In early 2010 the German government introduced a substantial discount on VAT for hotels and reduced the standard 19 percent rate to 7 percent. It was no coincidence that room prices increased by 14 percent in 2010 and have continued to increase since. This contrasts with the previous 10 years where there was a reduction in rates across most German markets between 2001 and 2010 ranging from 25 percent in Berlin to 2 percent in Düsseldorf.
The government is now discussing cancelling this incentive for the hotel industry and applying the full rate of VAT. Needless to say this could have a substantial financial impact but it will be interesting to see the extent to which hotels will be able to maintain rates and whether its impact will be more severe in the luxury sector.