The Terminator star, 76, was held at the airport for about three hours upon arrival from Los Angeles after failing to declare a £22,000 Audemars Piguet watch, according to German tabloid Bild.
Schwarzenegger was taken aside by officers who searched his luggage and found the watch, which the actor had allegedly not declared on his arrivals customs form.
He had reportedly planned to sell the watch at an auction in aid of his climate crisis charity.
A spokesman for the Munich Main Customs Office, Thomas Meister, told German outlet SZ: “If the goods remain in the EU, you have to declare them through customs. This applies to everyone, whether their name is Schwarzenegger or Müller, Meier, Huber.”
They said that criminal tax proceedings had been initiated against Schwarzenegger, adding: “The watch should have been registered because it is an import.”
Schwarzenegger was eventually released by customs officials.
He told Bild that he had tried to inform customs officials that the watch was being donated to his Schwarzenegger Climate Initiative.
“This is the problem that Germany is suffering from. You can no longer see the forest for the trees,” he said.
Schwarzenegger's spokesperson Daniel Ketchell, who accompanied him on the flight, told the Washington Post that the actor had been released after three hours.
“He owns the watch. None of the people I know and sat next to on our commercial flight filled out a declaration form, including Arnold — he got to customs, and they told him he was 'randomly' selected to be searched,” he said.
“During the search, he answered every single question the customs officer asked, so to say he didn't declare anything is 100 percent false.
“All is well now, and we look forward to a successful charity event for the Schwarzenegger Climate Initiative on Thursday.”
He added: “Lawyers are dealing with it. We don't expect any issues because Arnold always pays his taxes.”
The Austrian-born actor was charged €35,000, including €4,000 in tax and a €5,000 penalty, according to Bild.