HORECA - Reduction of Representation Tax and a 7% Effective VAT Rate for Restaurants?

A rescue-package has been annonced by the Hungarian Government to support the HORECA sector. The representation tax is expected to be reduced to 1% and the Touristical Development Contribution will be halved.

Minister for National Economy Márton Nagy has announced a rescue package worth a total of HUF 100 billion, consisting of 5+1 measures, aimed at supporting the Hungarian HORECA sector and putting it back on an increasing track.

According to the announcement, tourism is one of the country’s key sources of revenue, yet due to rising costs and the continuous increase of the minimum wage, profitable operations are no longer sustainable for the majority of HORECA businesses. This is evident in practice as well, with daily reports of long‑established, well‑known, and popular restaurants, bars, and pizzerias closing their doors.

According to the Ministry for National Economy, around 10,000 restaurants may be in the scope of “subsidy”. However, cafés and pastry-shops are expected to fall outside the scope of the measures, meaning the support will likely target hot‑kitchen restaurants indirectly.

The currently applicable so‑called representation tax results in an overall tax burden of 33.04% calculated on the gross amount paid for catering and other hospitality services. In addition, the VAT Act prohibits the deduction of VAT on meals/drinks/catering services, which pushes the total tax burden on representation‑related hospitality expenses close to 70%.

Under the proposed changes, the 33.04% representation tax would be reduced proportionally to revenue, potentially as low as 1%, and partially phased out up to HUF 100 million annually. The detailed rules, however, are not yet known.

Another significant tax burden is the 4% tourism development contribution, which applies alongside the 5% VAT rate introduced for restaurant services—effectively raising the VAT burden on hot‑kitchen establishments to 9%. According to the announcement, this contribution would be reduced to 2% in the future.

Changes are also expected regarding service charges. The current 15% cap would be increased to 20% of revenue, within which the preferential tax treatment could be applied.

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