📖 Approx. 9 min ／ Updated 2026.05.08
For the chairpersons of medical corporations and directors of clinics, business succession is a significant milestone in life. The way the transfer consideration is structured can lead to variations of tens of millions of yen in income and resident tax burdens. Especially by considering the unique corporate types and tax issues specific to the medical industry, strategically utilizing diverse options such as retirement benefits, capital gains, dividend income, and salary income is key to maximizing the funds remaining in hand. This article explains these income categories, their taxation mechanisms, and specific approaches for optimization, as presented by experts well-versed in medical M&A.
Tax Structure and Importance of Transfer Consideration in Medical Business Succession
Medical business succession is not merely the transfer of operational rights of a medical institution; it also represents the culmination of past efforts for the seller from an economic perspective. The methods of receiving this economic consideration, or transfer consideration, primarily include “capital gains from the transfer of equity interests,” “retirement income as executive retirement benefits,” “dividend income (including deemed dividends),” and “salary income such as consulting fees.” Each of these income types is subject to different taxation methods (separate taxation on declared income, retirement income taxation, comprehensive taxation, etc.), leading to significant differences in tax burdens.
Particularly for medical corporations, the method of receiving transfer consideration and its source fundamentally differ depending on their type (medical corporation with equity interests vs. medical corporation without equity interests). For instance, in a medical corporation with equity interests, the transfer of equity interests can be the primary form of consideration. In contrast, for a medical corporation without equity interests, the refund of funds or executive retirement benefits for the director become the main points of consideration. Furthermore, the treatment of business tax and the scope of application for capital gains tax also vary depending on the corporate structure and the transfer scheme.
In the succession of medical institutions, complex factors beyond taxation, such as the impact of medical fee revisions, maintenance of facility standards, and the transfer of various licenses, are intertwined. These factors ultimately influence the valuation of the medical corporation and the choice of succession scheme, thereby becoming important prerequisites for determining the optimal tax solution. Therefore, a comprehensive perspective is essential.
Basics of Tax Optimization Through Capital Gains
In the case of a medical corporation with equity interests, the consideration received from the transfer of equity interests held by the director or shareholders is generally treated as “capital gains.” These capital gains are subject to “separate taxation on declared income,” meaning they are taxed at specific rates and not aggregated with other income. Typically, this involves an income tax of 15.315% (including special reconstruction income tax) and a resident tax of 5%, totaling 20.315%.
This tax rate of 20.315% is significantly lower than the highest rate for comprehensive taxation (income tax of 45% + resident tax of 10% = 55%), making it a highly advantageous option for minimizing the tax burden on transfer consideration. Therefore, when considering the succession of a medical corporation with equity interests, exploring schemes that allow for receiving consideration as capital gains as much as possible is the first step towards tax optimization.
However, the valuation of equity interests can fluctuate significantly based on the net assets of the medical corporation, past profitability, future business plans, its position within regional medical plans, and the appraisal of individual assets (such as medical equipment and real estate). If the valuation is not appropriate, there is a risk of it being denied by tax authorities, necessitating an objective and careful appraisal by experts. Furthermore, for medical corporations without equity interests, this concept of “capital gains” does not apply as there are no equity interests to transfer. Instead, the refund of funds or retirement benefits become the primary methods of receiving consideration.
Utilization of Retirement Income and its Tax Benefits
Retirement benefits received by the director of a medical corporation upon retirement are taxed as “retirement income.” Due to its nature as compensation for long years of service, retirement income is subject to preferential calculation methods under tax law compared to other types of income. A key feature is the “1/2 taxation” system, where only half of the amount remaining after deducting the retirement income deduction from the gross income is subject to taxation.
Furthermore, a “retirement income deduction” based on years of service is applied. For the first 20 years of service, the deduction is calculated as “400,000 yen × years of service (or 800,000 yen if less than 800,000 yen).” For years exceeding 20, it is calculated as “8,000,000 yen + 700,000 yen × (years of service – 20 years).” For example, for 30 years of service, the retirement income deduction would be 8,000,000 yen + 700,000 yen × 10 years = 15,000,000 yen, allowing for a substantial deduction. This significantly reduces the effective tax rate, leading to an increase in the funds remaining in hand.
However, to be recognized as retirement benefits, there must be a de facto retirement. Additionally, executive retirement benefits have a statutory limit for deductibility as expenses (typically based on a merit multiplier method), and excessive payments may not be recognized as deductible expenses. There are also other points to consider, such as retirement income received in the same year being aggregated for taxation. To maximize the utilization of retirement income while avoiding tax risks and meeting these requirements, collaboration with experts familiar with medical M&A and taxation is indispensable.
Points to Note and Avoidance Measures for Dividend and Salary Income
In medical business succession, receiving transfer consideration as dividend income or salary income generally leads to a heavier tax burden, requiring careful consideration.
“Dividend income” is subject to comprehensive taxation and is aggregated with other income for tax purposes. With the highest income tax rate at 45% and resident tax at 10%, a combined rate of up to 55% may apply. This is particularly relevant in cases where the portion exceeding the initial contribution amount upon the refund of funds in a medical corporation without equity interests is taxed as a “deemed dividend,” or when the portion exceeding the contribution amount during the distribution of residual assets upon the dissolution or liquidation of a medical corporation with equity interests is considered a “deemed dividend.” In such situations, there is a risk of an unexpectedly high tax burden, making prior tax simulations and countermeasures crucial.
Furthermore, if the selling director remains with the medical corporation as a consultant after the succession, their “consulting fees” will be subject to comprehensive taxation as “salary income.” Here too, a tax rate of up to 55% may apply depending on the income amount. While post-succession management support and knowledge transfer are important, if consulting fees are positioned as part of the transfer consideration, it is necessary to recognize the tax disadvantage and set the amount and duration appropriately.
Consideration must also be given to the business tax for medical corporations. While medical corporations are generally non-profit organizations that do not engage in profit-making activities, business tax may be imposed if they conduct specific businesses, such as providing private-pay services or generating revenue outside of medical practice. To manage these income categories appropriately and avoid unnecessary tax burdens, it is essential to consider the proportion these incomes represent within the overall succession scheme and make strategic decisions, such as converting them to other income types if necessary.
Comprehensive Consideration of Medical Corporation Types and Succession Scheme Selection
Tax optimization in medical business succession varies significantly depending on the type of medical corporation. The approaches to tax issues differ because the sources of transfer consideration are distinct between “medical corporations with equity interests” and “medical corporations without equity interests,” which can be broadly categorized.
- For Medical Corporations with Equity Interests:
As mentioned earlier, the transfer of equity interests is central. In this case, since it is subject to separate taxation on declared income as capital gains, it offers significant tax advantages. However, the valuation of equity interests is complex and requires a comprehensive assessment of the medical corporation’s net assets, unrealized gains, past profitability, and future prospects. It is also necessary to consider that the progress of regional medical plans and trends in medical fee revisions may affect the future profitability and valuation of the medical corporation. - For Medical Corporations Without Equity Interests:
Since there are no equity interests, capital gains from the transfer of equity interests do not arise. The primary method of receiving consideration is the refund of “funds” contributed at the time of establishment. While the refund of funds is generally tax-exempt within the scope of the contributed amount, there is a risk that amounts exceeding the contributed amount will be subject to comprehensive taxation as “deemed dividends.” Additionally, executive retirement benefits and consulting fees often constitute the main forms of consideration, requiring a balanced income structure that understands the tax treatment of each.
For both types, the transfer of medical institution licenses and the maintenance of facility standards are prerequisites for business continuity, and their smooth execution significantly impacts the success of the succession scheme. Furthermore, during the preparation period for business succession, strategies to reduce future tax burdens may exist, such as considering organizational restructuring of the medical corporation (e.g., transitioning to a medical corporation without equity interests). However, this requires time, cost, and specialized knowledge. Since it varies by case, meticulous planning tailored to individual circumstances is essential.
Importance of Simulation and Composite Income Design
Tax optimization in medical business succession is often most effectively achieved not by relying on a single income type, but by combining multiple income types through “composite income design.” For example, in the succession of a medical corporation with equity interests, combining “capital gains” from the transfer of equity interests with “retirement income” upon the director’s retirement can significantly reduce the tax burden.
Let’s consider a specific simulation. Suppose the total transfer consideration is 150 million yen, and the years of service are 30. The estimated tax amount if the entire amount were treated as capital gains would be approximately 30.47 million yen (20.315%). If the entire amount were treated as retirement benefits, the estimated tax amount would be approximately 28 million yen (1/2 taxation after applying a 15 million yen retirement income deduction). However, if, for instance, 80 million yen were treated as capital gains and 70 million yen as retirement benefits, the estimated tax amount could be reduced to around 22 million yen, indicating a tendency for a significantly larger net amount remaining.
Of course, the actual tax amount will vary greatly depending on individual circumstances such as spousal deductions, dependent deductions, other income deductions, as well as the net assets of the medical corporation, the valuation of equity interests, and years of service.
Furthermore, post-succession income design is also important. Optimization is required considering the overall income after retirement, including investment income from how the transfer consideration is managed, rental income from real estate if the clinic building is personally owned, and public pensions. This is particularly relevant when selling a privately owned clinic, where the consideration is often subject to comprehensive taxation as business income or capital gains, potentially incurring a tax rate of up to 55%. In such cases, selling after incorporating into a medical corporation beforehand may be more tax-advantageous, making long-term planning essential.
To construct the optimal tax scheme tailored to individual circumstances, considering these complex factors, the expertise of specialists in medical M&A and taxation is indispensable. Incorrect decisions can lead to irreversible increases in tax burdens, therefore, careful consideration and consultation with experts are strongly recommended.
For Tax Optimization in Medical Business Succession, Contact M&A Medical
Optimizing income and resident taxes in medical business succession is a complex process involving numerous factors, including the type of medical corporation, the presence or absence of equity interests, years of service, and the composition of transfer consideration. Incorrect choices can significantly impact the funds remaining in hand. At M&A Medical, we deeply understand the tax and legal issues unique to the medical industry and propose optimal tax schemes tailored to the circumstances of directors and clinic presidents. We offer free consultations to address your questions and concerns, supporting the realization of smooth and advantageous business succession. Please feel free to contact us.
Consultations on Medical Succession with 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 for clinics and medical corporations struggling with a lack of successors, as well as strategic acquisitions, on a success-fee basis.
- Initial consultation and preliminary appraisal are free
- No retainer or monthly fees (success fee only)
- Strict confidentiality (proceeds under NDA)
- Services available nationwide across all 47 prefectures and all medical specialties
Please consult with us early, even in the initial stages of consideration, whether you simply want to know the market value, have no successor, or are considering joining a group.