Article 3 of the Third Coronavirus Tax Relief Act – lower VAT rate for restaurant services has been extended

Economy: Will the lower VAT really boost the economy?

Whether this measure has the desired effect of helping the restaurant industry overcome the massive losses it incurred due to the pandemic remains to be seen. The Green party’s parliamentary group expressed their concern that the general VAT rate reduction in effect for the second half of 2020 failed to help. The FDP party points out that reducing the tax rate is senseless if the restaurants remain closed. The LINKE party wants the reduced VAT rate to be independent of the pandemic and says that the lower rate should also apply to beverages.

VAT: simplified from a legal perspective but can it be a burden as well?

Reducing the VAT has certainly simplified things from a tax perspective. Restaurants that offer food for both on-site and off-site consumption for the time being no longer need to make a distinction between which items qualify for the seven vs. the nineteen percent VAT. However, for meals that include both food and beverages, a distinction must still be made when calculating the total amount due. This temporary change in the tax rate also requires the POS systems to be adjusted accordingly. Some catering businesses may find this extra administrative effort too burdensome in comparison to the relief provided by the VAT reduction.

(Dated: May 10, 2021)