1    Background

According to sec. 4 no. 4b of the German VAT Act (UStG) supplies are VAT exempt if they precede an importation from a third country into the domestic territory (import supply) or precede this import supply. The VAT exemption applies to supplies of goods that have already been brought into the Union territory but have not yet been cleared for free circulation and are instead brought into the Union territory under a special customs procedure pursuant to Art. 5 no. 16 lit. b in conjunction with Art. 210 of the Union Customs Code (UCC).

2    Federal Ministry of Finance’s letter dated 9 April 2026 – the essential contents

Previously, sec. 4.4b.1 of the German Administrative VAT Guidelines (UStAE) explained, in only three sentences, the conditions under which the VAT exemption according to sec. 4 no. 4b UStG applied; this was illustrated with an example. The details regarding the application of the VAT exemption were previously regulated in the Federal Ministry of Finance’s (BMF) letter dated 28 January 2004. The new version of the UStAE supplements the previous statements of the tax authorities and significantly expands the scope of explanations in sec. 4.4b.1 UStAE. A large part of the previous BMF letter is reflected in the new regulation. The individual paragraphs of the new version of the UStAE can be divided into four categories:

• Principles (sec. 4.4b.1 paras. 1 – 3 UStAE)
  Paragraphs 1 to 3 explain the fundamental framework conditions of the VAT exemption. Paragraph 1 illustrates, with examples, when a supply preceding the importation, within the meaning of sec. 4 no. 4b of the German VAT Act, is to be assumed. Paragraph 2 then defines and explains essential terms with reference to Union customs law (UCC, UCC-DA, and UCC-IA). Finally, paragraph 3 contains a list of the special customs procedures.

• Explanations of the individual special procedures (sec. 4.4b.1 paras. 4, 5, 7, and 8 UStAE)
  Paragraphs 4, 5, 7, and 8 contain explanations of the individual special customs procedures for which the application of sec. 4 no. 4b UStG may be considered. Here, customs aspects for the purposes of applying the VAT exemption are essentially summarized and illustrated with examples. 

• Limitation and delimitation of the scope (sec. 4.4b.1 paras. 6, 9, and 10 UStAE)
  In paragraphs 6, 9, and 10, the BMF sets out what it considers to be the applicable limits of the scope of the VAT exemption. The delimitation from the VAT exemption for exports, according to sec. 6 UStG and for intra-Community supplies according to sec. 6a UStG (sec. 4.4b.1 para. 10 UStAE), is comprehensible. The same applies to the delimitation from the VAT exemption according to sec. 4 no. 3 sentence 1 lit. a lig. bb) and c) UStG, for services related to goods that are in a special customs procedure (also sec. 4.4b.1 para. 10 UStAE). The newly introduced restriction of the customs warehouse regulation for certain scenarios involving supplies to customers who are end consumers (sec. 4.4b.1 para. 6 UStAE) is critical. These are now generally excluded from the VAT exemption. A VAT exemption can only be obtained retroactively if the customer himself clears the goods for free circulation.

• Proof of the conditions for the VAT exemption (sec. 4.4b.1 para. 11 UStAE)
  With regard to the proof requirements, paragraph 11 contains welcome clarifications. Previously, the scenario in which the final use of the goods was not yet determined at the time of supply, was not clearly regulated and often led to discussions with the administration. In practice, this problem particularly arises in sales within the customs warehouse procedure. According to the BMF, the proof requirements are met if a status certificate as non-Union goods (e.g., warehouse receipt or receipt for delivery untaxed/untaxed) ensures that the supplying taxable person does not clear the goods for free circulation.

3    Recommendations for action

The new BMF letter on the VAT exemption according to sec. 4 no. 4b UStG contains numerous helpful hints and customs explanations that are likely to lead to increased legal certainty in practice when applying the VAT exemption. However, it is puzzling why the BMF has restricted the scope of the customs warehouse regulation for supplies to end customers. Neither the legislative materials for the introduction of the VAT exemption according to sec. 4 no. 4b UStG (BT-Drucks. 15/1562, p. 44) nor the EU VAT Directive (Art. 155, 156 EU VAT Directive) provide for such a restriction.

It is positive to note, however, that the BMF letter at least contains a non-objection regulation. For supplies up to 8 April 2026, the tax authorities will not object to the supplying taxable person having treated such supplies as VAT exempt, even though these supplies are no longer VAT exempt under the new regulation. Apart from this, there are no significant substantive legal changes for companies that regularly make use of the VAT exemption according to sec. 4 no. 4b UStG. In view of the restriction of the scope of the customs warehouse regulation, taxable persons should, however, check whether the respective supplies in the customs warehouse are still covered by the scope of the VAT exemption.