The legal aspects of capital-forming benefits

Find out what capital-forming benefits are, their legal framework, their advantages and disadvantages, tax aspects, forms of investment and how to apply for them.Capital-forming benefits (VL) offer an attractive opportunity to build up your own assets in a targeted manner and receive support from your employer. But what exactly does the term mean and what legal principles need to be observed? In today’s blog post, we take you on a journey through the world of capital-forming benefits. We explain what they are, what legal framework conditions apply and what advantages and disadvantages they entail for you as an employee. We don’t want to ignore the tax implications either, or the various forms of investment available to you. Finally, we give you valuable tips on how to apply for capital-forming benefits correctly. Join us to get to grips with the topic and make the most of the financial benefits.

What are capital-forming benefits?

Capital-forming benefits are a form of investment that offers employees the opportunity to build up capital with the help of subsidies from their employer. This is a fixed amount that is invested directly by the employer in a form of investment chosen by the employee, which is considered an effective way of promoting capital accumulation.

The attractiveness of capital-forming benefits is further enhanced by government subsidies, such as the employee savings allowance, which increases the return on this investment under certain conditions. Employees who opt for this type of capital accumulation benefit not only from their employer’s contributions, but also from state subsidies.

In order to benefit from capital-forming benefits, employees must conclude a contract for the investment of the benefits. The choice of investment forms varies and ranges from building society savings contracts to equity funds and life insurance policies, whereby each employee can choose the form of investment that best suits their individual risk tolerance and financial goals.

However, it is important to understand that the use of capital-forming benefits is linked to certain legal framework conditions and that different regulations may apply depending on the type of investment. For this reason, employees should inform themselves in detail about the various options and conditions before concluding a contract in order to make the best decision for their personal financial future.

The legal framework for capital-forming benefits

In Germany, the Fifth Capital Accumulation Act (VermBG), which was amended in 1999, regulates the legal framework for capital-forming benefits. The purpose of this law is to offer employees an incentive through state subsidies to invest part of their income in certain forms of investment over the long term and thus build up assets. For employees, this means that they are entitled to state bonuses under certain conditions if they invest capital-forming benefits correctly in the designated investment forms.

Capital-forming benefits can, for example, be paid directly into a building society savings contract or a securities savings contract through a collective agreement concluded by the employer. It should be noted that the maximum annual amount on which the employee savings allowance is granted is EUR 400 for equity funds and EUR 470 for building society savings contracts. Furthermore, the income limits must be adhered to in order to be able to claim the state allowances.

Another important aspect regarding the framework conditions for capital-forming benefits is the so-called vesting period. Capital-forming benefits paid by the employee or on behalf of the employee into corresponding forms of investment are generally fixed for a period of six years. Only after this vesting period, which serves to ensure long-term asset accumulation, has expired can the employee dispose of the amounts paid in without losing the state premiums.

However, in order to take full advantage of the capital-forming benefits, the employee must comply with all the conditions of the Capital Formation Act. This includes not only adhering to the income limits and investment amounts, but also regular payment of contributions throughout the vesting period. The exact modalities may vary depending on the form of investment, which is why comprehensive information and, if necessary, advice for employees are essential.

Advantages and disadvantages for employees

Capital-forming benefits (VL) offer many advantages for employees in that they can be used as an additional pension provision and for capital accumulation; it is not uncommon for the employer to invest part of the salary directly in a form of investment chosen by the employee, which represents a simple and uncomplicated savings process and thus contributes to asset accumulation without the employee having to worry extensively about the details.

However, employees must also be aware of the disadvantages: The payment of capital-forming benefits is usually subject to deadlines and commitment periods, which mean that the capital is tied up for a long time, and in the event of financial bottlenecks or urgent expenses, it is not always possible to dispose of this money at short notice.

It is also important to remember that the benefits of VL are particularly noticeable when the employer is involved; employees without such a subsidy still benefit from possible state bonuses, but the incentive without employer involvement may not be so strong that it could fundamentally change the structure of their own finances.

It should also not be neglected that, despite the tax incentives that can be associated with capital-forming benefits, the individual tax advantage can vary depending on the employee’s personal situation, so careful planning and possibly tax advice are necessary in order to make the most of the tax aspects of VL.

Tax aspects of capital-forming benefits

Capital-forming benefits not only play a central role in terms of capital formation, but also have important tax aspects that employees need to consider. Depending on your income situation and the type of investment you choose, these seemingly attractive benefits can have different tax consequences, which can affect your actual savings.

If, as an employee, you prefer to invest in forms of capital investment such as building society savings contracts or equity funds as part of capital-forming benefits, you should consider the exemption order and withholding tax if necessary. Furthermore, depending on the income limits, claiming employee savings allowances can lead to a considerable reduction in the tax burden and thus optimize the return on wealth-building measures.

With regard to tax treatment, it should be noted that capital-forming benefits are exempt from tax and social security contributions up to certain limits. However, if the sum of the annual payments exceeds the amount of EUR 480, the amounts in excess of this must be taxed, which should be taken into account when estimating the net return.

In order to take full advantage of the tax benefits, it is advisable to seek advice on whether and to what extent the capital-forming payments made can be claimed in your income tax return. Identifying beneficial combinations and loopholes in the tax system can help to achieve personal financial goals more efficiently and strengthen wealth creation in the long term.

Various forms of investment for capital-forming benefits

When deciding how to invest capital-forming benefits, employees have various forms of investment at their disposal. One of the options is the classic bank savings plan, where a fixed amount is paid into a savings account at regular intervals. This type of investment is particularly suitable for those who value security and steady asset growth without major risks. In addition, the conditions are usually transparent and easy to understand, which can be an advantage for new investors in particular.

Another form of investment is the purchase of securities such as shares or funds. This involves investing indirectly in various companies and markets through the purchase of shares. This method offers higher potential returns, but also entails greater risk, as developments are dependent on stock market fluctuations. It is therefore advisable to have a certain basic knowledge of securities and the stock market before choosing this form of investment.

Life insurance policies or pension insurance policies are also popular investment targets for capital-forming benefits. They are primarily used to provide for old age and offer the advantage that, in addition to the return on the capital paid in, there is often also insurance cover. This option is particularly interesting for those looking for a long-term investment with a hedging component. However, the conditions and regulations here are often complex and should be understood in detail before deciding on such a form of insurance.

Finally, there are home loan and savings contracts, which are a popular investment option for employees who wish to purchase or renovate a property. With this form of investment, employees build up capital so that they can later take out a favorable loan for housing purposes. The home loan and savings contract is not only a form of investment, but also an instrument for later construction financing. It should be noted that the state premiums and subsidies may vary depending on the contract.

How to apply for capital-forming benefits correctly

In order to benefit from capital-forming benefits (VL), employees must enter into a contractual agreement with their employer. This can be done either directly at the time of employment or at a later date, whereby it is advisable to clarify such modalities shortly after taking up employment. First of all, you should ensure that the VL entitlement is stipulated in your own employment contract or covered by collective agreements.

It is also necessary to open a special investment account or custody account for the capital-forming benefits. There are various forms of investment such as building society savings contracts, fund savings plans or life insurance policies that are eligible for capital-forming benefits. The choice of investment form should be based on personal financial goals, risk tolerance and the availability of saved assets.

Once a suitable form of investment has been found, an application must be submitted to the employer so that they can transfer the capital-forming benefits directly to the selected savings plan. It is important that all necessary information is provided correctly in the application and that the previously opened account or custody account is named exactly in order to avoid incorrect transfers.

It should not be forgotten that in certain cases you may be entitled to state subsidies such as the employee savings allowance. However, this requires that certain income limits are not exceeded. Every employee should therefore check whether and to what extent they are entitled to such allowances and what steps are necessary to claim them. Applications for such allowances are usually made via the annual tax return, in which the contributions made to capital formation must be declared.

Frequently asked questions

What exactly are capital-forming benefits?

Capital-forming benefits (VL) are cash benefits that the employer invests for the employee in special forms of investment. These benefits are intended as a savings incentive and can be invested in building society savings contracts, life insurance policies or funds, for example.

What are the legal framework conditions that must be observed for capital-forming benefits?

The legal framework is set out in the Fifth Capital Accumulation Act (5. VermBG). These include the maximum limits for tax incentives, the forms of investment in which VL may be invested and the obligations of the employer and the employee.

What are the advantages of capital-forming benefits for employees?

Employees benefit from capital-forming benefits by receiving an employer-supported savings benefit in addition to their salary, which is often also subsidized by the state. This enables them to build up assets and secure their financial future.

Are there any disadvantages for employees with capital-forming benefits?

One possible disadvantage could be that the tied investment forms often have a fixed term, which limits the availability of the saved capital. In addition, state premiums and tax benefits may be subject to income limits.

What tax aspects need to be taken into account for capital-forming benefits?

With regard to tax aspects, it should be noted that although capital-forming benefits are paid out of taxed income, under certain conditions there are state bonuses, such as the employee savings allowance, which can indirectly reduce the tax burden.

What different forms of investment are there for capital-forming benefits and how do they differ?

Investment forms include building society savings contracts, life insurance policies, fund savings plans and bank savings plans, and they differ in terms of availability, return, risk and state subsidies.

How can you apply for capital-forming benefits correctly?

To apply for capital-forming benefits, you should first choose a suitable contract with an investment form. The employer must then be informed of the conclusion of the contract and an agreement must be reached on the payment of the VL. You should also check whether you are entitled to state subsidies and submit the relevant applications.

Herzlich willkommen auf! Ich bin Ali, der Autor hinter diesem Blog. Mit einer Leidenschaft für deutsches Recht teile ich hier aktuelle Entwicklungen, Analysen und Einblicke in die juristische Welt. Als bringe ich mein Fachwissen ein, um komplexe rechtliche Themen verständlich zu erklären und Diskussionen anzuregen. Vielen Dank, dass Sie vorbeischauen, und ich freue mich darauf, gemeinsam mit Ihnen die faszinierende Welt des deutschen Rechts zu erkunden.

We will be happy to hear your thoughts

Leave a reply

Gesetz Blog