Originally, the Community budget depended on the Member States' financial contributions.
Under a decision adopted on 21 April 1970, the Member States' contributions were replaced by own resources. These are transfers made by the Member States to the Community budget to cover EU expenditure. The fact that the Community budget is funded from own resources makes the EU financially independent.
The combined total of all own resources may not currently exceed 1.24% of the aggregate gross national income (GNI) of the Member States. There are four types of own resource:
- Agricultural duties and sugar levies: these consist mainly of the customs duties on imports from non-Community countries of agricultural produce subject to common organisation of the market and levies on sugar, isoglucose and inulin syrup.
- Customs duties: these arise from application of the common customs tariff and are collected on imports from third countries at the external borders.
These two resources are what are termed the "traditional own resources".
- The VAT resource: this arises from the application of a uniform percentage rate to the VAT base of each Member State. This rate was reduced to 0.50% in 2004. For all Member States, it is applied to a base capped at 50% of GNP.
- The resource based on gross national income (the "fourth resource"): introduced in 1988, this is an "additional" resource, because it is set according to the other three sources of budget revenue. A uniform percentage rate is applied to the total GNI of all the Member States, under the budget procedure.