So, you’re a U.S. manufacturer and you’ve set your sights on the European Union, a wealthy market of 450 million consumers and a GDP of $18 trillion. Sounds like a great $$ opportunity to most US manufacturers. But beneath the surface lies a complex web of taxes, tariffs, and fees that can turn that hoped for goldmine into a costly, quagmire & headaches – The Import VAT Trap.
B2B Transactions, Stacks the Deck Against U.S. Exporters
At the heart of this challenge is import VAT, a consumption tax that, while seemingly neutral in B2B transactions, stacks the deck against U.S. exporters in favor of their EU competitors – we’re going to lay out how this places US manufacturers at a competitive disadvantage. Add in EU tariffs customs complexities along with logistical hurdles, and the disadvantage becomes stark. In this blog, we’ll dig in and show how import VAT rules, combined with tariffs, saddle U.S. manufacturers with higher costs, cash flow burdens, and lost sales even in B2B transactions—while EU firms glide through the single market unscathed. For insights tailored to your manufacturing needs, trust Manufacturing International to guide you through global manufacturing complexities.
The VAT Trap – Disadvantage to U.S. Manufacturers
When a U.S.-based manufacturer sells goods into the EU, their customers must pay import VAT — usually ranging from 17% to 27%, depending on the country (source Tax Foundation) vs 0% VAT for the USA. This tax is assessed at the border, on top of any applicable customs duties and shipping costs.
In contrast, EU-based manufacturers charge VAT as part of the sale, but their buyers simply deduct that VAT from their own returns under the input VAT deduction mechanism. This makes the transaction cash-neutral for EU businesses buying from other EU businesses.
For U.S. Exporters, the VAT Trap Creates a Serious Problem:
| Factor | U.S. Manufacturer | EU Manufacturer |
|---|---|---|
| VAT Charged to Customer | No (but VAT still due at border) | Yes (included in invoice) |
| VAT Paid | Yes, at the border by the EU buyer | Yes, but recoverable by buyer as input VAT |
| Input VAT Deductible by Seller | No | Yes |
| Cash Flow Impact on Buyer | High (upfront import VAT payment) | None (VAT recovered immediately) |
| Administrative Burden | Higher (import paperwork, customs declarations) | Lower (standard invoicing) |
Bottom Line: U.S. products cost more up front and introduce more paperwork. That gives EU suppliers a built-in competitive advantage, even when the U.S. company offers better base pricing or product value.
What Is Import VAT?
Import VAT is a consumption tax applied to goods entering an EU country from outside the EU. It is separate from customs duties (tariffs) and is based on the CIF value of the goods — that is, the Cost, Insurance, and Freight, plus any tariffs paid.
Typical Import VAT Rates by Country (2024-2025):
| Country | Standard VAT Rate |
| Germany | 19% |
| France | 20% |
| Italy | 22% |
| Spain | 21% |
| Netherlands | 21% |
| Sweden | 25% |
| Hungary | 27% |
| Luxembourg | 17% |
Source: Tax Foundation
Even though your EU customer technically pays this tax, it creates friction — and added expense — in your sales process if you are a US manufacturer. We don’t want to imply EU countries don’t have their share of hurdles importing into the United States. We’ll explore those in our next blog. So join our list to be notified as our articles are available so you can stay informed.
Import VAT Is Paid on Top of Tariffs
Here’s where the disadvantage deepens: import VAT isn’t just applied to your product’s price—it’s calculated on the customs value, which includes the product cost, shipping, insurance, and EU tariffs. This stacking effect inflates costs significantly.
Example Calculation:
- Product Price: $10,000 (FOB)
- Shipping/Insurance: $1,000
- EU Tariff (5%): $500
- Customs Value: $11,500
- Import VAT (20%, e.g., France): $2,300
- Total Landed Cost (pre-reclaim): $13,800
- Buyer’s Net Cost (post-VAT reclaim): $11,500
Compare that to an EU supplier’s $10,000 product, shipped for $500 within the single market: no tariff, no import VAT, just $10,500 total. The U.S. product’s net cost is 9.5% higher—and that’s before customs fees ($20-$50) or compliance costs. In 2025, EU tariffs on U.S. goods average 4.2% but spike to 25% for steel and aluminum due to retaliatory measures.
EU Businesses Get a VAT Pass
Under the EU’s VAT system, a business charging VAT simply remits it to the tax authority, while the buying business deducts the same amount as an input. This process makes the transaction tax-neutral.
U.S. companies do not participate in this cycle unless they register for VAT in an EU country — a process that:
- Requires local tax representatives
- Brings compliance costs and legal obligations
- Often doesn’t apply to non-resident exporters
Meanwhile, the EU customer buying from a U.S. business must:
- Pay VAT up front at the border
- Deal with additional customs declarations
- Wait for a VAT refund (if eligible)
This creates a cash flow disadvantage and administrative burden that pushes buyers toward EU-based options.
Real-World Implications of the VAT Trap: US Companies – Losing the Edge
The numbers tell only half the story. In practice, U.S. manufacturers lose deals for reasons beyond price:
- Buyer Preference for Simplicity: EU procurement teams favor local suppliers to avoid customs hassles, even if U.S. goods are competitively priced.
- Internal Rules: Some EU firms mandate single-market sourcing to streamline cash flow.
- Reclaim Delays: VAT refunds can lag 30+ days, per a 2024 OECD study, tying up capital and deterring buyers.
Take automotive parts: U.S. exports face a 10% tariff, plus 19%-25% import VAT, while EU suppliers pay nothing extra. Our recent post, The Truth About EU Automotive Tariffs and Their Impact on the United States, dives deeper into this sector’s woes.
Why the Import VAT This Matters Now
The February 2025 geopolitical shift in U.S.-EU trade relations has led to renewed scrutiny of transatlantic trade imbalances. More EU buyers are looking inward, and the VAT system only reinforces that trend.
Learn more: Global Trade: Geopolitical Influences in U.S. Manufacturing After Events of February 2025
In addition, new EU proposals around digital customs and carbon border adjustment mechanisms may further increase the compliance complexity for U.S. exporters.
Explore the Bigger Picture
This blog is part of our Manufacturing International series on the structural disadvantages U.S. companies face when competing globally:
- The Truth About EU Automotive Tariffs and Their Impact on the United States
- Global Trade: Geopolitical Influences in U.S. Manufacturing After Events of February 2025
- To come – The Effect of US Tax System on EU Manufacturers
Want to explore tools and services to help you succeed in Europe?
Visit our Smart Shop and check out our curated section on Supply Chain Solutions for Manufacturers.
Manufacturing International’s Take After Reviewing the Numbers: Why the VAT Trap Undermines Fair Competition
At Manufacturing International, we see the EU market’s $18 trillion GDP as a great opportunity for U.S. manufacturers. Unfortunately, import VAT, when combined with tariffs and customs complexity, creates a playing field that is isn’t level. Far from fostering fair trade, these mechanisms tilt the playing field – and not in the US manufacturers favor, favoring EU competitors even in B2B transactions. U.S. exporters see their customers hit with import VAT on top of customs duties and freight charges—raising the total landed cost and pushing those buyers toward local EU suppliers, even when U.S. offerings are competitively priced or technologically superior. True fairness in trade between high-income economies like the U.S. and EU should be a level playing field, not a tax system that penalizes cross-border innovation and efficiency.
The import VAT—ranging from 17% to 27% depending on the EU country—hits U.S. manufacturers hard by inflating upfront costs for EU buyers. While EU businesses glide through their single market with zero cash flow disruption thanks to the input VAT deduction, U.S. exporters saddle their customers with border payments, customs paperwork, and refund delays. Add tariffs into the mix—averaging 4.2% but spiking to 25% for sectors like steel—and the “VAT Trap” becomes a compounded disadvantage. This isn’t just a price hike; it’s a competitive edge handed to EU firms on a silver platter.
These extra costs don’t just hurt sales – they erode the ability of U.S. manufacturers to invest in what matters most: cutting-edge technology, sustainable practices, and workforce growth. When EU buyers face higher landed costs and logistical headaches, they’re incentivized to source locally, even if U.S. products offer superior quality or value. The result? Lost market share, stalled innovation, and a chilling effect on transatlantic collaboration at a time when industries like automotive and green tech need it most.
It’s time for a VAT rethink – when it comes to transatlantic trade. Between the EU’s $18 trillion economy and the global leadership of U.S. industry, there is ample opportunity to remove unnecessary barriers and drive mutual growth.
Our conclusion? Fair trade should not mean trading under a burden. It should mean mutual recognition, efficient systems, and a shared commitment to economic opportunity.