1. General Introduction

As of 2025, the primary aim of the European customs system remains the protection of EU industry from unfair competition originating from third countries. Customs duties on goods from non-EU countries (third-country duties) serve as protective measures and are levied once upon import. Goods manufactured within the EU are not subject to customs duties.

The fiscal aspect is secondary: 75% of customs revenue continues to flow into the EU budget, while 25% remains with the respective Member State.

The EU’s Common Customs Tariff system is complemented by preferential agreements, including new free trade agreements such as the EU-New Zealand Agreement (in force since 2024), as well as ongoing updates to older agreements (e.g. with Mexico and Chile). In addition, there are autonomous suspensions of customs duties, tariff quotas, and customs preferences for developing countries under the revised Generalised Scheme of Preferences (GSP+).

The security aspect is becoming increasingly important: since the EU customs reform (mandatory application of the revised Union Customs Code – UCC and its implementing regulations by the end of 2023), digital risk analyses, IT-supported customs systems, and the AEO (Authorised Economic Operator) certification have been intensively used to secure the supply chain.

VAT (value-added tax) and excise duties (e.g. on tobacco, alcohol, energy) remain classic instruments for public financing – regardless of the origin of the goods. VAT is levied on goods and services, while excise duties apply only to certain product groups.

2. Incurrence of Customs Duties and VAT

As a rule, a customs debt arises under Article 77 UCC when non-Union goods are released for free circulation. In addition, a customs debt may also arise under Article 79 UCC through improper handling or unlawful use.

However, not every import automatically leads to a customs debt. Customs supervision begins with the import, i.e. the actual crossing of the border, not only upon placement under a customs procedure.

Import VAT (EUSt) arises when a good is released for free circulation and is thereby considered as "domestically used". The import VAT is a national tax but is governed by the harmonised EU VAT law (Directive 2006/112/EC, VAT Directive).

The nature of import VAT as a consumption tax distinguishes it from customs duty: it is not governed by customs legislation in the strict sense, but by the VAT Act (UStG) and the VAT Directive.

3. Input VAT Deduction on Importation

According to Article 168(e) of the VAT Directive, the right to deduct input VAT on imports does not depend on the actual payment of import VAT, but only on the fact that it is owed. This was clarified by the ECJ ruling “Veleclair” (C-414/10).

Germany subsequently amended Section 15(1) Sentence 1 No. 2 of the VAT Act: actual payment of import VAT is no longer a prerequisite for input VAT deduction, provided that the taxpayer is considered the importer and is entitled to deduct input VAT.

Thus, as of 2025, the entrepreneur may deduct import VAT as input VAT as soon as it has arisen in principle – regardless of whether it has actually been paid, provided there is no abuse or fraud.

4. Deductibility of Import VAT Depending on Disposal Rights

In German practice, the input VAT deduction is still often linked to the right of disposal at the time of import. However, this view has already been softened by several fiscal courts and the ECJ.

What matters is not who had disposal over the goods, but who appears as the debtor of the import VAT, as evidenced by the tax assessment notice (import notice).

According to the judgment of the Fiscal Court of Hamburg (5 K 302/09), the right to deduct input VAT exists even if the importer did not have actual control over the goods – as long as they bear the economic burden and act in their own name.

By 2025, German fiscal jurisprudence continues to converge with the EU’s legal understanding of VAT neutrality.

5. Current Developments in 2025

  • EU Customs Law 2025: The reform of the Union Customs Code is entering its final implementation phase. The EU Customs Data Hub is to be fully operational by 2028.
  • Digitalisation: Complete electronic processing of customs formalities is mandatory in Germany as of May 2025. The ATLAS system has been updated (version 11.0).
  • Shift of Import VAT: In an increasing number of Member States (e.g. France, Belgium, Austria), import VAT is recorded purely for accounting purposes via the “reverse charge” procedure. In Germany, this is still only partially possible (§ 21(2) VAT Act).
  • Rules of Origin 2025: New bilateral trade agreements (e.g. under negotiation with India) introduce extended cumulation rules.

Conclusion

In 2025, the EU continues to pursue increased harmonisation and digitalisation of customs and VAT law. While customs duties primarily serve protectionist and security-related purposes, import VAT remains a key component of the VAT system, with its deductibility still subject to EU law principles of tax neutrality.