Restaurant Taxes and Accounting

Any restaurant that sells food items and beverages is obligated to pay the value added tax to the financial authority. The value added tax has many different tax rates for various food items. The general two rates are 7% VAT and 19% VAT.

Generally, sit-down restaurants need to charge 19% VAT and snack bars and to-go restaurants need to charge 7% VAT. This is justified in the sense that in a sit-down restaurant which offers seating for customers, the restaurant provides a service to the customers by serving them. In a to-go restaurant or in a little snack bar, this service is not given. Even if a customer orders food to pick-up at a sit-down restaurant, the lower 7% VAT applies. Therefore, in a coffee shop for instance, it is important to ask the customers whether they are taking their drink to go or whether they are planning to take a seat in your café. “Taking a seat in your café” also only refers to seats that are provided by your establishment. A public bench that happens to be right outside of your coffee shop does not evoke the greater VAT rate of 19%, but much rather falls into the category of taking the coffee to-go. However, there are exceptions to this tax rate. Mineral water and cow’s milk call for the 7% VAT, no matter if they are served in the restaurant or café at a table or if they are offered to-go. The cow’s milk tax requirement also comes into effect in coffee drinks which have at least a 75% milk content, calculated according to the weight of the coffee drink. Black coffee, however, is classified as a regular drink and calls for the 19% VAT rate. Keep in mind that the reduced 7% VAT rate only applies to cow’s milk and not any other plant-based milk alternatives.

Another exception from the general tax requirement are luxury food items, which are consistently taxed according to the 19% VAT rate. These items are, for instance, lobster, oysters, and snails. This means that even if customers take a lobster meal to-go and do not receive any services by your staff, this meal is still taxed according to the greater 19% VAT rate.

The most important takeaway we want you to remember is the distinction between to-go food items and eat-in food items. For to-go items, you need to charge 7% VAT and for food items that are served and eaten in your restaurant, you need to charge 19% VAT.

Every entrepreneur that runs a business is required to pay trade tax. The tax rate for the trade tax differs from local authority district to local authority district. Factors that flow into the calculation of the trade tax amount are:

• the trade income of your restaurant,
• the tax index, which is usually 3.5 %,
• the lifting rate specific to your local authority district.

These three factors are multiplied by one another, resulting in the trade tax. There are some reductions to the sum of the trade tax which depend on the legal form you have chosen for your restaurant. If you have registered your restaurant as a sole proprietorship or as a civil-law association (GbR), you may be able to deduct a tax allowance of up to 24,500 € from your annual tax payments.

Furthermore, depending on your restaurant’s legal form, some forms of income and some expenses are not calculated towards the sum of the trade income of your restaurants. To properly assess any exceptions and allowances and to answer any unanswered questions, we strongly advise to consult a tax consultant.

Whether you need to solely pay income tax or whether you need to pay corporation income tax depends on your restaurant’s legal form. In general, the income tax comprises the tax you need to pay on your personal share of the profit of your restaurant.

If your restaurant’s legal form is a sole proprietorship or a civil-law association (GbR), you as a shareholder or as the sole owner only need to pay the income tax. This income tax needs to be declared and paid on your personal income tax return. The higher the profit, the higher the income tax. However, there is also a basic allowance that can be deducted from your profit. In other words, this basic allowance is tax-free. The amount of the basic allowance depends on your personal tax class. If you are not married, this allowance currently (in 2022) amounts to 9,984 €. If you are married, this allowance currently (in 2022) amounts to a total of 19,968 € for both you and your partner.

If your restaurant’s legal form is registered as a limited company (GmbH), or as a liability company (UG), the corporation income tax arises. The corporation income tax amounts to 15.5 % of your restaurant’s taxable profit. This taxable profit is calculated with the help of a balance sheet, and a profit-and-loss calculation. Seek help from a tax consultant for this process. In addition to these 15.5 %, your restaurant needs to pay a solidarity surcharge amounting to 5.5 % of your taxable profit. If your restaurant falls into the category of a limited company (GmbH) or a liability company (UG), there are no tax allowances.

2.4 Wage tax of employees

When you are employing workers in your restaurant, you need to pay attention to your duties as an employer regarding the wage tax. The wage tax itself is not a tax that you need to pay from your own income, but much rather a tax that you need to keep from the income of your employees and then need to pay to the financial authority.

The taxes you need to keep from your employees’ pay are their wage tax, their solidarity surcharge, and, if they are part of a church, their church tax. This money then needs to be paid to the financial authority by you until the 10th of each month.

2.5 Taxes for the reference value

The taxes for the reference value refer to the sum of values which you as the restaurant owner consume of your own inventory. Basically, the financial authority assumes that you as a restaurant owner eat in your own restaurant. For 2022, this amounts to an annual charge of 3,401 €.

2.6 Property tax