Effect of EU Free Trade Agreement on Motor Vehicles

The EU Free Trade Agreement is an agreement between Australia and the European Union to remove most tariffs on exports and imports between the two markets. The free trade agreement (FTA) was 8 years in the making and finalised in late March 2026, but an implementation date is yet to be revealed.

With Europe synonymous with luxury motor vehicles, buyers considering this end of the market can expect lower prices. But some vehicles will still be subject to the Luxury Car Tax (LCT). Some changes have been made to the LCT as part of the new agreement. The Chief Executive of the Federal Chamber of Automotive Industries (FCAI) Tony Weber said the tariff removal was a positive for Australian vehicle buyers. Saying it would bring Euro-sourced vehicles in line with vehicles from markets including Japan, Korea, Thailand and China.

This is a major FTA for Australia with key outcomes for the motor vehicle sector. We unpack the details to clarify how the agreement may impact your next vehicle purchase.

What is the EU Free Trade Agreement?

The Australian Government has been in negotiations with the European Union (EU) around a trade agreement since 2018. The trade deal was secured on 24 March 2026 and is seen as lowering both the trade and the investment barriers between the two markets. The EU is the second largest economy in the world.

While many of the benefits of the FTA will be for Australian exporters, especially in the agricultural sector, the agreement will have a positive impact on the motor vehicle market for Australian buyers. Prior to this agreement, a 5% tariff was imposed by Australia on EU vehicle imports. This has now been removed which will mean lower prices.

LCT and EU Free Trade Agreement

While the Euro vehicle market covers a wide price range, it is fair to say most models coming from Europe would be considered in the luxury or top end of the market. This means many models have been subject to Australia’s Luxury Car Tax (LCT).

Adjusting this tax was apparently key to Australia reaching agreement on the FTA with the European Union. LCT is paid by the importer of the vehicle and included in the price paid by the buyer. The tax thresholds and rate can change each financial year and is currently 33%. Thresholds for 2025/26 are $80,567 for petrol vehicles and $91,387 for fuel-efficient models.

As a result of the FTA, the threshold for models with zero emissions has been lifted to $120,000. This will make high-end EVs a lot cheaper and more accessible to more buyers.

The FCAI’s Mr Weber sees the LCT change as ‘incremental’ and leaves what the Chamber considers an ‘outdated measure’ in place due to the closure of the vehicle manufacturing sector in Australia.

Effect on Motor Vehicle Prices

So what can buyers of European-sourced vehicles expect to happen with prices? The 5% tariff has been removed, but that would have been on the import/wholesale price, not the dealer’s selling price. But on some models, this will represent a significant price cut. More affordable prices will be available on many brands and vehicles more accessible to a larger buyer market.

All models, from all Euro-sourced brands, across all price ranges should see reductions. The most impressive reductions will be seen on Euro EVs with the removal of both the import tariff and the

lifting of the EV LCT threshold. Specific models to look for may be the Mercedes EQA, Audi Q6 e-tron, VW ID.Buzz GTX and BMW iX3.

Before rushing to the dealership for your reduced priced vehicle – you won’t see current stock prices reduced. The implementation date of the FTA is yet to be finalised. The tariff removal will only apply to new shipments after the agreement comes into effect. There would be no change to prices on Euro brand vehicles in the second-hand market.

Effect on Vehicle Financing

Changes to tariffs and LCT will not impact motor vehicle financing. The same credit products – Secured Car Loans, Lease, Chattel Mortgage, CHP, will apply. There will be no change to credit facility features and, for business buyers, no change to tax deductions. The application requirements and assessment processes will remain unchanged. Interest rates are subject to decisions of the Reserve Bank and will not be directly impacted by the FTA.

What will change for buyers of Euro-sourced vehicles is the vehicle price and hence the finance amount required. This can mean lower car loan repayments and/or the capacity to afford a more high-end vehicle with the lower pricing.

Buyers will need to wait until new shipments received after the FTA comes into effect to see exactly what prices will apply to brands such as Mercedes-Benz, Lamborghini, Porsche, BMW and other Euro manufacturers. Estimates can be obtained using our calculator with your ‘guesstimates’ of the new pricing.

Buyers not wanting to wait until the EU Free Trade Agreement is finalised, can contact Jade Car Loans 1300 000 003 for competitive rates on Euro brand vehicle finance.

DISCLAIMER: IN REGARD TO MISREPRESENTATIONS AND ERRORS CONTAINED IN THE MATERIAL AS PRESENTED, LIABILITY IS NOT ACCEPTED. THE DETAILS AND CONTENT IS PROVIDED FOR CAR BUYERS AND INDIVIDUALS AND BUSINESS SEEKING FINANCE PURELY AS GENERAL INFORMATION. THIS IS NOT PROVIDED AS THE ONLY SOURCE OF FINANCIAL INFORMATION. ANYONE THAT CONSIDERS THAT NEED FINANCIAL ADVICE ABOUT THEIR SPECIFIC REQUIREMENTS SHOULD SEEK THEIR OWN FINANCIAL ADVISOR.