Australia has officially removed import tariffs on European-built vehicles as part of ongoing trade developments with the European Union. On the surface, this sounds like a win for car buyers, but the reality is more complex.
While tariffs are gone, the Luxury Car Tax still remains and continues to have a much bigger impact on what buyers actually pay.
What Tariff Removal Actually Means
The Australian Government has eliminated the 5 percent import tariff that was previously applied to vehicles built in Europe.
However, this only applies to cars that meet strict rules of origin requirements. In simple terms, the vehicle must actually be manufactured in Europe to qualify.
This is important because many European brands produce vehicles in multiple countries. If the car is built outside of Europe, the tariff removal does not apply.
Which Brands And Models Are Affected
The change mainly impacts manufacturers such as BMW, Mercedes-Benz, Audi, Volkswagen and Volvo.
That said, not every model from these brands will benefit. Many vehicles, particularly SUVs, are produced in regions like Asia or North America.
This means two cars from the same brand could be treated differently depending on where they are built.
Why Prices Are Unlikely To Drop Significantly
Even with tariffs removed, buyers should not expect major price reductions.
There are several reasons for this:
- The tariff was only 5 percent to begin with
- Exchange rates continue to influence vehicle pricing
- Shipping and logistics costs remain elevated
- Manufacturers may absorb the savings rather than pass them on
- Strong demand for new cars is keeping prices firm
In many cases, the actual saving per vehicle may be relatively small once everything is factored in.
Luxury Car Tax Still Plays The Biggest Role
The more significant cost factor remains the Luxury Car Tax.
LCT applies to vehicles above certain thresholds:
- Standard vehicles around $76,950
- Fuel efficient vehicles around $89,332
Any amount above these thresholds is taxed at 33 percent.
For many European vehicles, especially premium models, this tax adds a substantial amount to the final drive away price.
What Has Changed With Luxury Car Tax
While the Luxury Car Tax has not been removed, there have been ongoing adjustments.
Fuel efficient vehicles, including hybrids and some lower emission models, benefit from a higher threshold. This can slightly reduce the amount of tax paid.
However, for most luxury vehicles, LCT remains a major cost and continues to outweigh any benefit from tariff removal.
Why Luxury Car Tax Still Exists
The government has chosen to keep LCT in place as part of its broader tax structure and revenue strategy.
Despite pressure from the automotive industry to remove it, the tax remains and continues to impact buyers purchasing higher value vehicles.
What This Means For Buyers
If you are considering a European car, here is what you need to know:
- Some vehicles may become slightly cheaper due to tariff removal
- Not all cars qualify, depending on where they are built
- Any savings are likely to be modest
- Luxury Car Tax still has a major impact on final pricing
This means getting a good deal still comes down to timing, negotiation and access to competitive dealer pricing.
The Bottom Line
Removing tariffs on European cars is a positive move, but it is not a major price changer for buyers.
Luxury Car Tax, global supply costs and manufacturer pricing strategies still have a far bigger influence on what you will actually pay.
If you are in the market for a new car, focusing on securing the best possible deal will make the biggest difference.
Considering finance for your next car? Loanseekers can help you explore car loan options.
The finer details
Your questions answered.
Have tariffs on European cars been removed in Australia?
Yes. Australia has removed import tariffs on European-built vehicles as part of trade developments with the European Union. This eliminates the five percent duty that previously applied to most European cars. However, the Luxury Car Tax remains and has a far larger impact on vehicle prices than the tariff removal.
Will the tariff removal make European cars cheaper in Australia?
Modestly. Removing a five percent tariff on a $60,000 car saves $3,000 before the importer's margin is considered. Whether that saving is passed on to buyers or absorbed as margin depends on each brand. In competitive segments, expect small price reductions over time rather than immediate list price cuts.
How much is the Luxury Car Tax in Australia and who has to pay it?
The Luxury Car Tax is 33 percent on the value of a vehicle above the threshold, which is $71,849 for most cars and $80,567 for fuel-efficient vehicles in 2025-2026. A $90,000 car attracts roughly $6,000 in LCT. Buyers of luxury European, Japanese, and some Korean models above these thresholds pay the tax directly in the car's purchase price.
Are any European cars now cheaper in Australia after the tariff removal?
Some European manufacturers have passed on modest savings for their entry-level models following tariff removal. Premium brands with strong pricing power are less likely to reduce prices. Compare current pricing against pre-removal pricing for the specific model you are considering to assess whether savings have been passed on.
Is the Luxury Car Tax likely to be removed in Australia soon?
The LCT has survived multiple reviews and free trade discussions without being removed. While debate continues, buyers should not delay purchasing based on anticipated removal. Plan around the current LCT regime and treat any removal as a bonus rather than a baseline assumption.
Which European cars are most affected by the Luxury Car Tax in Australia?
Entry-level models from BMW, Mercedes-Benz, Audi, Volvo, and Volkswagen that fall just above the threshold are most affected, as the tax adds a disproportionately large percentage to their total price. High-end models from Porsche, Ferrari, and Lamborghini face the same 33 percent rate but it represents a smaller percentage of their much higher prices.
