VAT reduction in the hospitality industry: What's behind it – and does it really work?

As of January 1, 2026, the VAT on food in German restaurants was again reduced – from 19% to 7%. The measure had already caused extensive discussions beforehand: Should it relieve guests? Stabilize businesses? Or both? In this article, we explain exactly what is behind the tax reduction – and after almost half a year, we draw a first balance. Has the VAT reduction really achieved anything?

 

What exactly has changed?

Since 01/01/2026, the following applies:

• 7% VAT on food in restaurants
• 19% VAT on beverages remains unchanged

Thus, the catering industry's tax rate was reduced back to the preferential rate – similar to during the Corona pandemic. Now, however, the regulation is permanent and affects almost all catering businesses – from restaurants to snack bars, for on-site consumption as well as for take-away.

 

Why was VAT reduced?

The measure is part of a longer development:

• Corona aid measure (2020–2023): Reduction to 7% to stabilize the industry
• Return to 19% (2024–2025): Increase led to rising prices and decreasing demand
• Studies showed: Prices rose noticeably, while guests ate out less often
• New reduction from 2026: The aim is to relieve the industry, enable investments, and strengthen demand

Politics and the catering industry have clear goals. The reduction should mean lower prices and more restaurant visits for guests, while providing businesses with more planning security and reducing costs. A kind of economic restart for the catering industry is the overarching goal.

 

Reality 2026: Does the VAT reduction reach guests?

The current data is relatively clear – and somewhat surprising:

• Hardly any falling prices: Restaurant prices remain largely stable and have even slightly increased in some cases
• Guests notice little: Only about 13% of guests expect falling prices

Conclusion: The tax reduction is not passed on directly to guests.

 

Why aren't restaurant prices falling?

The reasons are economically understandable:

• Massively increased costs: High costs for energy, food, and personnel have consequences; the reduction is used by restaurateurs to offset internal operating costs – not to reduce prices
• Catch-up effects from crisis years: The catering industry has had several economically difficult years, which is why many businesses have to fight for profit

The tax relief has a more internally stabilizing effect than an all-encompassing relief.

Does the measure still have an effect?

Yes, the reduction of VAT in the catering industry is having an effect – but differently than originally thought.

Positive effects

• Stabilization of the industry: Businesses can better absorb rising costs, which means less drastic price increases are necessary than in the past
• Partially increasing demand: according to studies, almost a quarter of people in Germany plan to eat out more often
• Scope for investment: Restaurateurs have more opportunities for modernization and personnel

 

Limited effects

• No widespread price reductions: Guests do not benefit directly from the tax reduction, contrary to expectations
• Demand remains cautious: Lower consumer spending is still influenced by inflation
• Structural problems remain: The shortage of skilled workers and high fixed costs can only be addressed to a limited extent
  

 

Impact of the VAT reduction – an interim balance

The VAT reduction as of January 1, 2026, is an important relief for the catering industry – but not a "game-changer" for guests. Instead of falling prices, a different picture emerges:

• The industry is slowly stabilizing
• Prices are likely to rise less sharply
• Guests (hopefully) benefit indirectly

The measure is therefore effective – but more in the background. For catering businesses, this means: The tax reform provides breathing room. However, the real success, to put it pointedly, primarily depends on how appealing the in-house price-performance ratio can be made to potential guests. The one or other discount could certainly motivate more people to frequent catering establishments more often – and strengthen customer loyalty in the long term.

 

Article images by pvproductions and wayhomestudio on Magnific.