Restaurant visits and catering will become expensive again as the reduced VAT rate expires on 31 December 2023

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Restaurants and catering will become expensive

Lockdowns during the COVID-19 pandemic placed a heavy burden on the restaurant and catering businesses. To support the industry, a reduced VAT rate of 7% on restaurant and catering services (excluding beverages) was introduced on 1 July 2020 and extended several times. "I agreed to this in the knowledge that we will never abolish it again," said Federal Chancellor Scholz in 2021. However, the recent decision by the Federal Constitutional Court has left a shortfall of 60 billion euros in the federal budget, forcing the federal government to save money. As a result, the VAT rate reduction will now expire at the end of 2023.

The industry is, naturally, voicing its concerns about the additional financial burden, as many restaurateurs are reluctant to pass on the increased VAT to their customers. They fear that higher prices could drive away customers, who are already being cautious in their consumption due to worries about high inflation.

In addition, the administrative and technical effort involved in changing the tax rate should not be underestimated. The key challenges are:

  • Cash registers in restaurants must be reprogrammed in good time so that the new VAT rate is applied from 1 January 2024 onward. 
  • The question of "inhouse or takeaway" in fast food restaurants has been obsolete since 1 July 2020, at least from a VAT perspective. Now this question is again relevant, and the corresponding button on the cash register must be reactivated.
  • What is less common in restaurants but more common among caterers: advance payments.  In this case, tax is incurred when the payment is received at the tax rate applicable at that time. If a different tax rate applies at the time the supply is actually provided, it must then be corrected. The BMF (Federal Ministry of Finance) might issue rules to simplify the handling of such cases, but this remains to be seen.
  • Restaurant and catering services on New Year's Eve could have been difficult to assess with regard to the time of supply. In its letter dated 21 December 2023, the Federal Ministry of Finance therefore permitted these suppliess to still be taxed at 7% (with the exception of beverages not covered by the relief).
  • The use of restaurant vouchers purchased before 31 December 2023 but not redeemed until after this date should be carefully checked. For single-purpose vouchers, which are taxed immediately, the tax rate applicable in 2023 applies. For multi-purpose vouchers, the tax is incurred when the voucher is redeemed and the tax rate applicable then is applied.
  • Even after 31 December 2023, it remains important to note that not all beverages are automatically subject to the standard tax rate of 19%. For example, beverages with a milk content of at least 75% (as a supply of goods) are taxed at a reduced rate.

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Nadia Schulte
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