian Law on VAT, the place of supply of goods is the place where the goods are located at the time of forwarding or transport to the recipient or, by his order, to a third party, if the goods are forwarded or transported by a supplier, a recipient or a third party, by his order.  

Therefore, in case when a domestic entity – VAT payer sells goods procured abroad and sells them to some entity abroad, where these goods do not enter the customs territory of Serbia, the sale of these goods is not subject to taxation by VAT.

In this case, in the invoice issued by the domestic entity – VAT payer to its foreign buyer as recipient of goods should be stated that transaction is not subject to taxation by VAT in accordance with the provisions of the Article 11, Paragraph 1, Item 1) of the Serbian Law on VAT.

Finally, we would like to point out that since in this type of foreign trade activity a domestic entity does not come into physical contact with goods, but everything is done based on written documentation, it is important that the goods in transport toward the buyer has beside the invoice all other relevant documents (contracts, purchase orders, waybill, etc.).

Author: Goran M. Ćiraković, attorney-at-law

Photo: Pexels