The customs territory and the fiscal territory of the EU

The customs territory and the fiscal territory of the Community are two different concepts.

Within the customs territory of the Community, a common customs and trade policy is applied in relations with countries outside the EU. This means that, as a rule, the same customs duties are levied for import and export in all Community countries, and that the same trade policy measures, such as quotas or other import restrictions, are applied at goods imported from outside the Community.

In the fiscal territory of the Community, however, Community legislation on Community harmonized indirect taxation, i.e. VAT and excise taxation, is applied, transposed into national VAT and excise legislation of the Member States. Apart from harmonized excise duties there are also national excise duties, which the Community legislation does not concern.Harmonization means standardization of the taxation in the fiscal territory of the Community.

A customs union refers to a union established by states, where the member states have a common trade policy. In the area of a customs union, common customs duties are applied, but the customs formalities haven’t been abolished, unlike in the customs territory of the Community.

>> States and territories included in the customs and/or fiscal territories of the EU

The special status of the Åland Islands

When Finland became a member of the European Union, it also committed to applying tax systems according to EU directives in its indirect taxation. According to the Åland protocol in the Treaty of Accession, however, the Åland Islands is excluded from the application of EU VAT and excise tax directives. Thus the province of Åland, like the rest of Finland, is part of the customs territory of the European Community, but it is not included in the fiscal territory. The purpose of the special status of the Åland Islands was to maintain the right to tax free sales in the ship traffic. The ship traffic is of vital importance for the province's communication, and the intention was to support the economy of the province this way.

The special status of the Åland Islands has made it possible to continue selling tax free goods to passengers in the vessel traffic between the Åland Islands and other EU Member States, although the tax exemption in the traffic between EU Member States ended as of July 1st, 1999. This exception also makes tax free sales possible for passengers travelling between The Åland Islands and mainland Finland.