Goodwill for Accounting and Tax Purposes in Japan

Japan has two names for goodwill, i.e., one is "noren" for accounting purposes and the other is "shisan/fusai chosei kanjo" for tax purposes. The table below provides an outline of goodwill treatment for accounting and tax purposes.

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	Goodwill for accounting purposes （Noren）		Goodwill for tax purposes (Shisan/fusai chosei kanjou)
Relevant law	Companies Act		Corporate Tax Law
Definition	Consideration for acquisition – NAMV* for accounting purposes * Net asset market value		Consideration for acquisition – NAMV for tax purposes
Treatment	Positive goodwill	Recognized as such and equally depreciated over up to 20 years for accounting purposes, but non-deductible for tax purposes	Positive goodwill	Deducted for tax purposes through depreciation over 5 years
	Negative goodwill	Recognized as extraordinary profit but not depreciable	Negative goodwill	Reversed and added back to taxable income over 5 years for tax purposes
Requirement for recognition	NA		Recognizable only in the case of non-tax qualified organization

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