Will Germany’s VAT cut mean restaurants get cheaper?

The German government plans to permanently reduce value-added tax (VAT) in the hospitality sector from 2026. Does it mean eating at restaurants and cafes will get cheaper?

German government cuts VAT to 7 percent

Along with several other tax-cutting measures, the German government has announced that it will permanently reduce the VAT rate for purchases in cafes and restaurants from 19 percent to 7 percent.

The Angela Merkel-led CDU/CSU-SPD coalition previously introduced a 7 percent VAT rate in 2020 to encourage business in the hospitality sector despite coronavirus restrictions. The 7 percent rate remained in place until 2024. Now, it will be permanent.

According to estimates from the Federal Ministry of Finance, the cuts are expected to cost the government around 3,6 billion euros in 2026, federal states estimate a loss of 11,2 billion euros and municipalities, 1,4 billion euros.

Does the VAT cut mean eating out will get cheaper?

So, does the cut mean your restaurant and cafe bills will get slightly cheaper in 2026? According to a survey of large hospitality chains in Germany, it is unlikely.

Chains such as Kentucky Fried Chicken, Burger King, Nordsee and L’Osteria all explained that higher costs of paying employees and buying ingredients mean the tax saving will not be passed on to customers.

While Burger King plans to “stabilise existing prices” and Kentucky Fried Chicken said “price reductions were imaginable in time”, the pizzeria chain L’Osteria claimed the VAT reduction only allowed them to avoid a price rise, not consider price cuts.

Speaking to Die Zeit, Hochschule Munich Economics Professor, Matthias Firgo, underlined that restaurant patrons shouldn’t expect big reductions. “I don’t predict that prices will fall in any tangible way. Instead it is likely that price increases will slow,” Firgo explained.