1. General Introduction
Even in 2025, the primary purpose of the European customs system remains the protection of EU industries from unfair competition from third countries. Customs duties on goods from non-EU countries (third-country duties) serve as protective measures and are levied once upon import. 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 Common Customs Tariff system of the EU 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 modernizations of older agreements (e.g., with Mexico and Chile). In addition, there are autonomous duty suspensions and tariff quotas, as well as tariff 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 certificate are being intensively used to secure supply chains.
By contrast, value added tax (VAT) and excise duties (e.g., on tobacco, alcohol, energy) remain traditional tax 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 categories.
2. Incurrence of Customs Duties and VAT
A customs debt generally arises in accordance with Art. 77 UCC when non-Union goods are released for free circulation. Additionally, under Art. 79 UCC, a customs debt may also arise due to unlawful importation or unauthorized use.
However, not every import automatically leads to a customs debt. Customs supervision begins upon importation—that is, when the border is physically crossed—not only when goods are placed under a customs procedure.
Import VAT (EUSt) arises when goods are released for free circulation and are thus deemed to be “domestically used.” Import VAT is a national tax, but it is governed by harmonized EU VAT law (Directive 2006/112/EC, VAT Directive).
Unlike customs duties, import VAT is a consumption tax: it is not governed by customs regulations in the narrower sense, but by national VAT laws (e.g., the German VAT Act – UStG) and the VAT Directive.
3. VAT Deduction on Import
According to Art. 168(e) of the VAT Directive, the deduction of import VAT is not dependent on actual payment of the tax, but merely on the fact that the tax is owed. 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 required for input VAT deduction, provided that the taxable person is considered the importer and is entitled to deduct input VAT.
Therefore, in 2025 as well: a business can deduct import VAT as input VAT as soon as the tax liability arises in principle—regardless of actual payment, provided there is no abuse or fraud.
4. Input VAT Deduction Depending on Right of Disposal
In German practice, input VAT deduction is still often linked to the right of disposal at the time of import. However, this interpretation has already been softened by several tax courts and the ECJ.
What matters is not who had the power of disposal over the goods, but who appears as the debtor of import VAT, which is evidenced by the tax assessment notice (import notice).
According to the decision of the Hamburg Fiscal Court (5 K 302/09), there is a right to input VAT deduction even if the importer did not have actual power of disposal over the goods—provided that they bear the economic burden and act in their own name.
By 2025, German tax jurisprudence is showing further alignment with the EU law concept 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 expected to be fully operational by 2028.
- Digitalization: As of May 2025, the complete electronic processing of customs formalities is mandatory in Germany. The ATLAS system has been updated (version 11.0).
- Import VAT Deferral: In an increasing number of Member States (e.g., France, Belgium, Austria), import VAT is now only accounted for on paper under the so-called “deferral procedure” (reverse charge). In Germany, this is still only partially possible (§ 21(2) UStG).
- Rules of Origin 2025: With new bilateral trade agreements (e.g., under negotiation with India), extended cumulation rules are being introduced.
Conclusion:
In 2025, the EU is pursuing increasing harmonization and digitalization of customs and VAT law. While customs duties primarily serve protectionist and security-related purposes, import VAT remains a central component of the VAT structure, with its deductibility still bound to EU law standards of tax neutrality.
Dr. Géza Katona, LL.M., Attorney-at-Law
Katona és Társai Ügyvédi Társulás
(Katona & Partner Rechtsanwaltssozietät / Attorneys’ Association)
H-106 Budapest, Tündérfürt utca 4.
Tel.: +36 1 225 25 30
Mobile: +36 70 344 0388
Fax: +36 1 700 27 57
g.katona@katonalaw.com
www.katonalaw.com
“Customs Duties and Value Added Tax in the EU (Legal Status 2025)”:
1. General Introduction
Even in 2025, the primary purpose of the European customs system remains the protection of EU industries from unfair competition from third countries. Customs duties on goods from non-EU countries (third-country duties) serve as protective measures and are levied once upon import. 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 Common Customs Tariff system of the EU 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 modernizations of older agreements (e.g., with Mexico and Chile). In addition, there are autonomous duty suspensions and tariff quotas, as well as tariff 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 certificate are being intensively used to secure supply chains.
By contrast, value added tax (VAT) and excise duties (e.g., on tobacco, alcohol, energy) remain traditional tax 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 categories.
2. Incurrence of Customs Duties and VAT
A customs debt generally arises in accordance with Art. 77 UCC when non-Union goods are released for free circulation. Additionally, under Art. 79 UCC, a customs debt may also arise due to unlawful importation or unauthorized use.
However, not every import automatically leads to a customs debt. Customs supervision begins upon importation—that is, when the border is physically crossed—not only when goods are placed under a customs procedure.
Import VAT (EUSt) arises when goods are released for free circulation and are thus deemed to be “domestically used.” Import VAT is a national tax, but it is governed by harmonized EU VAT law (Directive 2006/112/EC, VAT Directive).
Unlike customs duties, import VAT is a consumption tax: it is not governed by customs regulations in the narrower sense, but by national VAT laws (e.g., the German VAT Act – UStG) and the VAT Directive.
3. VAT Deduction on Import
According to Art. 168(e) of the VAT Directive, the deduction of import VAT is not dependent on actual payment of the tax, but merely on the fact that the tax is owed. 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 required for input VAT deduction, provided that the taxable person is considered the importer and is entitled to deduct input VAT.
Therefore, in 2025 as well: a business can deduct import VAT as input VAT as soon as the tax liability arises in principle—regardless of actual payment, provided there is no abuse or fraud.
4. Input VAT Deduction Depending on Right of Disposal
In German practice, input VAT deduction is still often linked to the right of disposal at the time of import. However, this interpretation has already been softened by several tax courts and the ECJ.
What matters is not who had the power of disposal over the goods, but who appears as the debtor of import VAT, which is evidenced by the tax assessment notice (import notice).
According to the decision of the Hamburg Fiscal Court (5 K 302/09), there is a right to input VAT deduction even if the importer did not have actual power of disposal over the goods—provided that they bear the economic burden and act in their own name.
By 2025, German tax jurisprudence is showing further alignment with the EU law concept 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 expected to be fully operational by 2028.
- Digitalization: As of May 2025, the complete electronic processing of customs formalities is mandatory in Germany. The ATLAS system has been updated (version 11.0).
- Import VAT Deferral: In an increasing number of Member States (e.g., France, Belgium, Austria), import VAT is now only accounted for on paper under the so-called “deferral procedure” (reverse charge). In Germany, this is still only partially possible (§ 21(2) UStG).
- Rules of Origin 2025: With new bilateral trade agreements (e.g., under negotiation with India), extended cumulation rules are being introduced.
Conclusion:
In 2025, the EU is pursuing increasing harmonization and digitalization of customs and VAT law. While customs duties primarily serve protectionist and security-related purposes, import VAT remains a central component of the VAT structure, with its deductibility still bound to EU law standards of tax neutrality.
Dr. Géza Katona, LL.M., Attorney-at-Law
Katona és Társai Ügyvédi Társulás
(Katona & Partner Rechtsanwaltssozietät / Attorneys’ Association)
H-106 Budapest, Tündérfürt utca 4.
Tel.: +36 1 225 25 30
Mobile: +36 70 344 0388
Fax: +36 1 700 27 57
g.katona@katonalaw.com
www.katonalaw.com