The European Union is funded mainly by contributions from its member states based on their economic strength, plus a set of “own resources” like customs duties and a share of national VAT, along with smaller other revenue streams. In recent years, it has also borrowed on capital markets to finance special programs such as the post‑COVID recovery plan, which will be repaid over the long term.

Core funding sources

  • GNI-based contributions :
    • Each country pays a contribution calculated as a percentage of its gross national income (GNI), so richer countries contribute more in absolute terms.
* This GNI resource is the largest single source of EU revenue and balances the budget after other revenues are taken into account.
  • Customs duties and other “traditional own resources” :
    • The EU collects customs duties on imports from outside the EU’s customs union, which are pooled at EU level after a small share is kept by the member state to cover collection costs.
* Other traditional resources can include agricultural levies and certain sugar-sector levies, though their importance has declined over time.
  • VAT-based contributions :
    • A harmonised share of each country’s value added tax (VAT) base is paid into the EU budget according to common rules.
* Caps and adjustments limit the effective rate so that countries with relatively large VAT bases are not disproportionately burdened.

Newer and special revenue streams

  • Additional own resources :
    • Recent reforms introduced new revenue linked to environmental or single-market policies, such as contributions based on non‑recycled plastic packaging waste.
* More proposals are under discussion, including possible resources linked to carbon border measures or digital activities, to diversify funding and support EU priorities like the Green Deal.
  • Borrowing for recovery (NextGenerationEU) :
    • Since 2021, the European Commission has issued EU‑level bonds on capital markets to fund the NextGenerationEU recovery instrument.
* These borrowed funds finance grants and loans to member states and will be repaid gradually up to 2058, mainly from future EU budgets and potentially new own resources.

Other income and balancing rule

  • Miscellaneous revenue :
    • The budget also receives income from fines on companies for breaching EU competition rules, interest on late payments, and contributions from some non‑EU countries participating in specific EU programmes.
* Any surplus from the previous year’s budget is carried over and counted as revenue in the following year.
  • No deficit rule :
    • The EU budget must be balanced each year, meaning total expenditure cannot exceed total revenue.
* This rule contrasts with national budgets, which can run deficits and borrow to fund regular spending; EU‑level borrowing is reserved for specific, time‑limited instruments such as NextGenerationEU.

TL;DR: The EU is mostly funded by GNI‑based national contributions, customs duties and VAT‑based resources, topped up with newer own resources, fines and other income, and, exceptionally, by borrowing for targeted recovery programmes like NextGenerationEU.