News

German VAT rate rising to 19 per cent on January 1

20 Dec 2006 by Ciprian Hirlea

Travelling around Germany will become more expensive on January 1. On that date the country’s rate of Value Added Tax (VAT) rises from 16 to 19 percent. The increase is expected to raise £13 billion for the government and it’s designed to reduce Germany’s budget deficit.

But for business people it will increase the cost of booking a domestic flight, taking a train, hiring a car or staying and dining in a hotel.

So how will it affect you?

Trains and Planes:

Unlike the UK (where no VAT is levied on travel tickets) airline and train tickets for use within Germany are currently liable for 16 per cent VAT whether or not they are bought in that country.

So travellers taking the train will pay the extra price from January 1 even if purchasing the tickets before the end of this year. Deutsche Bahn (German Rail) says it will pass on the cost of the extra VAT along with a further increase to cover the rising costs of fuel. As a result train fares will cost 5.6 per cent more.

Domestic air fares will also rise. Lufthansa says it is passing on the extra 3 per cent VAT for all domestic tickets for flights on and from January 1. The increase covers purely domestic flights such as, say, Cologne-Berlin or Munich-Frankfurt, bought in or outside Germany. There’s better news for travellers booking international tickets. These aren’t liable for VAT and neither is VAT levied on domestic flights if tagged onto an international service even when a stopover is made. For example, a passenger who might fly New York to Frankfurt then transfer to Leipzig. Or someone flying from Manchester to Munich where he or she might break the trip for a couple of days before continuing to Berlin.

Budget carriers like German Wings must also pay the extra VAT. But the increase won’t be noticeable because tiered pricing and yield management systems allow them to disguise the extra tax.

Car rental

It looks as though the car rental firms are passing the extra 3 per cent directly to their customers. When Business Traveller checked the cost of renting a Mercedes C class from central Berlin this week, a one day rental with Hertz cost Euros 94.97 (including taxes and so on). When we checked the rate for same vehicle rented for a day on January 9, Hertz quoted Euros 98.42.

Rival firm Sixt quoted Business Traveller a rate of Euros 68 a day to rent a VW Golf at Cologne airport this week. The same rental on January 9 was quoted at Euros 69.76.

Hotels

It’s a confusing picture. Some hotels are openly adding the extra VAT to rates while others are including it as part of their annual rate review. Then again, some properties say they will leave rates unchanged in January (which is an off-peak time) but then load the extra tax onto their prices at busier times. The extra VAT will also apply to meals so hoteliers may increase their restaurant and bar prices.

When Business Traveller checked with the five star Vier Jahreszeiten Kempinski in Munich we were told by a spokesperson that “The hotel will not be raising its rates as a result of the rise in VAT. Our usual rate increase at the beginning of the year is 5 per cent and we will be sticking to this.”

But the situation at other properties can vary. For example, Berlin’s Adlon Kempinski says the higher VAT will lead to an increase in room and food and beverage rates.

Marriott indicated that the VAT rise might be passed back although not as a blunt 3 per cent rate rise. Says a spokesperson, “Generally our rates are always in line with the market. The VAT increase will certainly have impact although our rates are seasonally structured. Therefore there will be no increase in certain months.”

But France’s Accor group hotels are openly passing back the extra VAT along with, in some cases, their annual price hike. The budget Ibis hotel adjacent to Dusseldorf’s main station charges Euros 72 a night this week plus Euros 9 for breakfast. From January its rates rise to Euros 75 and Euros 9.50 respectively.

For a stay tonight, Munich’s four star Sofitel Bayernpost charges Euros 345 for rack rate, Euros 175 for a market price with breakfast charged at Euros 21. But come January 9, these rates rise to Euros 365, Euros 179 and Euros 22 respectively.

Or how about the Novotel in Berlin’s Mitte district? Tonight it’s charging Euros 149 full rate, Euros 79 market rate and Euros 15 for breakfast. But on January 9 you’ll pay Euros 169 and Euros 89 for the rooms but breakfast is unchanged at Euros 15.

For more information go to bahn.co.uk, lufthansa.com, hertz.de, sixt.com, kempinski.com, marriott.com, accor.com.

Report by Alex McWhirter

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