VAT in hospitality 2026: 7% or 19%? The complete practical guide

On 1 January 2026, something fundamental changed overnight for every German restaurant and bar: food consumed on the premises is once again subject to the reduced VAT rate of 7%. For two years, 19% applied. Now the industry is back at the rate introduced in 2020 as Covid relief and abolished again in 2024 – but this time permanently anchored in law. For a venue with €600,000 gross food revenue, this means – provided the gross prices on the menu remain unchanged – around €56,000 more net revenue per year: 600,000 ÷ 1.07 = €560,748 instead of 600,000 ÷ 1.19 = €504,202. If you pass the reduction on to guests, you don’t get this effect. If you don’t carry out the switch properly now, you give away this margin or collect the next objection in a tax audit.

This guide shows what has specifically changed, how the distinction between 7% and 19% works in practice, which pitfalls the tax office (Finanzamt) pursues most rigorously, and how a bar or restaurant can switch over its POS, menu and bookkeeping cleanly within a few days.

The VAT turnaround: what changed on 1 January 2026

The historical development can be summed up in one sentence: before Covid, 19% applied; from July 2020 to December 2023, 7% as temporary Covid relief; in 2024 and 2025, 19% again; and since 1 January 2026, 7% once more – this time without a time limit. The return to the reduced rate is part of the coalition agreement of the CDU/CSU–SPD federal government and was implemented with the Tax Amendment Act 2025 (Steueränderungsgesetz 2025). The Bundesrat approved it on 19 December 2025, and it was promulgated in the Federal Law Gazette on 22 December 2025.

Unlike in 2020, the rule is open-ended this time: it is permanently set out in the German VAT Act (UStG, § 12(2) No. 15). It covers restaurant and catering services with the exception of the supply of drinks – and not only in restaurants and cafés, but also in catering and in canteens of companies, hospitals, schools and day-care centres. The detailed classification has been summarised by the German Confederation of Skilled Crafts (ZDH), and a short overview is provided by the DIHK.

Source: UStG § 12(2) No. 15 as amended by the Tax Amendment Act 2025.

Important: only the rate on restaurant and catering services for food has changed. Everything that is not “food” for tax purposes remains at 19%. This separation is not new, but it becomes more critical with the reintroduction – because the gap between the two rates is now 12 percentage points, so every POS entry error hurts considerably more.

7% or 19%? The clear distinction in practice

The central everyday question: which item on which bill gets which rate? The distinction follows two axes – food or drink, and on the premises or takeaway. This results in the following matrix, which every operational team member should know by heart.

Three special cases from everyday bar and restaurant life that regularly lead to errors: first, the glass of wine served with a cheese platter – the wine stays at 19%, the cheese platter becomes 7%. Second, the breakfast buffet with a coffee flat rate – the food component at 7%, the coffee flat rate at 19%, to be itemised cleanly. Third, the cocktail set with bar food pairing – each item gets its own rate; a flat entry such as “Pairing €45” is risky.

For genuine combination and package offers – buffets, all-inclusive packages – the tax authorities allow a simplification: the share of the price attributable to drinks may be set at a flat 30% of the package price. If you want to go below that, you have to itemise the items individually.

What does the reduction mean financially? Worked examples for three venue sizes

Theory is one thing, the bank account another. The following table shows for three typical venue types how much money the switch from 19% to 7% keeps in the business per year – provided the gross prices on the menu remain unchanged.

The calculation follows simple logic: at a gross price of €119, the invoice amount contains €19 tax; at €107, it is €7. On €100 of net goods value, the venue therefore saves exactly €12 – that is the famous 12 percentage point difference. Broken down to gross revenue, this corresponds to relief of 9.43% on all food consumed on the premises.

Three strategic options are open to every venue: taking the full margin (gross price stays, margin rises), passing part of it on to guests (for example a 4 percentage point price cut as a marketing signal, the rest stays in the business), or passing it on in full (gross prices fall by 10%, which strengthens footfall and loyalty). Which option is optimal depends on the price elasticity of the target group and the competitive situation – premium bars in city-centre locations will decide differently from a neighbourhood bistro.

Mixed bills in practice: separating drinks and food cleanly

Bars and hotels face a particular challenge: 7% and 19% items often appear side by side on a single bill. If you enter them sloppily, you risk additional estimates in a tax audit – and for cash-intensive businesses, such estimates are traditionally calculated strictly. The following step-by-step guide describes the clean workflow.

1. Update item master data in the POS. Every item needs a clear tax rate allocation. You should break up catch-all buttons such as “Miscellaneous 19%”.
2. Check modifiers. If a drink is sold with an additional snack, the modifier must carry the same tax rate as the main item – otherwise food components slip into the 19% track.
3. Adjust the receipt layout. Every receipt must show net amounts, tax rates and tax amounts separately in accordance with UStG § 14. This requirement is not new, but becomes a trap when entry errors occur.
4. Check the end-of-day report. In the Z report, the ratio of food to drinks should remain plausible. A sudden shift – say 95% drinks on one evening – should make the owner suspicious.
5. Train your team. Service staff must understand the logic, otherwise wine tastings and breakfast buffets end up in the wrong pot. A 30-minute training session at the start of the week is usually enough.

Three pitfalls the tax office most likes to find

Experience from tax audits highlights three sources of error that occur again and again in the rush of daily business – and that become particularly expensive under the 7% regime because the tax difference between target and actual is larger.

In addition: the obligations under the Cash Register Security Ordinance (KassenSichV) remain unchanged. If you operate an electronic POS, you need a certified technical security device (TSE), complete process documentation and continuous individual recording. More on this in our guide to tax audits in hospitality.

Operational checklist: switched over cleanly in seven days

The switch is not a major IT project, but it demands discipline. If you see the change to 7% purely as a software configuration, you overlook pricing strategy, communication and training. The following checklist organises the tasks by day.

Pricing strategy: take the margin or boost footfall?

The more interesting question than “How do I switch over?” is “What do I do with the money?”. The evidence from the Covid period 2020 to 2023 shows: most venues initially kept the 7% advantage at the time and stabilised their margins. Only with the return to 19% were prices raised, in some cases massively – with the well-known side effect that footfall and guest numbers suffered noticeably.

For 2026, a differentiated strategy makes sense: secure higher margins for cocktail bars and bistros whose food share is smaller and whose guests reward premium experiences. Footfall-driven concepts such as lunch bistros or family restaurants, on the other hand, benefit from a visible price cut of 5 to 8 per cent, because it sends a clear marketing signal and stabilises their competitive position.

The reduction to 7% is a bridge, not a gift. If you use it in 2026 to invest in staff, digitisation and concept, you will emerge stronger from the structural crisis. If you just book it to margin and let everything else carry on as before, you will be under the same pressure in two years as in 2024.

What the reduction does NOT change

Three points are regularly confused in industry discussions: first, VAT on drinks remains unchanged at 19% – both soft drinks and alcoholic drinks. If you work in a bar whose main revenue is drinks anyway, you benefit less from the reduction than a classic restaurant. Second, nothing changes in non-wage labour costs, minimum wage or leases – the structural cost blocks remain. More on the minimum wage aspect in the article Minimum wage in hospitality 2026. Third, cost of goods remains the toughest lever – if you squeeze out 2 percentage points here, you may earn more than from the tax cut. For the methodology of optimising cost of goods, we recommend our guide to the most important metrics in hospitality.

FAQ: the most common questions about VAT in hospitality

Does 7% also apply to drinks?

No. All drinks – alcoholic or non-alcoholic, on the premises or to take away – remain subject to the standard rate of 19%. The only exception is milk-based mixed drinks with a milk content of over 75%, which count as “food” and are taxed at 7%.

What counts as “food” under the rule?

All hot and cold foodstuffs intended for consumption: main courses, starters, desserts, bread, sides and snacks. The form doesn’t matter – even a simple plate of olives, a cheese sandwich or a bag of crisps counts as food.

Do I have to reduce my gross prices?

There is no legal obligation to cut prices. The venue decides freely whether to pass the tax relief on to guests, take it as margin or split it. Competitive pressure and guest communication are the decisive factors.

What applies to catering and delivery services?

On-site catering (with a service component such as crockery, staff, table service) counts as a restaurant service and is subject to 7% for food, 19% for drinks. Pure delivery of food without a service component is a food supply – also 7%.

Does the rule apply in Austria and Switzerland?

No. This article refers to the German VAT Act. In Austria, the reduced rate of 10% applies to restaurant services with food; in Switzerland, the reduced rate of 2.6% – each with its own rules for drinks.

What happens to vouchers I sold before 2026?

What matters is the time the service is provided, not the sale. A voucher issued in 2025 and redeemed in 2026 for a dinner is billed at 7% on the food share. For so-called single-purpose vouchers (with a clear allocation to a specific service), the tax applies at the time of sale.

Conclusion: discipline beats enthusiasm

The reintroduction of 7% is the biggest industry-specific tax change in years. It creates breathing room, but it does not solve structural problems. Three things count now: first, the clean technical switch-over of POS, recipe management and bookkeeping – ideally within a week, documented and audit-proof. Second, a deliberate pricing decision with an eye on margin, competition and guest communication. Third, disciplined, continued work on the big cost blocks: cost of goods, staff costs, shrinkage. If you pull all three levers in parallel, you have the chance in 2026 not only to benefit from a good tax rate but to build a substantially better venue.