1. General Introduction

As of 2025, the primary purpose of the European customs system remains to protect industry within the EU from unfair competition originating from third countries. Customs duties on goods from non-EU countries (third-country tariffs) serve as protective measures and are imposed once upon importation. No customs duties are levied on goods produced within the EU.

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

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

Security considerations are 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 analysis, IT-supported customs systems, and the AEO certificate have been extensively used to secure the supply chain.

In contrast, VAT and excise duties (e.g. on tobacco, alcohol, and energy) remain classical taxation instruments for budgetary financing – regardless of the origin of the goods. VAT applies to goods and services in general, while excise duties apply only to specific categories of goods.

2. Incurrence of Customs Duties and VAT

In general, a customs debt arises pursuant to Article 77 UCC when non-Union goods are released for free circulation. Additionally, Article 79 UCC provides that customs debt may also arise from improper importation or unauthorised use.

However, not every import automatically triggers customs debt. Customs supervision begins upon importation – that is, with the physical crossing of the border – and not only once goods are placed under a customs procedure.

Import VAT (EUSt) becomes due when goods are released for free circulation and are therefore considered as “domestically used.” Import VAT is a national tax but is governed by harmonised EU VAT law (Directive 2006/112/EC, VAT Directive).

As a consumption tax, import VAT differs from customs duties: it is not governed by customs law in the narrower sense but by national VAT law (UStG in Germany) and the EU VAT Directive.

3. VAT Deduction on Import

According to Article 168(e) of the VAT Directive, the right to deduct import VAT is not conditional upon its actual payment, but merely upon its being due. This was clarified by the ECJ in the “Veleclair” judgment (C-414/10).

Germany subsequently amended § 15(1) sentence 1 no. 2 of the UStG: actual payment of import VAT is no longer a prerequisite for deduction, provided the taxable person is considered the importer and is entitled to input VAT deduction.

Thus, in 2025, it remains the case that a business may deduct import VAT as input tax as soon as the obligation to pay has arisen – irrespective of whether it has been actually paid, provided no fraud or abuse is present.

4. Deductibility of Import VAT Based on Dispositional Power

In German practice, input VAT deduction has often been linked to the party’s right of disposal over the goods at the time of importation. However, this view has been softened by multiple fiscal courts and the ECJ.

What matters is not who had physical control over the goods, but who is liable for import VAT – as proven by the tax assessment (import notification).

According to the Fiscal Court of Hamburg (Case 5 K 302/09), the right to deduct input VAT exists even if the importer did not have actual control over the goods – provided that the importer bears the economic burden and acts in their own name.

In 2025, a further shift in German tax jurisprudence toward the EU’s principle of VAT neutrality can be observed.

5. Recent 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 scheduled for full deployment by 2028.
  • Digitalisation: From May 2025, electronic processing of customs formalities is mandatory in Germany. The ATLAS system has been updated (version 11.0).
  • Import VAT Shift Mechanism: In an increasing number of Member States (e.g., France, Belgium, Austria), import VAT is recorded only as a bookkeeping entry under the so-called “reverse charge” system. In Germany, this is currently only possible in limited circumstances (§ 21(2) UStG).
  • Rules of Origin 2025: New bilateral trade agreements (e.g., negotiations with India) introduce extended cumulation rules.

Conclusion

In 2025, the EU continues to pursue the harmonisation and digitalisation of customs and VAT law. While customs duties primarily serve protectionist and security purposes, import VAT remains a core component of the EU VAT system. Its deductibility continues to be guided by the EU principle of tax neutrality.