As of January 1st, restaurants in Germany have seen the value-added tax (VAT) on food revert to seven percent—the rate previously in place during the COVID-19 pandemic. The tax was lowered from 19 percent to support the hospitality industry. However, restaurateurs say a drop in prices for popular dishes like schnitzel and sausage is unlikely, due in part to the recent increase in the minimum wage.
Businesses Struggle to Survive
Alexander Bösch, owner of the “Adler” inn in Gaisbeuren, expressed frustration with the current economic climate. The hospitality sector has faced significant price increases in recent years, coupled with public dissatisfaction over rising restaurant costs. While he and other innkeepers would like to lower prices, Bösch explained that doing so would jeopardize the financial viability of their businesses.
“The problem is: everyone thinks they know how much a meal should cost. But there are significant differences between frying a schnitzel at home and in a restaurant,” Bösch stated. He acknowledged that dining out has become a luxury for many, but also expressed a desire for greater appreciation of the skill and effort involved in preparing restaurant-quality meals.
According to Bösch, the reduced VAT is helping his business stay afloat and allowing for investments in improvements, such as new kitchen equipment and renovations to the beer garden.
At Least It Won’t Get More Expensive
“Without the tax reduction, we would have had to increase prices by five to ten percent,” Bösch explained. He cited years of high costs for food, energy, and bureaucratic requirements like fire safety regulations and mandatory digital cash register systems as contributing factors.
Rising personnel costs are also a concern. While the VAT on food was reduced, the minimum wage increased from 12.82 euros to 13.90 euros with the new year, adding to operating expenses.
Bösch noted that the minimum wage increase impacts the entire wage structure within a business. “The problem isn’t the few unskilled workers who may have previously earned below minimum wage,” he said. “Rather, the increase causes all employees to seek higher wages, which eats into a large portion of the tax reduction.” Increased salaries also lead to higher payroll taxes.
Oliver Spähn, of the Hotel Arthus and “Gasthaus zum Rad” in Aulendorf, echoed this sentiment, stating, “The entire wage structure is growing upwards due to the minimum wage increase.”
Spähn explained that the hospitality industry has absorbed extreme price increases since the start of the pandemic, making it increasingly difficult to turn a profit. “That’s why more and more businesses in Baden-Württemberg are closing. Without the tax reduction, we would have had to raise prices,” he said. He noted that gas and electricity costs have risen from 80,000 euros to 150,000 euros. “Almost 45 percent of businesses in Baden-Württemberg are no longer profitable. The last five years have been so challenging; it would be nice if things would normalize. We restaurateurs know that restaurant prices are no longer affordable for many, but unfortunately, we have no other choice, or we will go bankrupt.” Whether prices can be lowered at his restaurant in the new year remains uncertain.
Horst Schmidt, of the Landgasthof “Kreuz” in Mattenhaus, reported that supplier contracts for food, beer, and other beverages are consistently increasing in price, a trend he expects to continue following the minimum wage hike. He also confirmed that the increased minimum wage is impacting his staff’s overall compensation, as all employees are requesting higher pay.
Despite the VAT reduction, there will be no price reductions at the “Kreuz.” “Without this reduction, we would have had to become more expensive,” Schmidt said. Prices have remained stable since 2024. “If the cost of food decreases, we will, of course, pass that on to our guests. The hospitality industry is under so much cost pressure; it is unfortunately not possible or foreseeable at this time.”
Tax Reduction Was Important
Max Haller, manager of the Waldburg and district chairman of the German Hotel and Restaurant Association, confirmed that widespread price reductions on food are unlikely in the Ravensburg district, despite some exceptions. He stated that the costs are too high, and the financial leeway provided by the tax reduction is crucial for restaurateurs to invest in their businesses and remain competitive.
All those interviewed agreed that the VAT reduction was essential for the survival of the hospitality industry and for maintaining competitiveness with most European neighbors, where a 7 percent VAT on restaurant meals is already standard. “This is particularly important in our region, with its proximity to neighboring countries,” said Alexander Bösch of the Gasthaus “Adler.”
Frequently Asked Questions
What is happening with the VAT on food in Germany?
The VAT on food served in restaurants has been reduced from 19 percent to 7 percent, mirroring the rate in place during the COVID-19 pandemic.
Will restaurant prices go down?
Restaurateurs interviewed do not expect prices to fall, citing rising costs for food, energy, and especially labor due to the recent minimum wage increase.
What impact is the minimum wage increase having on businesses?
The minimum wage increase is causing the entire wage structure to shift upwards, as all employees seek higher pay, offsetting some of the benefits of the VAT reduction.
Given these economic pressures, how will restaurants balance the need to remain profitable with the desire to offer affordable meals to customers?