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I was trying to understand how the EU is funded using their official website, but my limited understanding of economy makes it very hard to understand the money pathways from a single unit (the citizen) to the big organization (the EU). I know that each country contributes with some percentage from GDP, but I'm missing links.

So my questions is, is the EU funded (also) from citizen's taxes? Can anyone please help me to understand how one person's taxes are reaching or converted into EU funds? I would appreciate very much if someone can describe this path step by step.

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The main four sources of EU revenue are:

  1. Custom duties and levies - EU calls this its 'Traditional own resources'. These are however not collected directly but member states collect it on the EU's behalf and are allowed to retain (currently) $20\%$ cut from these. These duties are ultimately, at least partially, payed by the EU citizens either directly or indirectly through tax burden incidence (save for special cases where the tax burden incidence might fall on non-EU citizen or company owned by non-EU citizens).
  2. VAT - After EU harmonized the VAT collection rules among the member states a small percentage of VAT was set up to be directed towards the EU budget (between $0.15-0.30\%$ - however this rate has many asterisks and caps attached to it for complete rules see here). The VAT is again not collected directly by EU but by the member states on its behalf but it is for the most part payed by the EU citizens. Of course, part of it might be payed by people on vacation - especially for consumption of non-durable goods as with durable goods its often possible to get VAT rebate.
  3. National contributions from member states - EU calls this 'Gross National Income-based own resource' since it is calculated from member state's GNI and is currently capped at $1.2\%$ GNI. The member states themselves decide how to raise this money - some of them might come from non-EU citizens or firms not owned by EU nationals but empirically most nations raise revenue primarily by taxing their own citizens. For example, most EU countries raise large portion of their revenue through income taxes so when EU citizens pay their income tax little bit from it is forwarded to the EU budget. Of course, most modern nations levy a plethora of different taxes to see exactly where individual members raise their revenue you have to look at their individual budgets.
  4. Other sources - these include fees and fines EU issues, or contributions of non-EU countries to research projects, or taxes on EU staff etc. and other items. Again some of these are presumably collected from EU citizens.

Moreover, note in case of all of the above even some non-EU countries have to contribute, such as Norway for example, for accessing the common market.

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    $\begingroup$ Great answer. Thank you very much. That definitely helped $\endgroup$ – Physther May 27 at 1:45

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