Import VAT on Goods: Who Pays It, When It Arises and How Much It Is

What Is Import VAT?

When goods are imported from a third country into the customs territory of the European Union, import VAT is generally levied. From a systematic perspective, import VAT mirrors domestic VAT on supplies of goods and ensures that imported goods are not treated more favourably than goods supplied or produced within the EU.

In Germany, the legal basis for import VAT is section 21 of the German VAT Act (UStG) in conjunction with the customs provisions of the Union Customs Code (UCC).

Who Pays Import VAT?

As a general rule, import VAT is payable by the person who acts as the customs declarant or importer for customs purposes. In practice, this is often:

• the purchaser of the goods,
• a freight forwarder or customs agent (acting as an indirect representative),
• or a service provider acting in its own name but on behalf of another person.

What matters is not who ultimately bears the economic burden, but who appears as the importer vis-à-vis the customs authorities. This distinction is particularly important for the entitlement to deduct input VAT.

When Does Import VAT Arise and When Does It Become Payable?

Import VAT arises at the moment when goods are released for free circulation, , i.e. typically upon customs clearance.

At this point, import VAT is assessed and generally becomes immediately payable. Depending on the procedure applied, Depending on the procedure, payment may be made:

• directly at customs clearance,
• via a deferred payment (customs deferment) account, or
• under specific simplification schemes.

How Is Import VAT Calculated?

The amount of import VAT is based on the customs value of the goods. The taxable amount includes:

• the value of the goods,
• plus customs duties,
• plus incidental costs (e.g. transport and insurance costs up to the first place of destination within the EU).

The applicable domestic VAT rate is then applied (in Germany generally 19% or 7%).

Can Import VAT Be Deducted as Input VAT?

For businesses entitled to deduct input VAT, import VAT is in principle deductible as input VAT (section 15(1) no. 2 of the German VAT Act (UStG)). This requires in particular that:

• the business itself is the person liable for import VAT, and
• the imported goods are used for taxable supplies.

In such cases, import VAT represents a cash-flow disadvantage, but not a final tax cost. Problems arise, however, where:

• the wrong party is designated as the importer, or
• the goods are used for VAT-exempt supplies.

Typical Pitfalls in Import VAT Practice

In practice, recurring problem areas arise in connection with import VAT that may lead to unnecessary tax risks and liquidity disadvantages. Businesses with regular or high import volumes are particularly affected.

• Incorrect identification of the importer: If the wrong party acts as the importer for customs purposes, the right to deduct import VAT as input VAT may be lost.
• Underestimation of the liquidity impact: Especially in the case of high import volumes, import VAT becoming immediately payable can result in significant liquidity burdens.
• Unclear contractual arrangements: Missing or ambiguous agreements regarding Incoterms and the allocation of costs increase the risk of incorrect tax treatment.
• Lack of coordination between customs and VAT processes: Uncoordinated procedures often lead to errors in customs declarations, payment and the deduction of input VAT.

In addition, certain German federal states offer simplification models under which import VAT is not paid immediately to the customs authorities but is instead declared via the VAT return. These procedures can provide significant cash-flow advantages.

Conclusion on Import VAT in Cross-Border Trade

Import VAT is far from a marginal issue; it is a core element of VAT compliance in cross-border trade. Businesses engaged in imports should clearly understand who acts as the importer, when the tax arises and how it is calculated. Proper contractual and procedural structuring can not only mitigate tax risks but also generate substantial liquidity benefits.