Freelancer vs. IHK - What to do when they send you a letter?
Germany can be a weird place. Where else do you get letters out of nowhere, asking you to pay for stuff you never ordered or even wanted? Nobody is safe from the Rundfunkbeitrag letters (former GEZ - TV and radio licence), nobody is safe from the Finanzamt – the German tax authorities – finding you and sending you your Tax ID. Freelancers are at risk of receiving yet another letter from a mysterious institution demanding money: The IHK.
What is the IHK? Why did you receive the letter? And most importantly, do you have to pay?
The IHK is the German Industrie- und Handelskammer, which is a self-regulatory organisation regulating German industry and trade. In some cases, the membership in the IHK is mandatory.
Rule of thumb: if you’re obliged to pay Gewerbesteuer (sole trader tax), a membership in the IHK is mandatory. As a freelancer without a sole proprietorship (Gewerbe), you don’t have to pay Gewerbesteuer and you don’t have to be member of the IHK. Still, some freelancers get letters from the IHK out of nowhere, asking them to pay. Why is that?
Germany is weird, but it’s also an efficient place. Germans are especially efficient in going after their money. This is why once you register in Germany, the Finanzamt and the GEZ know where you are, right away. The first letters arrive so that the ARD can produce their Tatort special episode with Til Schweiger. A similar thing happens at the IHK. Once you register a Gewerbe in Germany, the IHK is notified and your sole proprietorship is automatically registered. Sometimes freelancers get registered, too. This happens when the tax authorities believes that your freelancing activity is in fact not really freelancing. Now, this is a little bit confusing (as bureaucracy usually is), but important.
There are some criteria to define freelancing:
You provide a service, not a product on a mass scale
You have a degree verifying your skills, or you have a creative talent
Your service depends on your skills and your effort
Some examples for so called Freie Berufe (free professions) are: doctor, journalist, tax accountant, architect, translator, teacher, massagist, engineer or physiotherapist. In these cases you do not need to have a Gewerbe and you do not need to be a member of the IHK.
Sometimes there’s no clean line, and unfortunately the tax authorities have the ultimate power to define whether your activity is in fact freelancing or not. For example: if you are a graphic designer, you automatically qualify as a Freiberufler, along doctors, translators, massagists etc., and you don’t have to pay Gewerbesteuer or fees to the IHK. As a web designer, however, you might not always be operating within the criteria of free professions anymore. This is when you get a letter from the IHK.
Do you have to pay?
The best way to find out what is going on is just to ask at your local tax authorities. Ideally, before you start your freelancing career. Does it make sense to register a Gewerbe in your case? Your local tax authorities will tell you. Once you get the letter and you disagree with the decision, you can provide the tax authorities or/and the IHK with documents proving them wrong. It’s worth it to fight for your position as a freelancer, as you save money (no sole trader tax, no IHK membership fees) and have more freedom (no double book keeping!). Often, explaining that you are, in fact, a freelancer and not required to register a Gewerbe is enough to get the decision reversed.
Don’t shut your eyes and pretend it’ll go away
The last thing you should do is to just ignore the letter. Once the bill has been sent it requires action on your part to settle it, either by paying or challenging it. If you don’t react, the costs will grow. German bureaucracy can be a powerful enemy! Make sure you settle cases like these, or quicker than you can say Einkommensteueridentifikationsnummer you will have them hot on your trail.
Holvi offers an online current business account for freelancers and small business owners — the first of its kind, with an app and an end-to-end platform. Besides traditional online banking features, Holvi is equipped with handy tools for online sales, invoicing and paperless bookkeeping. We’re a modern money service for the new wave of digital nomads.
Holvi Payment Services Ltd is regulated by the Financial Supervisory Authority of Finland as an Authorised Payment Institution. The current account issued by Holvi is a payment account and the funds held on the account are managed as segregated customer funds. Funds on the payment account are not covered by deposit insurance and the funds do not accrue interest.
Mastercard is a registered trademark of Mastercard International Incorporated. The Card is issued by Wirecard Card Solutions Ltd (“WDCS”) pursuant to licence by Mastercard International Inc. WDCS is authorised by the Financial Conduct Authority (UK) to conduct electronic money service activities under the Electronic Money Regulations 2011 (Ref: 900051).