What Are the Legal Requirements for Shopify Dropshipping?

Over the past 12+ years advising ecommerce entrepreneurs, I’ve reviewed hundreds of Shopify dropshipping and print-on-demand stores.

While most people start out focused on product design, suppliers, and ad strategies, far too many overlook the legal infrastructure required to run a compliant and scalable business.

Dropshipping and POD may be low-barrier models, but they’re still businesses.

The moment money changes hands, legal responsibilities come into play—whether you realize it or not.

This article walks through the key legal requirements for Shopify-based dropshipping and print-on-demand sellers.

These are the areas where most new stores get tripped up—either by payment processors, tax authorities, or customer disputes.

1. Business Registration: Make It Official

Forming a legal entity is one of the first steps to legitimizing any ecommerce operation.

It’s not just about appearances—it’s about protecting the individual behind the business.

Why business registration matters:

• It separates personal and business liability
• It enables access to business banking, loans, and tax filings
• It’s often required to work with payment processors like Stripe or PayPal

In the U.S., common structures include:

Outside the U.S., sellers will need to check local laws.

In the UK, for instance, forming a Limited Company through Companies House is a common step.

2. Obtain an EIN or Business Tax ID

In the U.S., anyone running a business beyond a sole proprietorship should apply for an Employer Identification Number (EIN) through the IRS.

This is a unique identifier used for tax purposes, banking, and payroll.

Key reasons to get an EIN:

• Required to open a business bank account
• Necessary to apply for a sales tax permit
• Often requested by suppliers and payment processors

For non-U.S. sellers, equivalent identifiers exist. Examples include the Company Number in the UK, ABN in Australia, and VAT ID across the EU.

EINs are free to obtain via the IRS website.

3. Seller’s Permits and Business Licenses

Depending on where the business operates and where customers are located, additional licensing may be required.

In the United States:

• Seller’s permit/resale certificate: Allows a business to purchase goods without paying sales tax and to collect tax from customers.
• Local business license: Required by some counties or cities, even for home-based operations.

Each state has its own Department of Revenue website, where sellers can apply for permits and licenses.

For print-on-demand sellers using platforms like Printful or Printify, resale certificates may not be mandatory, but that depends on the state and the tax policies of the supplier.

4. Sales Tax (U.S.) and VAT (International)

One of the most complex and critical legal areas in ecommerce is tax compliance.

Sales Tax in the U.S.

The U.S. does not have a federal sales tax. Instead, it’s regulated at the state level.

If a business has nexus in a state—either due to physical presence or sales volume—it must collect and remit sales tax in that state.

Tools that help automate this:

• Shopify Tax (built-in)
• TaxJar
• Avalara

VAT for International Sellers

If selling to EU or UK customers, VAT obligations apply:

• Businesses may need to register for VAT once cross-border sales reach €10,000
• VAT must be collected at the correct rate based on the customer’s location
• Invoices must reflect VAT amounts and include the seller’s VAT ID

Failure to comply can result in fines, legal issues, or delayed deliveries due to customs holds.

5. Required Website Legal Policies

Transparency is a legal and compliance necessity. Every Shopify store should include three key legal documents.

1. Privacy Policy

Explains what personal data is collected, how it’s used, and how customers can request deletion or access. This is required under:

• GDPR (EU)
• CCPA (California)

2. Terms & Conditions

Covers the agreement between the business and customer, including limitations of liability, governing law, and order terms.

3. Refund & Return Policy

Required by payment processors and often mandated under consumer protection laws. It must clearly outline:

• Eligibility for returns
• Time limits
• Conditions (e.g., unused, original packaging)

Shopify provides basic templates under Settings > Legal, which sellers can customize based on their specific model and shipping arrangements.

6. Intellectual Property Compliance

A recurring legal issue—especially in the print-on-demand space—is the unauthorized use of copyrighted or trademarked content.

Common violations:

• Using pop culture characters or brand logos
• Modifying existing artwork without permission
• Uploading customer-submitted designs that violate IP laws

Many POD platforms proactively monitor for violations and may suspend stores that cross the line.

Recommendations:

• Use royalty-free design resources with commercial use licenses
• Run trademark checks via the USPTO or EUIPO
• Maintain signed contracts if hiring freelancers or designers

An infringement notice can result in takedowns, legal costs, or loss of access to major sales channels.

7. Shipping and Customs Law

Dropshipping and POD involve complex shipping logistics, especially across borders. Legal obligations differ by country.

Legal points to consider:

• Packages must be properly labeled with correct declared value
• Import duties may apply based on product category and customer location
• Some goods (e.g., electronics, supplements) may require special declarations or certifications

Best practices:

• Inform customers at checkout if they may be responsible for customs or VAT
• Work with suppliers who understand international compliance
• Avoid restricted or banned items based on destination country

If customs declarations are inaccurate, shipments can be delayed, returned, or seized—affecting customer satisfaction and increasing costs.

8. Privacy and Data Protection (GDPR, CCPA)

Consumer privacy laws have expanded globally, and ecommerce businesses must take data protection seriously.

GDPR (General Data Protection Regulation)

Applies to anyone selling to customers in the EU.

Requirements include:

• Transparent privacy policies
• Cookie consent notices
• Mechanisms for users to access or delete their data

CCPA (California Consumer Privacy Act)

Applies to businesses serving California residents and meeting certain thresholds.

Tools and plugins:

• Shopify supports GDPR compliance via native features and third-party apps
• Cookie bar apps like GDPR Cookie Bar or Consentmo can handle banners and data preferences

Even if the business isn’t located in the EU or California, these laws apply if customers are.

9. Payment Processor Compliance (Stripe, PayPal, Shopify Payments)

Payment platforms have their own compliance standards, which are often stricter than general legal requirements.

Common requirements:

• Fully functional website with legal pages
• Clear contact information
• Transparent refund and shipping policies
• No banned products (e.g., CBD, weapons, adult content)

Accounts can be frozen or terminated if processors detect high dispute rates or lack of documentation.

Recommendations:

• Maintain all legal pages before going live
• Avoid high-risk products or claims (e.g., health-related)
• Use tracking numbers to defend against chargebacks

Stripe and PayPal often run automated reviews and manual audits—compliance reduces the risk of payment delays or bans.

10. Business Insurance (Optional but Recommended)

While not legally required in most cases, insurance can be essential for long-term risk management.

Relevant types of insurance:

Sellers should consult with an insurance professional to determine appropriate coverage based on product type, location, and revenue.

Final Takeaway

Shopify dropshipping and print-on-demand may be relatively easy to start, but they’re governed by the same legal principles as any other ecommerce business.

The most common pitfalls—tax noncompliance, IP infringement, improper policies—are also the most avoidable with proper setup and guidance.

Here’s a quick summary of legal essentials:

• Form a legal business entity
• Get an EIN or business tax ID
• Apply for sales tax permits and business licenses
• Understand U.S. sales tax and international VAT laws
• Add clear, legally-required policies to your site
• Avoid intellectual property violations
• Comply with shipping and customs requirements
• Protect customer data in line with GDPR and CCPA
• Follow platform guidelines for payment processors
• Consider insurance to manage business risk

Getting this right up front not only protects the business—it enables sustainable growth, reduces customer friction, and opens doors to better suppliers and financing.