📖 Approx. 9 min ／ Updated 2026.05.08
M&A of medical institutions is gaining attention as a viable option for business succession. However, its accounting and tax treatment are extremely complex compared to M&A of general businesses, requiring specialized knowledge. In particular, it is necessary to consider a wide range of specialized issues such as the unique organizational structure of medical corporations, the presence or absence of equity stakes, the medical fee system, and the handling of licenses and permits. This article, aimed at directors of medical corporations, clinic presidents, and professionals involved in medical business succession considering medical M&A, provides a detailed explanation of accounting treatment and journal entries by transaction type, as well as specific points to note in the medical industry, from the perspectives of both the transferor and the transferee.
Importance and Specificity of Accounting Treatment in Medical M&A
Accounting treatment in medical M&A not only records transactions but also has broad implications for the tax burden of both the transferor and transferee, future management strategies, and contributions to regional healthcare. Medical corporations are positioned as “non-profit organizations” due to their public interest nature, and are subject to different legal regulations and tax systems than stock companies. In particular, there are “medical corporations with equity stakes” and “medical corporations without equity stakes (including fund-based corporations)”, and the difference between these significantly impacts the selection of the M&A scheme and, consequently, the accounting and tax treatment. For example, in medical corporations with equity stakes, the transfer of equity stakes directly leads to income tax liability for individual shareholders, while in medical corporations without equity stakes or fund-based medical corporations, the process centers around the refund of funds and the change of members. Furthermore, in business transfers, the valuation of individual assets and liabilities such as medical equipment, pharmaceutical inventory, and medical practice rights is important, and the impact of medical fee revisions and facility standard requirement changes on future profitability must also be considered. Understanding these specificities and performing appropriate accounting treatment forms the foundation for successful post-M&A smooth post-merger integration (PMI).
Accounting and Tax Treatment for Equity Stake Transfers
One of the most common schemes in M&A of medical corporations with equity stakes is the transfer of these equity stakes. In this case, the accounting treatment differs significantly between the transferor (individual shareholder) and the transferee (medical corporation, etc.).
Accounting and Tax for the Transferor (Individual Shareholder)
When an individual transfers equity stakes they hold, the capital gains from the transfer are taxed as “capital gains.” This is subject to “separate taxation” under the Income Tax Act, meaning it is not aggregated with other income and is taxed at a flat rate of 20.315% (15.315% income tax + 5% resident tax). This rate is often more favorable than dividend income or salary income (maximum rate 55%) which are subject to comprehensive taxation, and is considered one of the most recommended options for receiving M&A consideration in medical M&A. Note that the transfer of individual equity stakes does not result in journal entries in corporate accounting.
Accounting Treatment for the Transferee (Medical Corporation, etc.)
When the transferee is a medical corporation (or another corporation), the acquired equity stakes are recorded on the balance sheet as “investment and other assets.” The specific journal entry is as follows:
| Debit | Credit |
|---|---|
| Investment Securities (or Medical Corporation Equity) | Cash and Deposits |
| 100,000,000 | 100,000,000 |
In this case, the acquisition cost may include not only the consideration for the equity stakes themselves but also incidental expenses such as brokerage fees. Furthermore, in medical corporations without equity stakes or fund-based medical corporations, the concept of equity stake transfer does not exist, and different processes such as member changes and fund refunds apply, leading to significantly different accounting treatments.
Accounting and Tax Treatment for Business Transfers
A business transfer is a scheme where the entire business of a medical institution, or a specific department or division, is transferred as individual assets and liabilities. This is often used for the succession of medical corporations without equity stakes or when only a part of the business is spun off.
Accounting and Tax for the Transferor (Transferring Medical Corporation)
In the transferring medical corporation, the difference between the book value of the transferred assets and the transfer consideration is recorded as “business transfer gain” or “business transfer loss” on the income statement and is subject to corporate tax. Assets subject to transfer include medical equipment, pharmaceutical inventory, real estate (buildings), leasehold rights, and intangible assets such as “goodwill” (business rights).
| Debit | Credit |
|---|---|
| Cash and Deposits | Medical Equipment and Fixtures |
| 80,000,000 | 30,000,000 |
| Pharmaceutical Inventory | |
| 5,000,000 | |
| Business Transfer Gain | |
| 45,000,000 |
In this case, brokerage fees and legal fees paid by the medical corporation can also be included as deductible expenses. If the transferring medical corporation is dissolved after the business transfer, accounting treatment related to its liquidation procedures will also be necessary.
Accounting Treatment for the Transferee (Transferee Medical Corporation)
The transferee medical corporation records the acquired individual assets and liabilities at their fair market value. If the transfer consideration exceeds the fair market value of the net assets acquired, the difference is recorded as “goodwill” (sometimes referred to as “asset adjustment account” in accounting). Goodwill is an intangible asset representing the ability to generate future profits and is generally amortized on a straight-line basis over five years for medical corporation tax purposes, allowing it to be included as a deductible expense.
| Debit | Credit |
|---|---|
| Medical Equipment and Fixtures | Cash and Deposits |
| 35,000,000 | 80,000,000 |
| Pharmaceutical Inventory | |
| 5,000,000 | |
| Asset Adjustment Account (Goodwill) | |
| 40,000,000 |
In a business transfer, the transferee often needs to obtain new licenses and permits, and confirmation of administrative procedures, especially for clinic establishment permits and designation as an insured medical institution, is essential. Re-acquiring facility standards and responding to existing medical fee revisions are also important issues.
Accounting and Tax Treatment for Mergers
A merger is an M&A scheme that integrates multiple medical corporations into a single entity. Mergers of medical corporations require approval from the prefectural governor, and their suitability for regional healthcare plans may also be subject to review. There are two types of mergers: “qualified mergers” and “non-qualified mergers,” each with significantly different accounting and tax treatments.
Accounting and Tax for Qualified Mergers
A qualified merger refers to a merger that meets certain requirements (e.g., continuation of a wholly-owned relationship, prospect of business continuation). In a qualified merger, the assets and liabilities of the merged corporation are carried over at their book value on the books of the merging corporation. Therefore, no business transfer gain or loss is recognized, and corporate tax is deferred. This is a preferential measure under the corporate reorganization tax system, allowing business integration to proceed while suppressing tax burdens.
Accounting and Tax for Non-Qualified Mergers
Mergers that do not meet the requirements for qualified mergers are considered non-qualified mergers. In this case, the assets and liabilities of the merged corporation are carried over to the books of the merging corporation at their fair market value. This results in the realization of unrealized gains on assets for the merged corporation, generating business transfer gains or losses that are subject to corporate tax. While the transferee acquires assets at fair market value, potentially allowing for new depreciation expenses, the tax burden on the transferor tends to be higher.
Mergers involve the comprehensive succession of businesses, eliminating the need for individual asset transfer procedures. However, there are also many challenges in PMI, such as the post-merger organizational structure, executive composition, changes in members, and integration of medical fee billing systems, requiring meticulous planning and execution by experts.
Valuation and Amortization of “Goodwill” in M&A
In medical M&A, the valuation of “goodwill” is an extremely important factor in determining the transfer consideration. Goodwill refers to the value of intangible assets not recorded on the balance sheet, such as the brand power, patient base, excellent physicians and staff, location, unique treatment know-how, and future profitability of the acquired medical institution. In accounting, it is recognized as the difference when the acquisition price exceeds the fair market value of the net assets of the acquired company.
The “EBITDA multiple method” is commonly used to value goodwill. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is an indicator of the inherent profitability of a business, and the value of goodwill is calculated by multiplying this by a multiple that reflects industry practices and the characteristics of the specific case. Generally, the EBITDA multiple in the medical industry is around 2 to 5 times, but in highly profitable sectors such as cosmetic medicine and specialized clinics, multiples exceeding 8 times are sometimes seen. However, it is important to note that this multiple varies depending on various factors such as market conditions, the characteristics of the medical institution, and future prospects, and it serves only as a guideline, differing significantly in individual cases.
| Element | Content |
|---|---|
| EBITDA | Earnings Before Depreciation and Amortization (Operating Income + Depreciation and Amortization) |
| Multiple | Typically 2-5 times (up to 8 times for cosmetic procedures, varies by case) |
| Goodwill | EBITDA x Multiple |
For the transferee, recorded goodwill is generally amortized on a straight-line basis over five years and can be included as a deductible expense. This leads to tax savings after M&A and is an important factor in investment recovery planning. However, in the medical industry, changes in external factors such as medical fee revisions and the impact of regional healthcare plans can affect the value of goodwill, and periodic impairment tests may be required.
Consumption Tax and Other Considerations in Medical M&A
In medical M&A, the treatment of consumption tax varies significantly depending on the transaction type. Additionally, there are specific considerations for the closing of accounts and post-business succession post-merger integration (PMI) for both the transferor and transferee.
Consumption Tax Treatment
- Equity Stake Transfer: This is considered a transfer of securities and is therefore exempt from consumption tax.
- Business Transfer: This involves the transfer of individual assets and liabilities, so taxation depends on the type of asset transferred. For example, tangible fixed assets such as medical equipment and buildings are subject to tax, while land and medical practice rights (goodwill) are non-taxable transactions. It is necessary to appropriately segment the transfer consideration and accurately calculate the consumption tax amount.
- Merger: As this is a comprehensive succession, consumption tax is generally not applicable.
Closing of Accounts and Tax for the Transferor
In the case of a business transfer, the transferring medical corporation records business transfer gains, which are subject to corporate tax. Furthermore, if the current director receives retirement benefits, they are taxed as retirement income with a 1/2 deduction and retirement income allowance, with the tax burden tending to decrease with longer years of service. Transaction fees such as M&A brokerage fees and legal fees can also be included as deductible expenses. If assets subject to consumption tax are transferred, the obligation to pay consumption tax also arises.
Post-Business Succession Post-Merger Integration (PMI)
M&A is not completed upon contract signing; post-merger integration (PMI) is the key to success. Especially for medical institutions, a wide range of specialized issues arise, including human resources and labor (treatment of physicians and nurses, maintaining motivation of medical personnel), information systems (electronic medical records, billing systems), compliance with facility standards, and maintenance/re-acquisition of licenses and permits. Maintaining and developing the healthcare delivery system in line with regional healthcare plans is also an important perspective. To overcome these challenges and continue to provide stable medical services, it is essential to develop a PMI plan before the M&A execution and implement it steadily in cooperation with experts.
Due to their complexity, accounting and tax treatment in medical M&A require specialized knowledge. Consulting with M&A experts familiar with the medical industry is the most reliable way to select the optimal scheme for both the transferor and transferee and proceed with appropriate procedures. At M&A Medical, consultants with extensive experience and specialized knowledge in M&A and business succession for medical corporations and clinics will strongly support your M&A. We also offer free consultations, so please feel free to contact us.
For Medical Succession Consultations, Contact M&A Medical
M&A Medical is a specialized M&A and business succession support service for medical institutions. As an M&A support institution certified by the Small and Medium Enterprise Agency, we support the success of transfers of clinics and medical corporations struggling with a lack of successors, as well as strategic acquisitions, on a success-fee basis.
- Initial consultation and preliminary assessment are free
- No upfront fees or monthly charges (success fee only)
- Strict confidentiality (proceeds after signing NDA)
- Support for all 47 prefectures and all medical specialties
Please consult with us early, even in the initial stages of consideration, whether you just want to know the market price, have no successor, or are considering joining a group.