Tax-free savings in Germany

I've just recently heard about (and forgive the spelling, I can't read this person's handwriting so well), a "vermozeus-usikudauer Leisheugen" account. Well, that spelling probably sucks big time; but the gist of what I understood this to be was:

A tax free savings account, limited by contract to 5 or 6 years, to which some normal salary can be deducted pre-tax, and a smallish employer contribution added. After the contract is expired, it can be renewed, or withdrawn, completely tax free.

So it seems a way to lower the income bracket, save some money, and not pay taxes. Is this real?! Has anyone else heard about this? I'm all for such a deal, if I can get it.

It's Vermögenswirksameleistung or VL for short. Ask at your bank, but it's basically a savings account, where you pay a bit, your employer matches some and the state matches some too. I don't know the full details (even though I have one) but I think it is limited to €50 in total per month over 7 years. You will have to arrange it with your employer, that would probably be the easiest path. THe bank then organises and sends the details to your employer. Oh yeah, it will usually be in your contract how much your employer is willing to contribute to the VL dingsbums.

PS "vermozeus-usikudauer Leisheugen" was priceless :-)

Get proper advice on this one, because as far as I understand it you are forced to pay in for seven years before you can get anything back. I suspect if you were to leave the country before the seven years are up you would have serious grief getting hold of your pennies, and you'd probably have to pay tax/extotionate charges to do so...

Thanks for the advice, all. RM - thanks for the spelling corrections

I'll check it out; I think my employer offers to pay 40 euro per month for their contribution, which, if true, would give me a decent % return on my own contributions after 7 years (assuming I get it back tax-free). I'll post if I learn anything interesting about setting up a VL account.

Randy
Did you ever find anything out about this VL malarky?
I have to set one up for my job too and I'm 6 months delinquent in doing it.
What is it all about then?
Thnaks
Bob

My bank told me that this was mandatory by the employers (albeit the amount was up to them).

Does anyone know if this is true and what is the best way to approach your employer about it if they are not giving it to you.

Also, if it is mandatory, can you have them contribute their protion to your account for previous months/years work???

Thanks

From what I know, it is not mandatory, i.e. the employer is not forced to contribute. However, most big companies do offer at least a small monthly contribution (anything from 13 to 40 Euros is common). Only way to find out is to ask your HR department... (many companies don't actively advertise it, but give it to you if you ask for it). Oh, and it does not work retroactively, but you can start anytime.

but as someone posted above, I think you are required to pay in for the whole seven year period, even if you leave the country.

It is free money. As I asked my financial advisor: Let me get this straight, the government wants to give me money to hold for them and they want to give me this money every month for the next 7 years into an account that I can't touch. Now, if I allow them to store money in my name for 7 years, then in the end I get to keep it and do whatever I want with it. However, if I suddenly decide that I don't want them to give me money anymore, then all I have to do is give them the principle back, but I get to keep any and all interest. Is that correct.

He said with a really strange look on his face: Yes, that is what it is.

I am actually not sure that this program is anything like it once was. It is a voluntary program and not every business does this. I had actually thought it had been revamped out of existence and replaced with something else. Bummer, this would have been a great question to ask the tax advisors at last weeks Dems Abroad meeting.

It's not free money in the sense you get more money from your employer. It's simply money they can deduct from your salary pre-tax that you can invest in long term savings. Despite the fact they are obliged to offer it, it costs your employer nothing. If you earn €1000 a month, then your employer deducts (e.g. €40) and pays it into your long-term saving scheme. You then get only €960 gross, and are taxed as such. €40/month is the maximum allowed tax-free (although you can add more yourself). If your gross earnings are under €17900 per year (€35800 for couples) the state will add up to €400 year for fund (share) based investment, or increase savings interest by up to 9%/year. You must pay into the scheme minimum 6 years, and keep the investment minimum 7 years. If you break either of these rules you loose the advantages...

When I first started working here, it was up to 78DM added to my salary. I didn't pay for it and my salary and tax status was unaffected whether I took this money or not. I put it into a Deutsche Herold fund. I still get this money, but it isn't nearly as much as it used to be. I don't know the particulars behind the scenese with what comes from the company and what comes from the state, but I do know that it doesn't do a thing for or against my salary- brutto or netto. Like I said, this program has undergone changes since I joined in on it and I am not up to date on what exactly it is today. My wife's company has gone a different route as I think they decided that they could use the rules to provide something better with less beaurocratic hassle.

i just got a letter from my VL holder telling me that my 7 years is almost up. geez. i've been working in d-land that long?
anyhow, does anyone know what i could do with the money? the idea of putting money pre-tax into some savings is a great idea, so i might just keep on doing this, but i'm just interested in my options. and i probably would want to change cause i hardly own any shares of the pre-approved fund.

@ eurovol, you seem to know most about this.

Elfen,
as your 7 year savings period ends, you now have to speak to your bank about what to do with the money.

That scheme will be ended and cannot be carried on.
The money is yours to either move into a different savings plan (hence my comment about speaking to your bank), or to take and spend or whatever.

Your bank which is currently holding this money will give you the relevant forms to take to your employer so that you can then start a new scheme - if you wish.

MT

If you save for X years the bank will often have part of the deal to lend you X Euro for the purposes of building, buying or renovating a property at a special lower rate of interest.

When I joined the LBS/Sparkasse scheme the brochure specificly mentioned that money thus borrowed could be used in the EU (plus Austrian and Switzerland). When I bought my house in the UK I went to the bank to borrow the money and they refused on the grounds that:

"England isn't in the EU"

"England isn't really in EU"

"The new EU consumer laws mean you can't use the house as guarantee and we couldn't claim the money off you"

"We never lend money for property abroad"

Despite the fact that I have banked my salary with them for 15 odd years they refused even to give me a normal bank loan for EUR 10K to buy a new bathroom and carpets etc "becasue the house isn't in Germany."

Still have my salary there but I've moved all other stuff away from the Müllerstrasse Stadtcrapper.

So go for one where you can save money but be wry of promises they make for the future.

Thank Christ I'd always kept a £100 with the Midland in Britain all those years, they gave me a mortgage.

does this mean i can start up another V though and continue to save pretax money?

re: the "old" VL money. i'm thinking of just putting it my sparplan fund . there i have more control over which fund i am investing into.

Elfen,
Yes, you may start another, but it is a new contract which runs for 7 years.

You may only have one of these running at any one time and each has a duration of 7 years.

The money from the first one may be moved into another savings account or just used, whatever you wish.

MT

http://focus.msn.de/finanzen/versicherung/...n_aid_7797.html

I'm sure if you were such a good customer then an unsecured loan might be a possibillity, but may be more expensive. Clearly, if they want security, then property in a country where they can't realise the security if you default is not good business. Many larger banks have agents or partner banks who can secure property in their name, so are able to offer such foreign loans...

i just called Union Investment and they'll be transfering the money as soon as I send them a letter with my new bank details. the exchange rate is so good at the moment, i might just use that money to pay off some of my student loans. or i'll get a new tooth.

Does anyone know for sure the maximum amount that you are personally able to put into such an account?

And does anyone know how much interest such an account pays?

Since 1.1.1999 the following rules apply to a VL savings plan:
...You can save 400 euros a year in an equity funds or in your company´s shares (assuming they have them!)and if your gross income (for singles) is not more than 20,960 euros p.a. (married) not more than 25,599 euros you are entitled to a state top-up of 72 euros p.a. (which is paid out after 7 years).You pay in 6 years and can take the money out at the end of the calendar year (e.g. you start March 2007 and take out the money Dec 31st 2113).Your bank or investment company sends you a form each year, which you attach to your tax declaration. You have to do this every year. The state top-up is paid out at the end of the contract NOT yearly.If you leave the country before then , you don´t get the state extra but all the profits otherwise gained through your savings plan are yours. Remember, however, to fill out, the "Freistellungsauftrag), which wil generally exempt you from tax on the interest, unless you have x-thousands in other savings plans.What you will actually earn depends on the performance of the equity fund you choose, but it must be an equity fund and not a bond fund or an open-end property fund to get you the state top-up. Hope that helps and sorry for the jargon!

Thanks for the explanation.. hardly worth it though if you can only do 400 euros a year..