Austrian-born Schwarzenegger was eventually able to continue on his journey, said a spokesman for the main customs office in Munich on Wednesday evening. He was also able to take the watch with him.
Criminal tax proceedings had been initiated against Schwarzenegger, a world-champion bodybuilder and action film star who also served two terms as governor of California.
According to the customs authorities, Schwarzenegger had not declared a valuable luxury watch upon arrival in Munich, although he apparently planned to leave it in the European Union.
Schwarzenegger was on his way to Austria for a charity auction in which he planned to sell the watch to benefit climate initiatives, according to the climate initiative that he founded.
He also planned to attend the Hahnenkamm ski race in the village of Kitzbühel in the Austrian Alps.
"If the goods remain in the (European Union) you have to pay tax and duty on them," said the customs spokesman.
"That applies to everyone."
"We have taken up the matter. The case will now go to the responsible criminal and fines office in Augsburg," said the customs spokesman.
The star had agreed in Munich to pay customs duty on his personal watch, the Schwarzenegger Climate Initiative said.
"He co-operated at all times, even though it was an incompetent investigation, a total comedy of errors, but one that would make a very funny police film," the statement said.
"We hope that Germany invests as much energy in reorganising its economy and making it more environmentally friendly as it does in levying customs duties on people's property," it said.
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