The Federal Cabinet has approved the 2025 tax reform law, introducing adjustments to commuter benefits and a reduction in the value-added tax (VAT) rate for the hospitality sector. The Ministry of Finance announced on Wednesday that the changes are aimed at alleviating financial burdens stemming from crises such as the COVID-19 pandemic and rising energy costs.
A key element of the reform is an increase in the commuter allowance, set to rise to 38 cents per kilometer starting from the very first kilometer traveled, effective January 1, 2026. Previously, this rate only applied to distances exceeding 21 kilometers.
“By raising the commuter allowance to 38 cents from the first kilometer, we are creating more fairness between urban and rural areas” stated Federal Finance Minister Lars Klingbeil. “People who work hard and have long commutes between their homes and jobs will be noticeably relieved”. This measure is particularly significant for employees with modest and middle incomes.
Furthermore, the VAT rate for restaurant and catering services will be lowered from 19 percent to 7 percent, also effective January 1, 2026. The government anticipates that this reduction will provide support to the hospitality industry and ultimately result in lower prices for consumers. The change impacts not only traditional restaurants but also bakeries, butcher shops and the food retail sector.
